China Payments Research

For many years, the China payments market was an oligopoly with state-owned UnionPay dominating the cards segment while Alipay and Tenpay together held about 90% of mobile payments. These three companies are still far bigger than any of their competitors, but Beijing has in recent years gradually begun improving market access for foreign firms amid a challenging economic environment. It is against this backdrop that PayPal has been steadily ratcheting up its presence in China, most recently with the launch of a service – PayPal Complete Payments – that allows Chinese merchants to accept foreign credit cards and mobile payments.

Ant Group, under its Ant International arm, has been on a sustained international expansion campaign that increasingly encompasses Europe. While the company’s core cross-border payments business still targets Asia, it also sees opportunity further afield. On July 1, Ant announced that MultiSafePay, an Amsterdam-based payment service provider, had become its wholly-owned subsidiary and will integrate with the Chinese company’s Antom platform.

China’s fintech crackdown has been going on in some form or another since 2017. First, the cryptocurrency industry was hobbled. Then peer-to-peer (P2P) lending was reined in and effectively eliminated. The third act in this play has been the forced restructuring of China’s fintech giants, who have been accused of monopolistic practices – which is not untrue – but whose greater offense has been getting a little too large for their own good. Thus far, Alipay has fared much worse than Tencent’s fintech business, but one wonders if the omnipresence of the WeChat app might be a growing risk for the Shenzhen-based company. According to a recent Nikkei Asia report, it already is. 

China’s cashless evolution is a remarkable story, as the country transitioned in less than two decades from a cash-first society to one with an 86% mobile payments penetration rate. The comprehensive ecosystems of Alipay and WeChat Pay have made payments in China among the most convenient and frictionless in the world with one important caveat: One must be within the domestic Chinese payments ecosystems, with a Chinese bank account that can be tied to the payment apps.

Those who do not follow China’s payments sector closely may not have heard of LianLian Digitech, a Hangzhou-based fintech firm that presides over an ascendant cross-border payments network and counts among its strategic partners American Express. LianLian has leaned hard into market segments not dominated by the traditional Chinese payments duopoly of Alipay and Tenpay, whether by partnering with a global card giant like Amex on renminbi clearing in China’s domestic market or by capitalizing on a growing appetite among China’s e-commerce sector to do business overseas.

Alipay is continuing its cross-border expansion with new partnerships, including one with Mastercard focused on remittances. The company is at the same time steadily developing the Alipay+ platform and has its eye on expanding to Indonesia, Southeast Asia’s largest economy and one of the most important in Asia Pacific for fintech. While the various expansion efforts may not seem interconnected at first blush, there is a common theme: Alipay can no longer count on China’s domestic market for high margins and fast growth.

Ant International’s global expansion efforts have grown increasingly strategic since the launch of its Alipay+ and its pivot to boosting interoperability among e-wallets in Asia. While it is difficult to measure the financial success of these efforts, the growth of Ant’s international payments network in the last 18 months has been impressive and the company has smartly pared back its presence in certain markets due to geopolitical pressures. With international travel having recovered to pre-pandemic levels, Alipay+ likely has significant room to grow, especially in neighboring countries.

While regulatory uncertainty continues to hang over its domestic operations, Ant Group is not letting that get in the way of its ambitious global expansion of which the Alipay+ platform is a key part. The number of partnerships/tie-ups between Alipay+ and various entities is growing briskly and increasingly spans the whole of Asia, from Sri Lanka to Korea to the United Arab Emirates as well as Europe the United States.

The fragmentation of e-wallets in Asia poses a challenge for any company trying to build a payments rail that can work smoothly throughout the region. With the exception of China, where a duopoly of Alipay and Tenpay still prevails, most Asian countries have dozens, if not tens of dozens, of digital payment methods. This holds true for the richest countries in the region like Japan and Singapore, as well as developing nations in South and Southeast Asia. For this reason, we are carefully observing the progress of Ant Group’s Alipay+ initiative in the region to see if it can achieve a breakthrough.

Despite high expectations for China's digital currency, adoption of the e-CNY for retail payments in the country remains modest at best. A key issue, and one we have been discussing for several years now, is interoperability with the existing, very effective digital payments ecosystem. The e-CNY is unlikely to be more than a novelty unless it can be fully interoperable with Alipay and WeChat Pay.

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