Title: Going Cashless: How Alipay is Changing the Payment System of China

Alipay is a third party platform for cashless online payments which have gained wide popularity and usage in China. Currently, it has transformed the payment system of China and is impacting the world at a large.

Introduction

Alipay is the third payment platform founded by Yu Ma in 2004, the aim of Alipay is advocates “simple, safe and fast” payment solutions. Alipay from a single payment tool at the beginning became into an openness platform providing multi-functions such as code-scanning payment, life service, financial management and charity. In addition, Alipay has the majority of mainland Chinese users and become the mainstream payment method in Mainland China currently. It nearly replaced the original payment method of cash or credit card.

This research essay seek to analyse Alipay from a multidimensional approach by giving the preview of the business model of the company, the historical overview of  company development and milestone. The analysis of ownership and how it is affecting with the operation of Alipay in China and the world. The transformative impact of Alipay will also be made for it is argued to have changed the payment system of China.

How does Alipay Work

https://www.youtube.com/watch?v=rdpLRdDI1nY

millions of dollars are transferred on the platform everyday, supporting global e-commerce (Alipay, 2017)

The Functions of Alipay

Functions of Alipay are very powerful, it including all aspects of Daily life. It’s bringing a hugely convenience to people’s lives. Nowadays, the use of Alipay is highly popular in mainland China. Alipay’s functions are mainly divided into five categories, including money management, life services, third-party services, charity and overseas services. The strongest and most common function of Alipay is online fund management, which can support multiple fund management after transferring money from Alipay account or binding bank cards. One of the most popular is using Alipay to pay online. Alipay works with a large number of merchants, and when Alipay is tied to a Taobao account, it can be used to make online payments. This was the primary function of Alipay at the beginning. In addition, Alipay has partnered with a number of offline merchants, like Starbucks, so that when customers place an order at Starbucks, they can scan the Alipay QR code for payment.

services and functions provides by Alipay (Leeline Sourcing, 2020)

It is also convenient to pay for life services by Alipay, which has partnered with local water and electricity authorities. In China, almost everything can be paid using Alipay. It has changed the payment system and payment for various form of services can be made using the unique QR code that is present on the application of the individual. This is being secured through the verification of personal identification number of the users in China. This acts as the form of unique ID which can identify and make payments for almost everything. Other functions also includes the “Alipay love”. Alipay pays attention to the poor areas in China, and cooperates with some poverty assistance centers. On the charity page of Alipay, it shows some relief projects, such as medical assistance, financial aid for poor areas, and educational assistance. Alipay users can make regular donations after making voluntary contributions. Canceling at anytime whenever you want. When Alipay users make donations, the donation funds are directly transferred to the poverty Assistance Fund platform. This shows that the function of Alipay are vast and it covers almost every aspect of an individual’s life.

Historical overview of Development

Where In The World Is Alipay? (Pymnts, 2017)

  • 2003: Alipay was mainly used as a secured transaction tool for Taobao
  • 2004: Alipay was separated from Taobao to establish “Zhejiang Alipay Network Technology Company”, which began to operate independently.
  • 2007: Alipay set up branches in Shanghai, Beijing and Shenzhen to expand its range of merchants.
  • 2008: Alipay announced entry into the unlimited Internet market with a new mobile payment function.
  • 2010 to 2015: cooperated with many famous banks in China, including launching innovative financial products and realizing fast payment in cooperation with Bank of China. During this period, Alipay launched a new version 9.0, positioning Alipay as a “life service platform”. The main purpose of the new version is to allow Alipay to enter the ranks of life services, as much as possible to increase the scope of Alipay services.(Wolfe, 2019)
  • 2017: Alipay’s service scope expanded to 36 countries and states expect Mainland China. These include Japan, Germany, Australia, etc. (AGOPMA, 2020)https://www.paymentssource.com/list/alipay-beyond-china-everything-you-need-to-know
  • 2019: the number of annual active users of Alipay’s global joint venture partners exceeded 1.2 billion.(XINHUA, 2019)http://www.china.org.cn/business/2019-10/01/content_75265402.htm

 

 

Analysis of Ownership

“On Monday, Ma named the company’s Chief Executive Officer Daniel Zhang as his successor who would take charge in September next year, while he would continue to be company’s Director.” (PTI, 2018)

 

In 2013, Alipay published the company’s internal equity structure. 40% of Alipay’s shares are held by employees and used to motivate all employees of the company. The main purpose is to attract outstanding talents and performance incentives. Jack Ma’s personal shareholding cannot exceed 7.3%. The remaining 60% is ready to be used to introduce investors.

 

The ownership model of Alipay allows for the retention of talents and also attracting enough finances for the company development. The talent retention program allows the company to stay at the top of the technological company in China and the world. Having talents of the company taking up shares and becoming owner of the company pushed for greater

motivation for workers to provide benefit for the business. This allows employees to take up ownership of the business and delegating responsibilities which is important for the innovation and advancement of a technology business. The 60% of the company shares are for the attraction of investors which is needed for technology-based companies where large amount of money are needed for the research and development.

Ecosystem of Alipay

The Competitors of Alipay includes WeChat Pay, Apple Pay and Google Pay. These are the major companies which also engage in online payment through mobile devices. The service provider includes all the services that the Alipay provide. The Ant Finance provide micro-loan to consumers through Alipay, Taobao provides platform for online purchase which is paid using Alipay as well. Besides these two service providers, Alipay also have partnership with services such as telecommunication companies, electric provider for households, air ticketing and hotels. This is the engagement with different forms of service provider to ensure that Alipay penetrates into every aspect of the individual’s life. Clients of Alipay includes Company and individual whom needs to make payments. Being a multinational and leading tech company, Alipay is being regulated by the laws and regulations of China.

Supporting E-Commerce

Together within the Alibaba Group, Alipay is the payment supporting system for Taobao and TMall (Wang & Lim, 2011). Taobao and TMall are the largest e-commerce platform in China which sells goods and services. Being the support payment system for the largest e-commerce platform in China, the convenient and safe online third party payment system allows for payment to be made on an instant basis (QIng & Xue, 2009). This pushed for the development of e-commerce in China. The annual income of the Alibaba Group from e-commerce platform has increased to 39.9 billion USD in the year of 2018. This shows the high level of income and revenue from e-commerce that is being supported by Alibaba. The third party payment provider Alipay pushed for the development of e-commerce for It makes payment fast and secure (Chen, Tao, Wang & Chen, 2015). This reduced the perceived risk of online purchase for e-transaction risk are being reduced. This allowed for the economic development and growth that is being supported by e-commerce within the nation.

Sales for double 11 reached new height (Lou, 2020)

The Alipay system also changed the retail condition in China where purchase can be made at home through Taobao and TMall which allowed for fast delivery. This is especially helpful during the time of Covid-19 where people are not allowed to leave home due to social distancing. The Taobao and TMall accounted for more than seventy percent of the online sales in china, making it one of the largest e-commerce platform of China.

The successful collaboration between Alipay and the major e-commerce platform also have ripple effect in the surrounding industry development in China (Schneider, 2017). Logistics industry has developed through the growth of e-commerce creating thousands of jobs in China and the world. Alipay in the support for e-commerce by making payment easier and safer allowed for the change in the social and economic environment of China (Ma, 2016).

Changing the Payment System of China

Alipay becoming accessible to foreigners (Low, 2019)

Traditionally, payment is made through cash or cards. However, with the invention of Alipay, cash and cards are being replaced (Maruma, 2013). Alipay works on a mobile application that is bind to the identification card of the individual in China. This makes the payment QR code of the individual or business unique to themselves. Through simple scanning of the QR code, payment can be sent or received. China is going cashless with Alipay which is transformative for the society (Liu, 2015). Alipay is changing the way people make payment as it allowed payment to be made via mobile application. It means that the use of cards and cash are becoming lesser day by day. Furthermore, Alipay is becoming an all-in-one mobile application which allows for the user to use it in almost every aspect of their live which requires payments to be done. This form of cardless and cashless payments has transformed China in terms of both social and economic environment (Choi & Sun, 2016). Under the 21st century globalisation, Alipay seek to provide responsive and secured cashless payment which allowed for payment habits to change.

Conclusion

Alipay has a wide usage in China. With the rise in mobile technology, the coverage and usage of Alipay has been on the rise. This allowed for the increase in usage of Alipay and penetration of cashless payment into every aspect of the live of Chinese. The reach extends to daily spendings, household spendings, loans and even charity. The secure and fast features of Alipay also pushed for the promotion of e-commerce in China. This form of change in payments have been transformative and have changed the landscape of payment in China which have lasting influence on the world today.

 

 

Reference

(AGOPMA, 2020). Alipay Global Open Platform Membership Agreement. Alipay Docs.

https://global.alipay.com/docs/ac/Platform/membership

 

Chen, J., Tao, Y., Wang, H., & Chen, T. (2015). Big data based fraud risk management at Alibaba. The Journal of Finance and Data Science1(1), 1-10.

 

Choi, Y., & Sun, L. (2016). Reuse intention of third-party online payments: A focus on the sustainable factors of Alipay. Sustainability8(2), 147.

 

Lou, C. (2020). China’s Double 11 Shopping Festival Tests Consumption Strength after COVID-19. Retrieved from: https://www.china-briefing.com/news/chinas-double-11-shopping-festival-tests-consumption-strength-after-covid-19/.

 

Low, C. (2019). With WeChat Pay and Alipay now accessible to foreigners, how will this benefit brands?. Retrieved from: https://www.thedrum.com/opinion/2019/11/20/with-wechat-pay-and-alipay-now-accessible-foreigners-how-will-benefit-brands

 

Liu, R. (2015). The role of Alipay in China. Netherlands: Faculty of Science, Radboud University.

 

Maruma, M. (2013). Online payment services in Services in China: How does Alipay differ from PayPal?. Nanjing Marketing Group.

 

Ma, W. (2016). China’s mobile economy: opportunities in the largest and fastest information consumption boom. John Wiley & Sons.

 

Qing, H., & Xue, Z. (2009, September). A model for value-added E-marketplace provisioning: Case study from Alibaba. com. Conference on e-Business, e-Services and e-Society, 65-72.

 

Schneider, F.(2017).The role of Alipay in commerce in China. The Journal of Asian studies.

 

Wang, G., & Lim, Y. T. (2011). Research in China’s Alibaba’s Development. Artificial Intelligence, Management Science and Electronic Commerce (AIMSEC), 2295-2301.

 

Wolfe,D. (2019). Alipay beyond China: Everything you need to know. PaymentsSource.

https://www.paymentssource.com/list/alipay-beyond-china-everything-you-need-to-know

 

(XINHUA,2019). Alipay Report 1.2B users. China News.

http://www.china.org.cn/business/2019-10/01/content_75265402.htm

 

 

 

 

 

Chuhong Cai
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