By Holly Reeves
In mainland China, carrying a wallet is a dying tradition. Instead payments are made instantly by waving the magic wand in a modern smartphone. Using industry leader, Alipay, you can do your grocery shopping, order a meal or pay a utility bill with over half a million merchants as easily as raising your hand.
It’s reported that consumers spent Rmb12tn ($1.9tn) in 2015 transactions on Alipay. That $1.9tn compares to the $282bn total transaction volume for PayPal in 2015, and is equivalent to two-thirds of the global total.
Today the payment service from Ant Financial holds the same dominance for smartphone payments as its affiliate, Alibaba, has for online shopping. But will this aggressive march to mobile money domination soon arrive on the shores of southeast Asia?
Using the Alipay service is incredibly easy. Users register for an account and add funds using bank or refill cards’ typically a small amount of less than US$100.
To pay for an item or settle a bill users simply scan a QR code on their phone which deducts the payment from their balance. This is the alternative to near-field communication (NFC) systems, such as ApplePay, where users tap to complete the transaction.
As Li Chao, an analyst from iResearch Consulting Group, explains, “Alipay is now penetrating every aspect of people’s daily life, and we expect to see it being used to access even more government and social public services in future, which will help grow its market share.”
And looking at China’s online payment market, we see Alipay right in the centre, handling 68% of all transactions. However, rather than looking at Alipay as a stand-alone entity, we must recognize Alipay’s role as part of the Alibaba ecosystem.
Most companies in this structure, such as Tmall and Aliyun, are interconnected and centred around Alibaba’s core e-commerce business. Collectively, they are strengthening the capabilities of the entire group and extend Alibaba’s reach into multiple sectors and industries.
In Southeast Asia, by comparison, the payment options for ecommerce are limited. In the Chinese case, Alibaba and WeChat have decreased cash on delivery (COD) orders from more than 70% of total payments in 2008 to less than 21 percent during last year’s Singles’ Day mega sales. But just across the water Southeast Asia’s market is still fragmented and COD remains the dominant payment method for over 80% of total transactions.
Looking to the future
The clever thinking behind the untapped potential of Southeast Asia in the mobile payments market is that it is truly a mobile-first region. Back in 2008 when Alipay launched, most, if not all, of China e-commerce was done via desktop or laptop computing.
By contrast, for many consumers in Southeast Asia the smartphone is the first and only foray into Internet and e-commerce. According to a Google study, in China 8%of users only access the Internet via a smartphone whereas this number is 31% and 21% in Malaysia and Vietnam.
We’ve already seen glimpses of the potential of mobile commerce in SEA as there’s a huge shadow e-commerce market, with transactions happening on Instagram, Facebook and Line. Also, Line has experimented and achieved success with mobile commerce initiatives such as Line Flash Sale and Line Groceries.
But this is more than just market access, Alibaba’s financial affiliate Ant Financial Services Group will make the market work for them. Their payment platform is being used to enable companies to collect more data on transactions, which can help them tailor financial services from wealth management to consumer lending.
In fact, Alipay already offers both loans and investment products such as money-market funds. For example, the data collected from the increasing use of Alipay in government and civil services opens a window for tailor-made loan packages and these offers could be triggered when a couple pays to book a wedding.
However, the next big thing for Alipay seems to be outside China. It recently raised over $4.5 billion from investors and over the next three years will use that capital to work with one million overseas merchants to provide better services for Chinese outbound travelers.
In pushing out to Southeast Asia, Europe and the United States Alipay want to ensure that tourists won’t shift to a new service to access the deals they’re used to, and also come to understand how China’s money is spent overseas. To do this they will ensure brand loyalty by offering merchant information in Chinese.
As such, payments is not the service; just a vital part. And this is where Alipay is ahead of the pack. It knows its overall value is more than its value to its customers; it’s also in the possibilities of the data it gathers.
This same approach could have have huge possibilities for the millions of underbanked citizens of southeast Asia that would benefit from targeted and simple digital finance opportunities such as loans or savings accounts.
To at least keep pace with the developments seen on China, competitors will need to look at solutions that suit local markets; such as language compatibility, integration with online merchants and services that suit a rural population. Alipay may not be leaving southeast Asia in the dust, instead it’s blazing a trail to a cashless future.