The Alipay-Unionpay rivalry reached its peak in 2014, when the Alipay’s QR Code payment method was stopped by China's central bank. UnionPay was seen as the beneficiary of this move as QR code payment was starting to infringe on traditional card business.
When the move took place, China UnionPay's CEO sent out a message over social media stating, “I've often found the ‘way’ collaborating with competition, and to achieve new cooperation through new competition”, hinting that the organization would be open to cooperation. Today, is seems like Alibaba and UnionPay are finally ready to sit at the same table and cooperate.
Forget the past to seize new opportunities
It has been 13 years since Jack Ma, Alibaba's chairman, last talked to UnionPay. In 2003, Ma Yun reached out to UnionPay to potentially start a partnership with the payment network, but was immediately turned down. After the failure, Ma started Alipay, which has now become one of the largest payment methods in China. Fast forward to today, it seems surprising to talk about a UnionPay-Taobao collaboration as Alipay dominates the digital payment market and wins most customers’ hearts for its convenience.
Collaboration would be a big step for both sides, but there are still some who are pessimistic about this. Alipay already dominates the market for third-party payments and is almost a 100-percent fit for systems like Tmall and Taobao. What benefit would UnionPay implementation bring? It is unlikely to bring Taobao many new customers as most users already have an Alipay account.
From the banks’ perspective, a potential collaboration between UnionPay and Taobao makes a lot of sense. Taobao will encourage bank customers to use their bank cards online, generating transaction fees for banks. A less obvious benefit is the data access that will become available, as banks can track where their customers are spending their money. Whereas in Alipay’s case, the money only flows through its network, and the data will only indicate Alipay (China) Network Technology Co. as the benefactor.
This is similar for WeChat Wallet, in which the transaction only shows that the all the money goes to TenPay Technology Co. Ltd. As a result, banks only know that the money went to Alipay or TenPay, and cannot provide a detailed spending report when a cardholder asks for a more comprehensive transaction summary. Thus, Taobao and UnionPay’s collaboration will be more useful and helpful for customers and banks, as the greater access to transaction data can offer a more complete and transparent way of processing transactions.
Despite the advantages of a UnionPay-Taobao tie-up for the commercial banks, Taobao is a very demanding business customer for these banks. For example, peak shopping periods such as the “Double Twelve” and “Double Eleven” online buying festivals require a very strong payment processing system, one that can handle peak volumes and heavy usage as well. Banks will need to make huge efforts to adapt and strengthen their payments systems to cater to such a demanding customer.
Another fact worth noting is that both Alipay and UnionPay are monopolies in their respective domains. A monopoly in a market/industry is generally considered when a company owns more than 50% of the market share. UnionPay is the only clearing organization for bank cards in Mainland China, and Alipay dominates the digital payment market with approximately 70% of the market.
The clearing and settlement area of Alipay’s business is very similar to UnionPay. Presently, both UnionPay and Alipay connect to all banks although Alipay processes its own transactions and does not provide the service to other payment companies. As China’s clearing market opens up, will Alipay apply for clearing license and compete with UnionPay on its own turf?
Regardless of the result, we're looking forward to seeing more details on the potential collaboration as it will have a large impact on future industry development.