Alipay: The platform behind the Chinese E-Commerce

Alipay is a leading third-party mobile payment platform in China, which initiated the era of mobile payment in China and contributed to the formation of a cashless society. Its emergence has promoted the prosperity and development of China’s e-commerce, changed the lifestyle of every Chinese, and changed the pattern of China’s Internet.

What is Alipay?

Alipay is an independent third-party payment platform in China and a leader in the mobile payment field. It is an affiliate of Alibaba Group was founded by the former CEO of Alibaba Group in 2004 and. Alipay is committed to providing “simple, safe, and fast” online payment solutions for E-commerce in China (Lu, 2018).

Figure1: What is Alipay? Source: Youtube

The History of Alipay

In 2003, In order to solve the credit problem of shopping on Taobao, Alibaba launched the “guaranteed transaction” mode and made Alipay as a department act as the fund flow tool of Taobao. Only after the buyer is satisfied with the purchased product, the payment of the product will be paid to the seller, reducing the transaction risk of online shopping (Zhang et al., 2018).

Figure 2: Image of Taobao. Source: Wikipedia (2020) 

With the development of the e-commerce industry, the user group of Alipay grows rapidly. As a result, Alibaba’s management in December 2004 split Alipay from Taobao, developing it from Taobao’s secured transaction platform into an independent payment platform. Since 2005, with the gradual rise of online consumption, Alipay has reached strategic cooperation agreements with Industrial and Commercial Bank of China, Agricultural Bank of China and VISA to deepen cooperation in the field of payment. Subsequently, Alipay established cooperation with external markets such as airline tickets and online games to further expand Alipay’s usage scenarios. By 2007, Alipay’s annual turnover had reached 46.7 billion yuan, accounting for 47.6 percent of the overall mobile payment market. In 2009, Alipay continued to expand the application industry, partnering with China’s three major online travel partners. In 2011, Alipay launched barcode payment to enter the offline payment market. Consumers and merchants conduct transactions through payment bar codes without bank cards, and use remote payment to simulate near-field payment, so as to promote the development of offline payment network. Later, the use of Alipay began to integrate into the life of every Chinese. China is fast becoming a cashless society, and Alipay has been called one of the four great inventions of the new era.

Alipay’s Revolutionary Business Model

Zott and Amit (2011) point out that business model is designed to use business opportunities to create value, thus transaction content, transaction structure and transaction governance. Alipay is actually just a virtual electronic currency trading platform, and the transfer of funds from accounts through corresponding Banks. In other words, the transfer of Alipay funds is carried out through users’ Alipay accounts and bank accounts. Commercial Banks provide the basic services for Alipay, which is more like a payment application mounted on commercial Banks. Pay treasure to users money in cooperation with commercial Banks as margin trading, industrial and commercial bank of the money for “managed services”, check the Alipay in Banks customer whether the deposit balance to the user in Alipay funds balance and to achieve balance between to be processed.

 

At present, Alipay is divided into two types: personal services and merchant services. In terms of revenue, Alipay adopts the mode of free for individual users and charging merchants. Payment products can be divided into interface products and clearing products. Interface products refer to the integration of Alipay interface into merchant websites, mainly including ordinary website interface and platform interface (Kow et a., 2017). Clearing products do not need Alipay interface. They are used for fund flow between payment accounts and self-established funds flow between Alipay and Banks, mainly including large-amount payment and batch payment products. Industry solutions are personalized solutions for the needs of industries such as air travel, logistics, B2C, insurance, overseas, online games, wireless and public donation. For example, Alipay provides a delivery management platform for small and medium-sized B2C businesses. The merchant sends the delivery request of payment for goods on behalf of payment to the designated logistics company through the platform, and at the same time obtains the payment for goods and freight and other funds collected on behalf of payment for goods and freight, and finally obtains the delivery receipt. According to Third-party Payment Research Report, industry solution of profit sharing model is relatively complex and is quite different in different industries, different business cooperation model, using different charging mode and standard. It deducts the corresponding cost as well as marketing and business together and form the final profit. Alipay establishes a third-party service platform for merchants, which mainly includes Internet basic service providers such as website construction software/system, domain name/space/host, website management tools, and provides basic services similar to “water and electricity” for e-commerce websites. In addition, with the expansion of user scale, Alipay also obtains certain income from the display link ads on the personal landing page and merchants’ marketing promotion activities in Alipay.

Figure 3: Screenshot of Alipay created by Jianglong Ye

Alipay’s Internet Ecology

The internal ecology of an enterprise mainly refers to the resource organization on the supply side (Abe et al., 2012). Therefore, capable enterprises are committed to building themselves into an ecological enterprise, which is an inevitable choice after the development of single business to a certain extent. Alibaba takes Alipay as a trading platform for small and medium-sized enterprises and has a large number of adherent users. It conducts traffic introduction and business portfolio by investing in Other businesses such as Sina, Autonite, Best Logistics, Tianhong Fund, etc. The collection, mining and utilization of big data are the common features of the entire Ali ecosystem (Guo, J. and Bouwman, 2016).

 

At present, China’s third-party payment market is highly concentrated, with UnionPay commerce, Alipay and WeChat occupying most of the market share. According to statistics, Alipay took an absolute position in China’s third-party Internet payment transaction scale market in 2019, with a market share of 35%, followed by UnionPay commerce and WeChat, with 18.2% and 13.5% respectively (Feng, 2017).

Below is a diagram of Alipay’s internet ecology:

 

Picture showing Alipay’s internet ecology created by Jianglong Ye
Figure 4: Picture showing Alipay’s internet ecology created by Jianglong Ye

Alipay – Transformative Innovation in the Field of Internet

First of all, Alipay has influenced the e-commerce pattern in China. In China, a society with a poor credit system and frequent offline shopping scams, Taobao encountered great resistance when it entered e-commerce in 2003. In particular, in terms of technology, Alipay applied a big data risk control system to ensure the integrity of users’ transactions by monitoring fund flows, abnormal sales data, abnormal comments, abnormal registration and other actions. This is also the first time for a Chinese Internet company to establish a payment risk control system (Liu, 2015).

 

Moreover, Alipay has also influenced the offline business pattern in China. Merchants with access to mobile payment are also the biggest beneficiaries. On the one hand, through access to the standardized payment technology provided by Alipay, they have a complete set of solutions from ordering food to paying, which has greatly reduced staff cost and increased revenue. In addition, Through the data of users’ consumption behavior and online shopping behavior, Alipay applied big data analysis technology to achieve accurate user portraits, and provides relevant marketing tools for merchants to obtain more repurchase rates (Mu  and Lee, 2017).

Figure 5:China is beyond Cashless Source: Youtube

In particular, Alipay has also influenced the construction of China’s social credit system. As mentioned above, China has always been a credit-deficient society with a lack of credit reference system. After years of development, Alipay has obtained massive online transaction data and offline transaction and behavior data of users, and established the user credit system of “Sesame Credit” through risk control technology. On the one hand, based on the established credit system, In addition to offering loans, Alipay also provides “enjoy before pay” services such as hotel deposit free, bike-sharing deposit free, ride payment free and so on, so that users can avoid the burden of deposit and capital recovery. On the other hand, Alipay also shares its credit system with third parties, such as second-hand transactions and home stay facilities, enabling the development of the whole industry.

 

Finally, Alipay has influenced not only China, but also the development of mobile payment in the third world. Alipay’s presence in multiple countries not only makes it more convenient for Chinese tourists to go abroad, but also leverages the international market and brings the development of fintech to more countries. For example, Paytm, the Indian version of Alipay, connects to Alipay’s output of mature risk control technology and serves 250 million users in India (Joshi et al., 2019).

Summary

When it comes to the impact Alipay has brought to China and the world, it is obvious that the biggest value of Alipay’s existence is not its achievement in the e-commerce industry. More importantly, Through its influence in the fintech industry, Alipay has exerted a more profound influence on China’s policies, economy and various aspects of society, benefiting Chinese institutions, merchants and users comprehensively, and finally even affecting the third world countries.

 

Reference

Abe, J.M., Bassett, D.A. and Dempsey, P.E., 2012. Business Ecology. Routledge.

 

Feng, L., 2017. Brand choice of Chinese consumers to adopt digital payment platform in Thailand focusing on Alipay, WeChat Pay, and Union Pay (Doctoral dissertation, Bangkok University).

 

Guo, J. and Bouwman, H., 2016. An ecosystem view on third party mobile payment providers: a case study of Alipay wallet. info.

 

Joshi, T., Gupta, S.S. and Rangaswamy, N., 2019, May. Digital Wallets ‘Turning a Corner’for Financial Inclusion: A study of Everyday PayTM Practices in India. In International Conference on Social Implications of Computers in Developing Countries (pp. 280-293). Springer, Cham.

 

Kow, Y.M., Gui, X. and Cheng, W., 2017, September. Special digital monies: The design of alipay and wechat wallet for mobile payment practices in china. In IFIP Conference on Human-Computer Interaction (pp. 136-155). Springer, Cham.

 

Liu, R., 2015. The role of Alipay in China. Nijmegen, Radboud University, Nijmegen, The Netherlands, retrieved from: www. ru. nl/publish/pages/769526/z01_rongbing_liu. pdf.

 

Lu, L., 2018. Decoding Alipay: mobile payments, a cashless society and regulatory challenges. Butterworths Journal of International Banking and Financial Law, pp.40-43.

 

Mu, H.L. and Lee, Y.C., 2017. Examining the influencing factors of third-party mobile payment adoption: a comparative study of Alipay and WeChat Pay. The Journal of Information Systems26(4), pp.247-284.

 

Zhang, Z., Chen, C., Zhou, J. and Li, X., 2018, May. An industrial-scale system for heterogeneous information card ranking in alipay. In International Conference on Database Systems for Advanced Applications (pp. 713-724). Springer, Cham.

 

Zott, C., Amit, R. and Massa, L., 2011. The business model: recent developments and future research. Journal of management37(4), pp.1019-1042.

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About Jianglong Ye 4 Articles
Student in USYD Major in digital culture & Management