China Payments Research
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.
Alipay+ has an increasingly global vision
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.
Alipay+ doubles down on expansion
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.
Can Alipay and WeChat Pay converge with the e-CNY?
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.
Why Tencent lags Alipay in cross-border payments
In the mid-2010s, the fintech business of Tencent grew exponentially, with WeChat Pay and its offshoots allowing the company to become a viable competitor to Alipay in China. Yet even as Tencent captured close to half of China’s payments market, and established a digital bank, WeBank, that could rival Ant Group’s MYbank, it never displayed the same kind of appetite for global expansion as Jack Ma’s company.
Baby steps for Tencent’s global fintech business
Like its rival Alibaba, Tencent has developed a large portfolio of overseas fintech investments. Some of these are strategic bets on rising Big Tech companies with fintech arms, like Voyager Innovations in the Philippines and Sea Group in Singapore, which Tencent believes will eventually be dominant players. Other investments are more focused on facilitating access to the mainland China market for fintechs that have a niche there, such as Australia-founded but Hong Kong-headquartered Airwallex.
Alipay+ feels like déjà vu all aver again
In the days before China’s tech crackdown humbled the country’s largest platform companies, Ant Group seemed intent on building its own cross-border payments ecosystem in Southeast Asia. The idea, though never explicitly stated, was to build a regional payments rail that could replicate at least some of the success of Alipay’s dominant domestic system.
China’s fintech crackdown has slowed the domestic growth of the country’s biggest platform companies, but they remain committed to international expansion through strategic investments. Tencent has a number of key investments in Southeast Asia, Australia and UK that are worth watching, including its stakes in Sea Group, Voyager Innovations, Airwallex, Afterpay and most recently the UK fintech Previse.
How are AmEx’s prospects in China shaping up?
U.S. credit card firms have waited many years to be granted substantive access to the China market. In the meantime, China’s state-owned payments giant UnionPay has built a card empire in the country, while Alibaba and Tencent have come to dominate digital payments. Among U.S. card companies, American Express is the only one currently permitted to process renminbi transactions, having gained regulatory approval in June 2020.
Ant Group's global expansion is at a crossroads
Not so long ago, Ant Group looked set to build a digital finance empire in Asia. Ant has a foothold, in one form or another, in every major Asian economy. The company has invested in e-wallets across Southeast Asia. It operates fledgling digital banks in Hong Kong and Singapore, the region's two key financial hubs. It is a major backer of India's largest fintech unicorn, Paytm. Ant even has fintech investments in Bangladesh and Pakistan. Yet in retrospect Ant may have overextended itself internationally, confident that its ascent was insuperable even as regulatory problems mounted at home.
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Illegal online gambling proliferates in China's digital economy
China is strict about gambling, only permitting it in the special administrative region of Macau. Elsewhere in the country, gambling is illegal. China's restrictions on gambling cover cyberspace too. Yet that ban is hard to enforce, especially as the pandemic has pushed so much economic activity online. According to a recent Caixin report, some of China's largest internet companies have become party to the illegal online gambling ecosystem. The internet giants may not be privy to the illicit transactions, in some cases because of inadequate due diligence.
Cracks are gradually appearing in the armor of the duopoly Alipay and WeChat Pay have long enjoyed in China online payments. One after another, large Chinese internet companies are expanding their presence in that segment, from e-commerce giants Pinduoduo and JD.com to travel booking site Trip.com. The U.S.'s PayPal and American Express have also entered the market. The additional competition is long overdue and most welcome.
The limits of renminbi internationalization
Internationalization of the yuan began in earnest more than a decade ago, with the goal of eventually establishing it as a global reserve currency. At the time, Chinese policymakers sought a larger role for China's currency on the global stage in line with broader financial reform. Today, Beijing worries about the possibility of a full-blow financial war with the United States. In this case, dependency on the dollar for international payments is a vulnerability that China must address.
While Alipay and WeChat Pay maintain a duopoly over China's mobile payments market, that duopoly does not warrant the antitrust investigation reportedly in the works. To be sure, no competitor has emerged able to pose a credible challenge to the duopoly, but primarily for reasons out of the companies' control. Beijing's market barriers have been key enablers of Alipay and WeChat Pay's ability to dominate mobile payments. Together they control 94% of China's mobile payments market, Alipay 55% and WeChat Pay 39%, according to research firm Analysys.