Alipay’s slide from the top and battle for survival in the ruthless mobile payments market

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In 2014, Alipay had the mobile payment industry at its feet. Tencent’s WeChat Pay changed all that. Alipay was suddenly in a battle for survival.

Editorial

In 2014, Tencent’s WeChat payment entered the mobile payment industry. WeChat payment represented a significant threat to rival Alipay. It had nearly 1 billion users each with a daily use of up to 9 hours. It soon began eating into Alipay’s market share.  However, in Q2 of 2017 Alipay managed to curb the rise of WeChat Pay. It secured its survival by expanding the core services it offers customers.

Alipay lost its dominance

Source: the Information, FM

The success of WeChat payments came from its higher public use and superiority to Alipay. WeChat was able to capitalise on its social aspect as a social messaging platform. It offered a peer to peer component which Alipay did not have. Alipay attempted to respond by adding a “friends” segment. In the friends feature users could communicate via messages. It also introduced a “circles” feature, where users could post photos. Neither reached the level of use and popularity of WeChat. Bosses eventually dropped the functions.

A senior executive of Ant Financial said, “two misconceptions have plagued Alipay in the past two years. One is the ‘pure pay value’, while the other one is ‘high-frequency triumph over low frequency’. These misconceptions derived many improper decisions, for example, the positioning of Koubei, the pursuit of user’s stay time, the neglecting of small and micro business.”

Alibaba launched Koubei in 2015. The platform tried to bring local businesses online and reach more consumers. It was both a marketing solution for smaller businesses and an e-commerce platform. A small shop owner could reach new customers online without a marketing campaign. The platform also allowed Alipay to control the consumer data. By controlling the data, Alipay could extract consumer behaviour. The platform became a valuable marketing tool for businesses.

Alipay also found a challenge from its competitor in this arena. Tencent had Meituan-Dianping. They ran similar services and only offered WeChat Pay as a payment option. A battle ensued for control over payments and the consumer data held within.

Both companies unveiled generous subsidy programs. These programs were to entice merchants into using their payment systems. WeChat announced its intention to give merchants US$14.5 million of subsidies in 2016. Several months later, Alipay promised US$150 million over a three-year period.

Alipay’s US$1.25 billion investment into Ele.me in 2016 may have saved the company. Ele.me is a Chinese food delivery startup, in direct competition to Koubei. Koubei had a strong online presence. Ele.me had better operations and logistical support. Together, the two platforms could expand the customer base and improve logistical support. This investment in 2016 began to turn the tide of the war.

Alipay eventually curbed the rise of WeChat Pay

At the end of 2016, Alipay managed to curb the rise of WeChat Pay. In the first two quarters of 2017, it even managed to increase its share of the e-payment market. Alipay’s coverage of large merchants was good. To cement its survival and stop WeChat Pay’s advance it needed to expand to small and micro businesses.

In January 2017, Alipay established a mobile payment division. Its primary target was to promote small and micro businesses. It also focused on expanding existing business coverage.

In February 2017, Alipay also expanded its use of QR code stickers to extend its customer base. To use these “pay as you go codes” users no longer needed to have an Alipay account. It could now reach previously untapped consumers. Consumers only needed a bank account and mobile phone. Small businesses could now charge customers through Alipay using just QR codes. This allowed Alipay to make strong inroads into micro businesses that had been out of reach.

Alipay also created an entire financial ecosystem. Ant Financial added additional financial services onto the Alipay platform. It added a money marketing fund, a credit system, and a cloud computing arm. It became a platform for customers to access all their financial services in one place. This helped ensure Alipay’s continued survival. It had evolved into more than just a digital payment service.

Taking Alipay into the future

Moving forward, both Tencent and Alipay are investing and acquiring international start-ups. The intention is to expand the financial services they can offer. Alipay has space for expansion in 2018. It can offer additional value-added services for smaller businesses. Micro businesses have been excluded from accessing many financial services in the past. Their income was too small. Alipay can now offer these micro businesses financial products.

Ant Financial and Tencent have already begun absorbing Southeast Asian fintech startups. In 2017, Ant merged with Lazada’s HelloPay Group. It purchased a US$1 billion controlling stake in the company. It also secured stakes in Indonesian payments company Paytm and Filipino company Mynt.

Tencent and WeChat Pay have adopted the same strategy. The mobile payment giant made a US$1.4 billion investment into Flipkart. It also embarked on a joint venture into Thai e-book provider, Ookbee.

The battle to expand the e-commerce services on offer has begun. Who can gobble up the most Asian startups to get the competitive edge in 2018? Alipay has secured its survival. Now it can focus on winning the war.