Money Matters

How China’s Tech Giants Alibaba And Tencent Want To Shape How The World Pays

(Source: www.forbes.com)

China’s two largest technology companies are locked in a payment war — and it isn’t just about getting more Chinese consumers to use their digital wallet services.

In recent years, Alibaba and Tencent have taken their payment apps abroad for fresh growth, announcing billions of dollars in deals to partner with foreign payment networks, and acquiring stakes in local financial technology startups. Their ultimate goal: Convince shoppers worldwide — starting with Asia and eventually in the U.S. — to use digital wallets under their control for all sorts of purchases, paving the way for them to provide more lucrative offerings such as online loans, insurances and wealth management products.

Such a scenario is already a reality in China. Alipay, developed by e-commerce giant Alibaba’s affiliate Ant Financial, already boasts 520 million users, while Tencent’s TenPay counts 400 million. Both are fast replacing cash and bank cards to become the payment of choice in the world’s most populous country.

More On Forbes: You Don’t Need A Wallet In China, Just Your Smartphone

Users can also obtain loans, buy money-market funds, and invest in a myriad of wealth management products in these two apps, which collectively control more than 90% of China’s $5.5 trillion mobile payment market, according to Beijing-based consultancy iResearch.

Follow the tourists

Now, the companies have started their overseas expansion by following China’s digital savvy shoppers, the root of their success at home. Both chose to first introduce their payment apps in places such as Japan, Thailand and South Korea, “following the natural flow of Chinese tourists,” said Paul Schulte, founder of Hong Kong-based consultancy Schulte Research.

Retailers are embracing the move, hoping Alipay and TenPay will help them become more appealing to Chinese visitors — and their wallets. Chinese tourists’ overseas spending reached a record $261 billion last year, according to the World Tourism Organization.

It worked on Zhu Ke, a 30-year-old product manager at a Beijing-based information technology firm. He spent more than 6,000 yuan ($906) during an October trip to Japan using both Alipay and TenPay to buy cosmetics and rice cookers.

“It didn’t occur to me to use these apps in Japan,” Zhu said in an interview with Forbes. “But when I walked into one store, there were big advertisements for the two apps and local employees were able to direct me. So I started using them right away.”

More than 200,000 retailers across 30 different countries and regions now accept Alipay. TenPay, which just announced a partnership with Amsterdam-based payment company Adyen, is available at 130,000 retailers in 13 different countries.

Getting local consumers on board

By creating a buzz, Alibaba and Tencent hope local consumers jump on board as well. They’re also making inroads by acquiring stakes in local payment groups. In deals that reach hundreds of millions of dollars in value, Ant Financial has become a shareholder of Ascend Money in ThailandPaytm in India and Kakao Pay in South Korea.

More On Forbes: Why Ant Financial’s $200 Million Investment In Kakao Could Disrupt South Korean Fintech

But both companies have the best chance of succeeding in Southeast Asia, where mobile payments can fill the gap left open by traditional banking systems, analysts said.

According to the World Bank, only 30% of adults living in ASEAN have debit cards, and as many as 264 million people are unbanked — meaning they save their money under mattress and borrow from so-called loan sharks that charge ultra-high interest fees. They, in a way similar to China, could instead use e-wallets to park their savings and apply for loans.

But elsewhere in Asia, things aren’t as positive.

In Hong Kong — where both Tencent and Ant Financial recently launched independent payment apps — consumers haven’t warmed up to digital wallets in a big way, with bankcards remaining the preferred method of payment, analysts say.

And in Singapore, local banks and payment platforms are pushing back.

Singapore’s DBS, for example, launched a mobile-only bank last year to deepen its presence in emerging economies. Its chief executive, Piyush Gupta, publicly said Alibaba and Tencent are the biggest competitors, pointing to how the two companies have changed China’s banking landscape as a reminder of the failure to react swiftly.

“Singaporean banks are really fearful of Alibaba,” said Zhi Ying Ng, an analyst at research firm Forrester. “They worry that over time Alibaba will take customers away from them, knowing that how powerful the company is.”

Pushback from the U.S.

It is in the U.S. where the pushback is strongest. With mounting concerns over data security, Ant Financial’s proposed $1.2 billion acquisition of Dallas-based payment company MoneyGram has been stuck in regulatory review for the past year. A multi-agency government panel called the U.S. Committee on Foreign Investment, or CFIUS, is still examining whether the transaction would post national security concerns,  as MoneyGram possesses what some says are potentially sensitive customer and transaction data.

More On Forbes: How China’s Central Bank Is Clamping Down On The Mobile Payment Industry

In a follow-up statement, an Ant Financial spokesperson said the company ” strongly disagrees” with the notion that Moneygram holds potentially sensitive data, referring to a public letter by Moneygram CEO, which said the “vast majority of remittance transfers require only a name, address, and date of birth,” and data collected are secured carefully.

The spokesperson also said the company has no comment on CFIUS review but “remains focused on closing the transaction.” She said “data collected in other countries and regions will stay in where we collect them” and the company “doesn’t share user information with any third party, including the government without prior consent from users.”

Tencent did not respond to repeated requests for comment on where it stores and handles user data.

Warren Hayashi, president of Asia-Pacific at Tencent partner Adyen, said Ayden complies with a security standard called PCI, which is also followed by credit card issuers like Visa and Mastercard, and stores transaction data from TenPay in its data centers in Amsterdam. Tencent has access to its own data but not to other data stored on the platform, according to Hayashi.

“Certain countries are wary [of Alibaba and Tencent], probably because of questions over customer data,” Forrester’s Ng said. “And these questions will keep coming up.”

More Info: www.forbes.com

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