History

AliPay was developed by Alibaba as the expansion of its ecommerce platforms – Taobao and Tmall. It has been around almost as long as Chinese online shopping, in other words, not too long. Up until the explosive rise of WeChat Pay, it has dominated the online payment landscape in China. Nowadays, almost every Chinese with a smartphone and a bank account is an AliPay user.

Ali Pay is the main payment method on ecommerce sites where it also serves as a type of escrow, keeping the money safe until the transaction has been completed to the satisfaction of both parties.

Usage

AliPay is used for almost all types of online and offline transactions. For offline, it relies on QR code system – paying party either scans merchant account’s QR code with Ali Pay app or the merchant scans QR code generated on buyer’s phone.

Multiple services are already integrated within AliPay app allowing users to pay utility bills, buy airplane or train tickets, book a cab etc. all from within the app.

Supported devices

AliPay supports virtually every type of mobile devices as well as smooth integration with online assets such as an ecommerce website. Many payment plugins already support or in the process of developing support for AliPay.

Transaction fees

One of the most attractive aspects of using AliPay from consumer’s perspective is that there are no transaction fees except on large withdrawals. Currently, the fee is set to modest 0.1% for withdrawals of over RMB 20,000. This way, Ali Pay is attempting to keep as much cash as possible circulating within the system.

On the other side of sale, merchant are charged 0.55% transaction fee. Comparing it with 3-4% fees applied by credit card companies helps explain AliPay’s appeal to all types of vendors.

Acceptance overseas

AliPay can currently handle 18 different currencies and is attempting to widen its reach beyond China’s borders. The biggest obstacle so far has been related to China’s own regulation – Chinese central bank imposes heavy restrictions on all types of cash outflow. Nevertheless, through negotiations and enhancing its verification process, Alibaba is making progress in rolling out its payment service outside of China.

In its early days, AliPay has enjoyed the first mover advantage  and managed to expand internationally before banking restriction came into effect. Some of that progress was scaled down in 2016, particularly in Europe and North America, but South East Asia still remained its stronghold.

Currently, in semi-independent territories, Hong Kong and Macau, the service is already fairly common. In other parts of Asia, especially those accepting large number of Chinese tourists such as Korea, Thailand and Philippines,  Ali Pay is becoming a common sight as well. It is also making a come back to North America in Europe.

<< Overview of Chinese payment systems

>> WeChat Pay

>> Union Pay

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Relying on traditional payment systems such as credit cards or PayPal is simply not going to work in China. In fact, if you are planning to sell anything to Chinese consumers, there are only three viable options.

In the next series of posts, we are going to give an overview of three main Chinese payment systems that dominate the market: AliPay, WeChat Pay and Union Pay. Integrating any of them, or, preferably, all of them to your website will give you an instant access to Chinese customers’ wallets.

AliPay and WeChat Pay together represent over 90% of payment systems market. Union Pay overlaps with the large part of that market by the virtue of being older, semi-official system that is linked to every bank account in China by default. In fact, Union Pay is closest equivalent to plastic in China.

Main Chinese Payment Systems

>> AliPay

>> WeChat Pay

>> Union Pay

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The rapid adoption of digital payment systems continues to transform Chinese economy and society in unprecedented ways. Nowadays, handling cash seems like a thing of the past with nearly everyone in China using one of the two main payment systems: AliPay or WeChat Pay.

When is comes to digital payments, China is, undoubtedly, the technological leader. Once Chinese payment systems have become the primary payment method online, brick-and-mortar stores started to adopt them for offline payments as well.

Today, practically every business in China, big or small, finds it much more convenient to settle bills via AliPay or WeChat Pay compared to traditional cash.

Several factors are responsible for such universal adoption of digital payments in China. The fact that it is backed by ecommerce giants such as Alibaba and the top tech innovator, Tencent, was the most critical component. Also, as it turns out, having digital cash is a much safer way to handle money in China – it is harder to lose, there is no problem with fake bills and there is almost always a recourse to get money back in case of a fraudulent transaction.

Another big reason for wide adoption of digital payments in China is the fact that those platforms integrate seamlessly with a bank accounts using real name authentication. This is another reason why the fraud with those system is rare and much harder for criminals to pull off (although it does happen).

Two if the largest Chinese payment systems are AliPay, backed by Alibaba and WeChat Pay, introduced by WeChat maker Tencent. Although, WeChat Pay was a relative late comer, it quickly catches up with AliPay in terms of market share.

In fact, most Chinese have both AliPay and WeChat Pay wallets and use them interchangeably. Other payment systems platforms have sprung up as well, achieving a fare amount of success, although nothing on the magnitude of AliPay or WeChat Pay.

QQ Wallet is a system used by QQ, an ecosystem of apps and digital products by the same Tencent. Baidu has it’s own system called Baidu Wallet which was launched even earlier then WeChat Pay.

Out of non-Chinese payment systems, only ApplePay has reached some degree of recognition, although it enjoys much less popularity. Since it uses NFC technology, it often cannot be used with more popular Android phones. QR code based Chinese payment systems of AliPay and WeChat Pay are much more flexible as they don’t require any special reading devices besides a simple camera.

AmazonPay, PayPal and others remain relatively unknown and are unlikely to gain any meaningful market share in China. One of the issues with those platforms are high transaction fees when funds are withdrawn back to a bank account. AliPay and WeChat Pay don’t charge anything for the amounts that most people use them for (some fees start to kick off when a certain transaction limit is reached).

Here is the chart put together by Statista showing the market share of various Chinese payment systems:

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5 unique Taobao app features that drive its mobile sales

Picture search function

Imagine you are in a store looking at a really nice watch that would be just perfect for you. Unfortunately, you can’t be sure that you are getting the best deal on the price. That’s when Taobao app picture search comes really handy. All you have to do is snap a photo directly from within the app, or load previously taken image, and within seconds Taobao app displays the matches from its vast database.

This powerful functionality enables users to instantly compare online prices while browsing for goods in a physical store or, practically, anywhere they come across something they would like buy. In most cases, Taobao prices will also be lower which, in effect, threatens to turn some traditional retailers with brick and mortar stores into nothing more than showrooms.

Package tracking system

All online marketplaces have some type of shipment tracking system but only Taobao app takes it all the way to the new level. As soon as a seller ships the product you have just bought, it will be tracked at every point along its journey regardless of what delivery service was used.

Tracking packages is being updated within minutes which makes it really easy to figure out where it is and when it will be delivered. Finally, when it arrives, Taobao app will send you a push notification and, in some cases, SMS message as well.

Alipay payment integration

Alipay, Taobao payment system, is the principal technological enabler of the platform and the integral component of Chinese ecommerce landscape. Alipay provides an extremely easy and secure way to pay for purchases both online and offline.

Practically, everyone with a smartphone and a bank account in China has Alipay account which is also widely used to pay for purchases in physical stores, restaurants and even in the government offices. When used within China, Alipay doesn’t charge any fees except for very large transactions. Paying with Alipay is also very secure, convenient and fast. In effect, Alipay acts as a personal bank account in and of its own, complete with monthly statements and spending breakdowns.

Although, some Taobao vendors still accept cash on delivery, it is hard to imagine Taobao achieving such popularity without Alipay being its integral part.

AliWangWang instant chat

Chinese online consumers overwhelmingly expect Taobao vendors being able to answer questions and reply to inquiries within the shortest time possible. Also, the vendors realize that responding to inquiries from potential buyers in real time significantly increases chances of closing the sale. This is why Taobao integrated live chat app called AliWangWang, has become another important component of Taobao platform.

Customers can initiate chat sessions with sellers directly from the mobile app while sellers can use AliWangWang as a stand-alone app running on mobile or computer. It offers an easy way for both parties to communicate and not only serves as an effective pre-sale tool but also goes a long way in building trust.

Push notification remarketing

Almost all mobile apps use push notification in one way or the other. What makes it different in Taobao case is that the push notifications are tailored to each user and are made relevant to them. The way this is done is by taking into account users’ product search history, content of their wish list and past purchases in order to deliver tailor made messages that are most likely to pique their interest.

Also, unlike in the case of other apps, users tend not to disable push notifications from Taobao on their phones because they don’t want to miss messages related to product deliveries or any issues related to their purchases in progress

Mobile app makers are well aware that sending too many push notification can quickly annoy users. This why Taobao typically limits them to no more than once per day.

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In the last few years, Chinese Singles’ Day or Guanggun Jie (光棍节) has become the biggest China shopping festival. This is the day when young people celebrate the fact of being single. The date, November 11th (11/11), is chosen because the number “1” resembles a single individual. This festival has become the largest offline and online shopping day in the world with ecommerce operators like Alibaba and JD (JingDong) reaching new heights every year.

This year was another record settings one. For example, during the festival, Alipay has registered processing 256,000 payment transactions per second, reaching unprecedented number of 1.48 billion transactions in 24 hours. Another remarkable fact is that 90% of purchases were done via mobile app rather then from PC.

The festival has also resonated globally with more participating locations outside of China than ever before. Alizila, the Alibaba news aggregation, listed top 5 Countries/Regions Selling Cross-Border to China by GMV (Gross Merchandise Volume) were:

1. Japan
2. United States
3. Australia
4. Germany
5. Korea

Top 5 Countries/Regions Buying Cross-Border from China by GMV were:

1. Russia
2. Hong Kong
3. United States
4. Taiwan
5. Australia

Here is the infographic on the largest ecommerce platform, Alibaba, that the folks from Alizila have put together:

China shopping festival 11.11.2017 in numbers:

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Chinese online shoppers also grew to trust online payments and the vast majority is quite comfortable using it to pay for purchases on the internet. Alipay, the most popular Chinese online payment system by Alibaba, holds the largest market share. It powers two largest ecommerce platforms, Taobao and Tmall and is extensively used in large number of third party applications and platforms.

Main Chinese Online Payment Systems

As of the end of 2015, Alipay accounted for almost 70% of the entire Chinese online payment market. It is fair to say that almost everyone in China with a cellphone and a bank account has Alipay account which is somewhere around 700 million.

Alipay transaction fees are also much lower than PayPal. In general, cross border transactions are the most expensive but it depends on the type of contract a merchant has with Alipay as well as the volume.

The second largest online payment system is TenPay developed by Tencent. In fact, TenPay also powers WeChat Pay, the payment system used by WeChat users. Thanks to this app’s explosive growth, TenPay was able to increase its market share quite significantly during 2015 to about 20%, primarily on the account of Alipay.

WeChat Pay is now extensively used for many types of transactions. With web payments, customers simply scan the QR Code on their mobile phone with WeChat to make a payment to a website. For mobile users, WeChat Pay is used for payment within WeChat Official Accounts to enable sales from within the app.

Both Alipay and WeChat Pay are increasingly used for offline transactions at traditional stores and restaurants in China and even abroad. A customer simply opens the app in order to allow the merchant to scan their QR code with a special scanner or, often, just another smartphone. As many phones now have fingerprint scanning sensor, placing a finger on it is all it takes to complete a transaction (otherwise, a customer has to type in their secret code on their phone). Alternatively, a customer can scan a merchant’s QR code to send the payment but this way is becoming less common at the traditional point of sale.

Since those type of transactions are free to customers, Alipay and WeChat Pay serve as substitutes for carrying cash or credit cards and offer both security and convenience.

Alipay and TenPay (WeChat Pay) account for almost 90% of current mobile payment with other players, such as Lakala, JD wallet, YeePay, 99Bill and others quite far behind.

As for foreign alternatives, PayPal was not able to get any meaningful user base so far and is unlikely to do so in the future. Apple Pay still barely registers in China mobile payment market, although it is still quite new.

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With over 83% of Chinese regularly accessing internet with mobile devices, it is no surprise that shopping online is quickly becoming one of their most favorite activities. Alibaba, China’s ecommerce giant, has seen this trend developing well in advance and made sure that Alipay, Alibaba’s payment system, will become the payment method of choice for millions of mobile shoppers.

As a result, mobile payments in China are dominated by Alibaba with its Alipay wallet app. Tenpay, the system developed by Tencent, is a distant second with only 8.9% market share vs. Alipay’s 79.9%

As the infographic further illustrates, mobile payments in China are mainly used for online shopping (63.2% of the time) followed by banking with 36.3%. Here is the full infographic:

Mobile Payments in China

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Presently, none of the common Western online payment solutions, particularly PayPal, managed to achieve any significant presence in China. In addition, Chinese skipped credit cards era almost entirely and jumped straight to online cash. This means that credit cards are not nearly as popular as in the West and are rarely used for online transactions, especially for local purchases.

At the moment, approximately half of all online transactions in China are handled by Alipay, which is not surprising considering that Alibaba, the company that owns Alipay, also runs largest online shopping platforms – Taobao and TMall.

In mobile, the fastest growing sector of China’s ecommerce, Alibaba’s dominance is almost absolute, although Tencent is working hard to popularize its own Tenpay system.

Here are some more figures from Go-Globe’s infographic:

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In my earlier post about Alibaba, I’ve covered its e-commerce related ecosystem as well as other areas where it is expanding through diverse acquisitions. This new infographic by Go-Globe, Shanghai based web design company, presents some interesting facts and figures about Alibaba and its overall business scope.

Here are some numbers that I find particularly astonishing:

• 279 million active buyers, or more than 1/5 of the entire China’s population, are active buyers on Alibaba networks, primarily on Taobao and TMall;
• Each of those active buyers makes, on average, 52 annual purchases per year , or one every week;
• Alibaba is processing 12.7 billion online orders annually;
• Alibaba dominates mobile commerce with its 76.2% market share in 2014;
• Alipay, another Alibaba’s property which is the Chinese equivalent of PayPal, accounts for half of all online transactions in China;

Here is the full infographic:

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While offline, cash is still the king, online ecommerce is ruled by giants like Alibaba’s and Tencent.

 Alibaba was the first to introduce its hugely popular Alipay system that today accounts for about 50% of all online transactions. Alipay is the system used for buying products at the most popular online shopping site Taobao as well as Tmall and many others. Vast majority of Chinese online shoppers are intimately familiar with the system and, most importantly, have learned to trust it.

The second most popular online payment system is Tenpay by Tencent. Tenpay was estimated to hold about 20% of the market share but thanks to the popularity of Tencent’s WeChat platform, Tenpay is projected to grow beyond that. Tenpay can be used to pay for the services integrated with WeChat as well as for purchases from Tencent’s online store.

In April this year, search engine giant Baidu has announced its own online payment system called Baidu Wallet. The company said that it will focus on mobile payments and the service will be integrated with other Baidu platforms and its 14 apps. Baidu claims to have 600 million users which should set it off a good start.

Just like Alibaba and Tencent, Baidu has both payment and financing license which will enable it to offer similar types of services. It is expected that alternative investment and e-financing services currently being offered by Baidu’s rivals will be coming up too.

Until Baidu Wallet is fully developed and has gained large user base, from a perspective of an out-of-China based company looking to sell online to the Chinese, there are currently two options for online payment integration: Alipay and Tenpay. Both services allow cross border transactions and provide a code for web developers to integrate the system  into a website. Once integrated, an online visitor will be able to pay for purchases directly with his/her Alipay or Tenpay account in RMB. Once the transactions is completed, the funds will be exchanged at the same day’s rate and wired to merchant’s overseas account (minus the commissions). Alipay currently supports 12 different currencies and also offers a mobile payment option.

In order to apply for either Alipay or Tenpay, the merchant has to provide a copy of a business license from the home country, passport scans of the owners and filled out application form. The application is then verified and processed which takes about 1 month. Once the application is successful, the agreement is signed and the instructions on technical integration are provided.

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