A customer uses Alipay to pay for his shopping in Hong Kong in September 2016. (Photo/Xinhua)
Online payments service should not try to take on Tencent, WeChat
In traditional Chinese culture, one undergoes a 12-year cycle to reach his or her zodiac year of birth. In order to appease the God of Age, people are advised to pay special attention to avoid misfortune in their life every 12 years.
Perhaps, 12 years into business, Alipay, the nation's－or perhaps the world's－largest online payment system should also try to propitiate the God of Age, as even with 450 million users, the digital wallet provider had a bumpy year in 2016.
Two cases signify its unremitted push into the social network arena. The introduction of "Circles", a new social feature that allowed women to share photos and messages has sparked huge controversy, as many regarded it as an avenue for pimping. Alipay had it removed in less than a week.
Also for three years in a row, it encouraged users to send virtual "red packets" containing money－a long-held tradition that symbolizes fortune and luck-during the Spring Festival via the app. Responses were lackluster.
All these efforts are aimed at taking on arch-rival WeChat, the ubiquitous social app run by another internet behemoth Tencent Holdings Ltd. A relatively late comer to the wireless payments segment, the five-year-old WeChat banks on its huge user base of 846 million to deploy its payments business, and the effects are profound.
According to Counterpoint Market Research Group, Alipay accounted for more than 80 percent of China's third-party payment in 2015, but its market slice will have dropped to just above 50 in 2017. WeChat Pay, in contrast, is aggressively eating up into the market share, claiming about a quarter by the end of this year.
Plowing into social networks was once a response Alipay made to fend off competition. Now it has officially decided to drop out of the race.
According to the vice-head of Alipay, Ni Xingjun, the firm is shaping up to be a pure in internet finance player that offers a one-stop portal for all types of payment solutions.
Ni said: "It takes some time for us to figure out that social networking is not necessarily the way out. We want people to associate our brand with nothing but the best internet finance operator."
Launched in 2004 as an online payments and escrow service, Alipay addressed the payment dilemmas encountered by Alibaba's online marketplace, Taobao.
At the turn of the 21st century, China had no entrenched credit card culture. Smaller online businesses with relatively low sales volumes were unable or unwilling to accept credit card payments due to high transaction fees, and it was too costly to build their own e-commerce checkout systems with sufficient fraud protection.
So Alipay's early mission was to create an encrypted digital wallet that stored and safeguarded bank cards and enabled customers to make payments via their accounts. Besides, the money would not reach the sellers until customers have confirmed they have received the goods.
Today, it has evolved into a lifestyle choice under a wider variety of scenarios. Apart from paying back credit cards, Alipay built up steam by integrating its payment functions into public service platforms. With a few taps on the app, its 450 million users can pay utility bills, settle traffic ticket fines and make medical appointments.
In 2014, Alibaba established a financial affiliate Ant Financial to consolidate its financial service activities under one roof. As the conductor of the orchestra, Alipay can connect users to Yu'eBao, the first internet-based money market fund. The fund allows Alipay users to earn high-yield returns on their idle cash with interest rate higher than those offered by banks and with much more convenience.
Alipay also evaluates customers' purchasing and spending habits in order to derive a figure that shows how credit-worthy someone is. Consumption patterns reflected via Alipay are translated into the so-called "Sesame Credit" scores, which entitle people to certain benefits, from deposit-free services on bike-rentals to skipping long lines at the hospital.
Backed by good social credit records, people can even make purchases with borrowed money. Some 2.3 billion transactions on Alipay were made with the sister loan service Ant Check Later, up by 344 percent year-on-year.
Tencent's success in combining social networks with payment solutions did give Alipay a hard time, Ni stated. But they have finally come to the realization that the real strength lies in providing innovative financial solutions.
Ni said: "From scanning QR codes to accessing bank loans, we see ourselves in the driver's seat in payment and financial services."
This realization came at a time when Alipay was undergoinga structural revamp. The company adopted a collective leadership mechanism, in which a handful of senior executives from different professional backgrounds, including law, technology, business operations and public relations, aimed to make major decisions on a consensus.
Ni said the collective decision-making model unexpectedly enhanced efficiency and would circumvent controversial decisions like the rollout of the "Circles".
For instance, the leadership team decided to add budgets to subsidize red packet campaigns during this year's Spring Festival in one afternoon.
Li Chao, senior analyst at iResearch Consulting Group, applauded Alipay's decision to focus on financial solutions.
He said: "This is a smart move. Alipay should no longer put its energy into social media and copy Tencent. If WeChat is dominating people's social lives, try to make Alipay the top choice when people make big-ticket purchases."
But James Yan, director of consultancy Counterpoint, said Alipay would never step back from the social networking front.
He said: "What's for sure is that Alipay would not simply emulate WeChat's user interface. But when people make transactions via Alipay, there is still huge untapped potential to make that personal connection count."
