Heavily contested industry
Alipay has seen tremendous success with its mobile solution in the past by offering an elegant, well-marketed and streamlined solution for smartphone users, proving itself as the most popular 3rd party payment provider. They have entered the mobile payments industry with their wallet solution in January of 2013; during a time when the mobile payments industry was at a very early stage. By the end of 2013 there were close to 100 million Alipay wallet users and less than a year later boast almost double the amount of users. Not having fully matured yet, the mobile payments sector is now a heavy contested industry with many participants fighting for market share.
A significant determinant of Alipay’s future success will lie in their capability to integrate proximity payments in their service offering and they so far have fought a tough battle to enter into this space.
Alipay overcoming obstacles
Until recently Alipay has pushed QR codes as a means for their customers to pay at physical stores. For users it was more convenient, because they didn’t have to open an app and for businesses it was cheaper, because no commissions were paid to China Unionpay. This technology hit the market by storm, precisely because it seemed like a win-win situation; yet it hit hurdles in early 2014 as QR codes were banned as they were deemed “unsafe”. Whether this was actually the case or just a ploy to protect China Unionpay who knows. The ban on QR codes can certainly be interpreted this way, considering the recent rhetoric of regulator’s concerning 3rd party payment providers. The only winners out of this ban have been China Unionpay and the banks that it is affiliated with. QR codes will most likely not be the driving force for Alipay’s success in proximity payments and so it will need to look to other possibilities to offer its users a swipe-and-pay solution.
Alipay did not give up and has worked on some other interesting proximity technologies with limited success. The sound wave technology was introduced in April 2014 to be used in vending machines at specified Beijing metro stations with the intention to be expanded to convenience and department stores. Introduced in January to transmit digital data from smartphone-to-smartphone, it has, at time of writing, not shown any willingness to expand to other channels.
NFC to gain mass market adoption
The most likely proximity payment solution that will see wide adoption in the Chinese market is NFC. Alipay has also had a shot at this technology. In June 2014, it partnered with OPPO to allow its smartphone users to pay for transit rides in over 35 cities using NFC. The plan is to partner with further NFC capable phones and add 25 more cities the network by the end of this year. No news so far on their expansion strategy.
China Unionpay, the state-controlled and only banking card industry association, has streamlined this technology with its own branded POS terminals at retail markets and currently dominates the NFC ecosystem. Any party wanting to use its NFC network must adhere to its standards and at every swipe a commission is paid to the interbank network operator. This is exactly what Alipay wants to avoid. Continuing to remain independent from China Unionpay’s network will take considerable persuasion power to lure smartphone manufacturers into Alipay’s NFC network. For now they have 3 smartphones from OPPO for transit payments; further expansion of their partnership base remains to be seen.
One of the biggest challenges, perhaps the biggest challenge, will be to get Alipay on the regulators’ good side. Being disruptive in nature, Alipay does not play well with the established financial institutions that have close relationships with the government. The PBoC has, as of now, shown to play into the hands of commercial banks and China Unionpay. Although there are now 190 million Alipay wallet users to brag about, they will need to engage seriously with proximity payment solutions or consider adhering to China Unionpay’s demands for future growth. It seems that NFC is poised to take off and Alipay needs to be part of that.