January 15, 2015
It seems that the Alibaba Group is not only a major concern for competitors in the retail sector but in the banking sector as well. The president of China UnionPay recently sent a letter to employees, which is now widely publicized in China. The letter warns of threat from the e-commerce giant, especially its payments arm Alipay. Payment being an important market for UnionPay, the company is concerned about Alibaba moving into offline payments as well. As cited in the letter, a loss in market share can lead to loss of trillions of Yuan.
The transaction volume processed by Chinese online payment companies grew by 143.8% to $1.66 trillion last year. This not only includes Alipay but other competitors as well such as Tenpay. This growth rate is 3 times faster than that of banking card transactions. UnionPay is currently the only network authorized to handle yuan-denominated card transactions in China. Under pressure from WTO and foreign competitors, China’s government is now willing to take applications from companies such as MasterCard and Visa. This means more competition for UnionPay.
Alipay is aggressively its mobile payment service Alipay Wallet which currently has 190 million active users. Daily transactions on Alipay Wallet topped 45 million in October last year. Alipay is gaining popularity among merchants as it undercuts the transaction fee retailers pay for accepting cards. Alipay charges a transaction fee of 0.6% while UnionPay charges 1%. Alipay is the prime payment gateway on Alibaba which itself accounts for 80% of e-retail purchases in China. Alipay now has 600 million users in China often using to pay for utility and other bills.
To counter threats from Alibaba, UnionPay intends to provide additional services to banks and merchants. As cited in the letter, the company could eventually build a cross-bank credit card membership to help banks save costs and allow cardholders to avail discounts. UnionPay may also build a platform to bring online traffic to brick-and-mortar merchants who can’t sell on e-commerce platform. As part of new initiatives, UnionPay has already launched a shopping portal that can connect to e-commerce sites around the world and accepts payments via China UnionPay debit and credit cards.