(Chinese Version)

Editor’s Note:

Alibaba Group is definitely eying on Indian market this year. Previously, while many Chinese smart phone manufacturers were competing to penetrate Indian market, Alibaba Group also followed up and invested about $700 million in Indian mobile phone maker Micromax, so that Alibaba would pick up a 25% stake of the company.

Recently, it is reported that Alibaba has confirmed that it would invest over $600 million so as to increase its stake in Indian online retailer Paytm to 40%. What’s Alibaba’s incentive? This is exactly what this article attempts to answer. 

Last night, I was informed that Alibaba, which first bought into Paytm last February and picked up a 25% stake in the Indian firm's owner One97 Communications, was going to invest over $600 million to pick up a 20% additional stake. The Alibaba Group will end up as the biggest shareholder of the company, and own overall 40% of the company’s stake.

It is well known that as Paypal will list on the Nasdaq Stock Market on July 20th this year, Alipay is going to face increasing competition from abroad. Domestically, Alipay is also challenged by other mobile wallet service providers, such as WeChat Payment and Ping An Pay.

In this article, I will try to summarize the challenges Alibaba is facing, and help you figure out the reasons why Indian market is so important to Alipay.

The difference between Alipay and Paypal

Although Alipay and Paypal share a lot in common in terms of their major business, their difference is also quite obvious:

1. Different product designs

While Paypal started as an online bank and later evolved into a “virtual credit card”, Alipay was first developed as a payment security tool but at present it is more like a “virtual debit card”.

Alipay did attempt to provide virtual credit card service, but was soon stopped by China Central Bank. Alipay’s new services, such as CreditLoan, are also far from real “virtual credit services”.

2. Different scopes of service

While Paypal supports payment in major currencies around the world (RMB not included), Alipay only supports payment in RMB.

3. Different revenue models

While Paypal profits mainly by charging its user procedure fees, Alipay’s services are all free, since Alibaba Group concentrates more on collecting big consumption data and evaluate users’ credit through Alipay.

4. Different protection policy

While Paypal does everything it can to protect consumers’ right and shop owners will not receive the payment if consumers are unsatisfied with the quality of their products, Alipay seems to protect shop owners’ right more and ensure that shop owners will get their money.

Alipay caters well to Chinese users, but a lot need to be done for Alibaba before conquering overseas market.

Competition in overseas and domestic market

In this section, I would like to summarize the major challenges Alipay is facing both in overseas and domestic market.

1. Alipay is at a disadvantage in the competition with Paypal

Alipay lags far behind Paypal in terms of international payment service.

Whereas Paypal is US-based and supports payment by various kinds of currencies, Alipay is China-based, and finds it hard to penetrate overseas market, since RMB is still not internationalized yet.

Moreover, whereas users in developed countries are familiar with buy-first-pay-later services, and these governments also support such service, credit card services are still not well accepted by Chinese users yet, let alone virtual credit card service.

2. Alipay is also facing increasing challenges in domestic market

In China, Alipay is undoubtedly the number one mobile payment tool. However, as online finance booms, nobody dares to lose this market. Thus, a large number of mobile payment tools were developed, even by companies from traditional industries. In the near future, we are sure to see increasing challenges from these micro e-payment tools. Although Alipay is the number one, nobody can really tell if it could survive after a thousand cuts by its rivals.

However, Alipay might even be defeated by other giants’ similar services. Whereas WeChat Payment garnered 8 million users during last Spring Festival through its “WeChat Red Envelop” service. Alipay wins 8 million users after a decade’s effort. At the same time, Ping An Insurance Group is promoting its own e-payment tool, Ping An Pay. Wanda Group is also working on O2O models and invested heavily in 99Bill.com.

Other rivals include Xiaomi Wallet, Baidu Wallet, etc. For sure, Alipay will have to do a lot to maintain its dominance.

Major problems Alipay needs to tackle

Alipay is not only facing increasing challenges in overseas and domestic market, but also fraught with problems within. In this section, I would like to divide Alipay’s own problems into four aspects:

1. Alipay’s development has hit the bottleneck

Today, Alipay has already garnered over 50% of the e-payment market share, and it is quite difficult to garner more shares, since Alipay has to share the market with a large number of micro mobile payment tools. Unless Chinese users’ mobile payment frequency is increased, which can never be achieved in a short period, Alipay can’t garner more users at the moment.

2. Limited using scope

Although Alibaba is promoting Alipay in various scenarios, such as supermarket and taxi, on the whole, however, Alipay is still limited to Alibaba’s own apps and platforms.

3. Currency controls

The biggest obstacle Alipay is facing is the currency control in China. If such control isn’t loosened, Alipay can never support payment by other currencies except for RMB, and can never penetrate overseas market.

4. RMB isn’t internationalized yet

If RMB is internationalized, Alipay will also be able to enter overseas mobile payment, and compete with Paypal without breaking China’s currency control laws. However, nobody knows when RMB will finally be internationalized.

Possible solutions

After analyzing the challenges Alipay is facing both outside and within, I would like to offer two possible solutions for Alipay to overcome the existing challenges.

1. Getting into direct competition with Paypal

Recently, rumor has it that Alipay is going to follow Paypal and also list on Nasdaq.

If so, Alipay will get into directly competition with Paypal. I can expect three possible effects that listing on Nastaq would bring.

 (1) Promoting Alipay to the international stock market.

 (2) Showcasing Alibaba’s determination to penetrate overseas mobile payment market

 (3) Show the world that Alipay is determined and ambitious and has the ability to achieve great things

My guess is that the rumor is right and Alipay will indeed get listed.

2. Competing with Paypal indirectly

Alipay’s decision to invest in Paytm is identical to Xiaomi’s strategy when it was also hitting a bottleneck: entering a new market. Although Alipay chooses to invest in an Indian company instead of setting up a new company by itself, Alipay’s signal is crystal clear: it dares to compete with Paypal.

 [The article is published and edited with authorization from the author @Qiuyuanjuner, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at ECHO), working for TMTpost.