September 26, 2013
Internet retail sales in China are booming and are expected to reach $395 billion in 2015, according to estimates by McKinsey, a figure three times the total in 2011. China’s internet giants, Alibaba Holding Group Ltd., and Tencent Holdings Ltd., will be the biggest players.
Alibaba Holding Group Ltd., is a network of e-commerce B2B businesses constituting an online marketplace, shopping search engine, retail and payment platforms and more. It is led by Chairman Jack Ma, whose net worth is $3.6 billion as compiled by In the same way that PayPal serves Amazon and eBay, Alipay serves Alibaba. It is theonline payment services provider founded by the Alibaba group in 2004 that allows individuals and businesses to make secure payments online. Alipay has collaborated with VISA and some leading Chinese banks including Bank of China, China Construction Bank, Agricultural Bank of China, the Industrial and Commercial Bank of China.
Alipay provides solutions for Taobao and Alibaba.com along with more than 500,000 external merchants for virtual gaming, online retail, digital communications, air ticketing, commercial services and utilities fee payment transactions.
Available payment options include both immediate bookings, such as for hotel rooms and flights, and escrow services, where Alipay pays the seller when a product is shippedThe buyer can choose between escrow and immediate payment.
Foreign companies must pay a $1,000 setup fee and are charged a 2.5-3% transaction fee depending on their annual volume. The set-up fee is waived for Chinese companies; transaction fees range from 0 .7 to 1.2% of annual sales with a $5,000 minimum.
According to a China Post report, Alipay had 800 million registered accounts by the end of April 2013 making it the largest in the world. PayPal claims 132 million registered users across 193 countries.
Tencent Holdings, founded in 1998 by Chairman and CEO Pony Ma, provides Internet, mobile, and telecommunication value-added services in Chinaand is Alipay’s main competitor in the payments industry.
Tencent’s QQ instant messaging service had 818 million monthly active users by June 2013, according to Bloomberg.
Tenpay users can send and receive payments, withdraw money from bank accounts, charge mobile, deposit money on game accounts and buy airline tickets. Tenpay has more than 80 financial institutions and more than 300 access points. According to L’Atelier, the company has partnered with more than 1.1 million merchants spanning 20 industries including travel business, insurance, online shopping, logistics, clothing and education.
Tenpay offers two payments options:
Alipay accounted for 48.3% business of the online payment market, while Tenpay occupied another 20.1%, according to iResearch Global Inc.’s statistics for the first quarter of 2013.
The competition for customers is driving innovation. Instant messaging is the most popular online application, with more than 84% of China’s internet users, according to a report by Bloomberg. To compete against Tencent’s WeChat, Alibaba released Laiwang, an application that allows users to form group chats with 500 users and share videos, stickers, and maps.A new feature includes an automatic message eliminating function called burn after reading, and private picture albums and a screen lock function are also in development. Laiwang has about 1 million users. The difference between the two systems is w.r.t. payments integration. WeChat has enabled payments through their app for users (read our article on WeChat) while Laiwang has left their app as purely a social platform.
LTP View: According to the China Internet Network Information Center, the number of people accessing the Internet through their mobile phones rose to 464 million by June 2013, a 10% increase over the previous 6 months. This growth is good news for payment systems such as Alipay and Tenpay. With a larger subscriber base of 800 million and greater revenue, Alipay may be leading the way in the Chinese payments industry. However, Tenpay’s innovation and introduction of payments in its WeChat system are making gains in the payment market.