Disclosure: Dannie Li is a writer at China Tech Insights, an arm under Tencent.
China is going cashless. According to reports from Forrester and iResearch, Chinese consumers spent a total of US$5.5 trillion via mobile payment platforms last year (about 50 times more than their American counterparts at around US$112 billion).
The credit for the country’s multi-trillion dollar mobile payment market goes to China’s third-party QR code-scanning mobile payment platforms like WeChat Pay, WeChat’s payment solution, and Alipay by the Alibaba finance affiliate Ant Financial. According to the 2017 China Mobile Payment Usage Report, the number of transactions made from 2013 to 2016 through non-banking mobile apps increased from 3.7 billion to more than 97 billion, with a compound annual growth rate of over 195 percent.
With both companies engaged in a stalemate in their home country, they’ve set their sights on expanding overseas. We did some research on Alipay—more specifically its parent company Ant Financial—sorting out the steps of its foray into foreign markets to look into the reasons why China’s mobile payment giants are aggressively venturing out. We also explored the main strategies these companies have taken to build their position outside of China.
First, let’s take a look at Ant Financial’s business overseas in the past few years.
Ant Financial’s investments and partnerships overseas
From the chart above, we can see that Ant Financial has expanded its presence in more than 26 countries and regions across America, Europe, and Asia. It has six branches in America, Singapore, South Korea, Britain, Luxembourg, and Australia and has made Alipay’s services available to more than 120,000 offline merchants overseas. This includes restaurants, convenience stores, supermarkets, duty-free shops, and others as of last August. It now supports 18 different offshore currencies settlements.
Key finding 1: Ant Financial is expediting its pace overseas in 2017
As mobile penetration plateaus, China’s tech companies are now in a transitional period, facing a saturated growth rate, especially in gaining new users on such a large scale as before. Before the dawn of the next technological revolution, tech giants including Alibaba, Tencent, Huawei, Xiaomi, Oppo, and others have all turned their sights on overseas markets. They’re turning to countries where the mobile internet has yet to boom and where their craving for a surge of users can be satisfied.
Innovations like the QR code and red packet methods in the mobile payment sector have proved their applicability to customers, achieving success in China. These innovations, combined with a well-honed offline operations experience in establishing connections with merchants and educating the market, has become the blueprint for the likes of Alipay in replicating their success to places outside of China. Alipay’s frequent overseas moves are part of Ant Financial’s globalization plan in the financial sector, which is linked to Alibaba’s ecommerce-centered global infrastructure rollouts.
But Alipay is losing ground domestically. Research from iResearch shows that its market shares by transaction value have dropped from near 80 percent in mid-2014 to just above 50 percent as of Q1 2017. According to China’s joint venture investment bank, China International Capital Corporation Limited (CICC), Alipay saw a compound growth rate of 118.6 percent from 2014 to 2016, compared with WeChat Pay’s 326.9 percent. Industry analysts attribute this to its competitor’s success in offline marketing among brick-and-mortar stores and the online social gene, which has played a big role in solidifying an advantage.
Lastly, Alipay is also taking aim at the 120 million Chinese who travel abroad annually in tandem with China’s growing middle-class population. According to a report by the United Nations World Tourism Organization, China witnessed an international tourist spending increase by 12 percent (totaling US$261 billion) in April 2016. Japan, South Korea, Thailand, the US, and some European countries are the most frequented destinations by Chinese tourists. This is why Alipay is choosing to make inroads into these countries. They are after China’s outbound travelers, who have a relatively high spending power and are used to making payments by scanning QR codes.
Key finding 2: Ant Financial eyes Asia, Europe, and the US while tapping markets with different strategies
From the above, we know that the overseas Chinese-speaking crowd (including Chinese outbound travelers and Chinese studying or living abroad) are Ant Financial’s initial targets overseas. That explains why Alibaba has been inking partnerships all around the world with offline merchants, airports, receivers, credit card companies, and networks to enable Alipay in various offline payment scenarios, covering shopping, catering, taxi-hailing, and other offline services.
Taking a closer look at its overseas rollout patterns, we can notice obvious strategies between roughly two kinds of markets. The first market, which includes Japan, Europe, and the US, features mature financial infrastructure, digital payment regulations and laws, and user habits (either dominated by credit card or cash). For instance, a payment license is at least required by local governments for foreign fintech companies to tap into local payment markets. These are all poised to be constraints for Alipay to launch and market its services there.
The second market, which includes Southeast Asia and India, on the contrary, features a huge underbanked population with a quick adoption of smartphones. These countries are said to resemble the China of five to 10 years ago, as they are populous countries that skipped past the credit card era to jump directly into the mobile payment age. This serves as a window for Chinese fintech companies to directly bring their QR code-based success to those countries. Both Alipay and WeChat Pay are taking the subsidy and discounts marketing method to these markets in order to quickly educate the locals on their products.
To be specific, Alipay either inks strategic partnerships, buys stakes, makes mergers, or forms joint ventures to co-launch its financial services in local markets. Apart from injecting capital, the company also provides support in the form of IT infrastructure and other related expertise to help refine the products and make localizations accordingly.
This is similar to what it did with its alliance with Indian firm Paytm. In early 2015, Ant Financial made its first investment in Paytm and a second in September the same year. With Ant Financial’s technical support, a team of at least 20 people was sent to Paytm’s headquarters in New Delhi to help rebuild the payment technology platform and risk control system of the firm. As a result, Paytm has seen its users skyrocket from 30 to 220 million as of April, surpassing Paypal to become the third largest digital wallet in the globe.
Besides India, Ant Financial has debuted in Thailand, South Korea, the Philippines, and Indonesia (with Malaysia in the works), following the same pattern of exporting their technology, expertise, and experience to the local market to build localized mobile payment solutions for residents.
WeChat Pay is also taking larger strides overseas, battling with Alipay in expanding its global presence. In March, it revealed its plan to launch an office in the UK and other European countries in order to take a step closer in serving European brands. It also unveiled deals and partnerships that will enable millions of both online and offline businesses to accept the service. As of now, WeChat Pay is available in more than 13 overseas countries and regions.
For both platforms, the ultimate purposes of venturing out is gaining new users overseas and building their brand globally. However, there are still hard fights ahead, with challenges in persuading local residents to adopt new payment habits and with dominant traditional financial giants squaring off for the fight.
This article was first published on China Tech Insights.