Alipay：the accelerator which has revolutionised digital payment methods in Asia.
The advancement of the Internet economy accelerates the continuous prosperity of the mobile payment market. Mobile payment occupies users’ payment scenarios with efficient and convenient features and is gradually becoming a vital force to promote economic expansion. The rise of Alipay and WeChat Pay, the two main digital payment platforms, have completely changed Asia’s digital payment methods. Especially Alipay, compared to the late rival WeChat Pay, Alipay always dominates China’s mobile payment. In this article, I will focus on Alipay and its use in China. Critical analysis of Alipay and its transformative influence on mobile payment is the main thrust of this essay.
This essay will be divided into multiple sections to analyse Alipay based on network technology in detail. The first part is an overview of Alipay’s main business and development history. The business model and ecosystem, which is the focus of this article, will be introduced in detail in the second part. The third part of this article focuses on Alipay’s current regulatory risks and countermeasures. Finally, the significance of Alipay’s transformative impact will be discussed.
What is Alipay？
Alipay is the world’s leading third-party payment platform, committed to providing “simple, safe, and fast” payment solutions ( Chaney，2017). As one of the first apps to apply QR code technology to payment methods, Alipay does play a key role in promoting and popularizing digital payments. Alipay has become a widely used fast payment method now, which has tremendously impacted people’s lives. Alipay mainly provides payment and wealth management services, including payment, cash withdrawal, collection, transfer, secured transactions, credit card repayment, mobile phone recharge, life payment, wealth management products, and other fields. It provides services for multiple retail department stores, movie theatres, supermarkets, and taxis after entering mobile payment. According to Rogers（2018）, until the second quarter of 2014, Alipay had become the world’s largest mobile payment manufacturer. In January 2020, Alipay announced that the number of global users had exceeded 1 billion, and the number of global users has maintained a 20% growth within six months (Klein,2020). Besides, Alipay’s business scope has expanded from China to Asia even worldwide. According to the latest Ali official information, Alipay is currently available in more than 200 countries and regions including the United States, Britain, France, and Russia（Shi Yinglun,2019）. Hence，Alipay marks the development and progress of the Internet era and digital payment, opening a new curtain for the development of e-commerce.
“What is Alipay？”video from https://www.youtube.com/watch?v=rdpLRdDI1nY
The history of Alipay
In 2003, Alibaba founded Alipay to address the credit problem of shopping on Taobao. The launched escrow model allows buyers to release payments to sellers only after confirming that they are satisfied with the purchased products, reducing online shopping’s transaction risk. Alipay is based on Taobao’s online shopping needs and acts as a tool for Taobao’s capital flow at this time. In December 2004, Alipay was split from Taobao into an independent website and operated independently through Zhejiang Alipay Network Technology firm, announcing that Alipay has developed from a third-party guarantee platform to an independent payment platform (China Telecom, 2011). Third-party payment is an intermediate platform between the buyer and the buyer in the transaction process. Under the bank’s supervision, the independent institutions of both parties to the transaction are guaranteed (Huang，2014). Third parties need to independence, convenience, and reputation guarantees and sign contracts with numerous banks to provide transaction payment platform services. Alipay has established strategic partnerships with more than 180 banks, including VISA, MasterCard, international organizations, and other institutions( Xinhua Economic News，2014). Hence, Alipay has become the most trusted partner of financial institutions in digital payment.
Image: Alipay QR Code Image: Alipay Pay by face source: source：https://images.app.goo.gl/4xQR832RTH8c2UCp9 source:https://images.app.goo.gl/p8oQKrV1EmhiXMy57
Alipay business model
As scholars Mikhalkina and Cabantou (2015) mention, “business model” refers to the company’s operations’ source and structure that can obtain value. Alipay is actually a virtual electronic currency trading platform. The transfer of account funds is realized through the corresponding bank, which means its transfer of funds is carried out through the user’s Alipay account and bank account (China Telecom, 2011). Commercial banks provide Alipay’s basic services, and Alipay is more like a payment application carried on commercial banks.
Additionally, the launch of the “Ant Check Later” business marked the innovation of Alipay’s business landscape, which once again impacted the traditional banking industry. After applying for this function, users will get a consumption limit ranging from 500 to 50,000 yuan based on their credit（Choi，2016）. Alipay users can advance spending from Ant Check Later and enjoy the “consumption first, pay later” shopping experience. Compared with the high-interest rates and cumbersome application procedures of other payment methods, Ant Check Later quickly attracted more young consumer groups and increased consumers’ purchasing power. After users adopt this program, their spending power has increased by about 10% compared to before, which has played a positive role in driving consumption（Low，2019）. Advance consumption has gradually become a common way of life for the modern young generation.
Image: Ant Check Later
The success of Alipay’s business model lies in its convenience and popularity. As Rogers（2018）points out，Alipay’s main income sources are merchant-oriented service commissions, advertising revenue, and other financial value-added services. Since its birth, Alipay has gone through two stages of development. The first stage is “rooted Taobao,” and the second stage is “independent payment platform”（Jia，2016）. About 60% of its profit source depends on the Taobao website. In 2010, revenue from outside Taobao was not 60 million US dollars（Klein,2020）. Besides, there is interest income from deposit funds. Because online shopping using Alipay is a real-time payment, Alipay’s circulating funds can exceed 6 billion in half a month. The prosperity of e-commerce drives the growth of shopping websites, contributing to the boost of the number. Alipay gradually matures and eventually evolved into a complete business model with the popularity of mobile payments, a system that combines market demand and resources has been formed.
Alipay’s competitors and its Ecosystem
As Mcfedries (2003) expressed, Internet ecology reflects an organized system in which interacting agents rely on information technology to influence and support each other to perform their business. Alipay is positioning itself as a payment platform for e-commerce websites and third-party mobile apps. Other third-party mobile payment platforms that have emerged in recent years have exacerbated digital payment competition intensity. WeChat Pay is Alipay’s biggest competitor. FTCR（2019） surveyed 1,000 Chinese urban residents. Among these respondents, 82.6% chose Alipay as their main payment method, and 64.3% chose WeChat Pay. Other payment tools are at a disadvantage. For example, only 6.6% of respondents choose China UnionPay’s Quick Pass, while only 3.2% of respondents choose Apple Pay. More users said that they favor WeChat Pay because of its ease of use. In January 2014, WeChat took the lead in experimenting with electronic red envelopes, turning the traditional Chinese New Year cash red envelopes into a phenomenon-level marketing campaign, causing China’s most popular instant messaging app to be a direct competitor Alipay (Low,2019). Since then, transactions between individual users and between users and online and offline merchants have driven the growth of WeChat Pay. However, the survey showed that more respondents liked the wider online and offline merchant choices provided by Alipay, reflecting the dominant position of Alibaba’s online shopping sites in the e-commerce industry. Shi (2019) states these websites have a market share of up to 83% in the mobile e-commerce market and only accept Alipay payments. WeChat chose to cooperate with Alibaba’s competitor JD. However, it was unable to achieve the exclusive rights and interests enjoyed by Alipay at merchants. Respondents also stated that they think Alipay is more secure. This is probably because Alipay is a standalone application, while WeChat Pay is integrated into the WeChat application（FTCR，2019）.
Image：WeChat Pay Vs Alipay Image：Mobile payment preference
source：https://images.app.goo.gl/B32anb9vrSutcNYi6 source：FT Confidential Research
Alipay has evolved from a small function that undertakes Taobao’s sale transactions into an ecological platform because it has created an alternative payment ecosystem with different incentive mechanisms between merchants, consumers and payment system providers (Guo & Bouwman, 2016). After the retail payment revolution, China’s new system is based on digital wallets as well as QR codes and is operated by its own large technology company（Chaney, 2017). Alipay is run through Alibaba, which is called the Chinese version of Amazon. Although it is difficult to define the boundaries of participants in the network ecosystem, the core business of each participant is the key competition and even survival condition (Guo & Bouwman, 2016). For instance, focusing on micropayments, the launch of Yu’ebao broke the franchise of bank payment and settlement, creating a new payment and settlement method and method（Xia，2016）. However, Yu’e Bao’s positioning does not threaten banks that use macro payments to generate major profits, which is one of the reasons for its considerable success. According to the Alipay Partner Conference held in March 2020, the upgraded Alipay has released two major policies, the DT Digital Era Business Transformation Plan and the Mini Program Support Program, combining the efforts of merchants as well as service providers in their digital with the Alipay platform’s interest to create a beneficial environment for online digital payment.
Below is a diagram of Alipay’s internet ecology:
Alipay’s risk and regulation
By creating a credit investigation and risk control system based on the Internet, big data and cloud computing, Alipay has profoundly reshaped the traditional financial business. Nevertheless, a large number of funds are gathered and circulated on third-party platforms outside of national supervision, which is higher than the bank’s current income. The availability of financial management functions such as Yu’e Bao has also brought a series of regulatory challenges. Regarding the regulatory risks, on the one hand, there must be a clear form of regulation and detailed division of the contents of regulation. On the other hand, clarifying the qualifications of regulatory entities and regulatory personnel is the key to ensuring the smooth development of Internet business in the future (Gui et al., 2011). Since the birth of Internet finance in recent years, Chinese regulatory authorities had maintained an open attitude last decade, contributing to multiple third-party payment institutions represented by Alipay bypassing the central bank’s clearing system. Central banks cannot grasp specific transaction information, as well as accurate capital flow. The government announced that in the process of third-party payment and bank direct connection settlement, it would join Net Union, a legally qualified clearing hub, to change the current historical problem of third-party payment giants’ self-clearing (Lu，2018). Alipay stopped the withholding service directly connected to the bank and replaced it with quick payment. The new model vastly facilitates national supervision and prevents third-party payment platforms from performing illegal financial operations online.
As briefly alluded to earlier, both QR payment and Ant Check Later show that Alipay is an accelerator of digital transformation in the service industry. The new Ecosystem created and led by Alipay has established it to occupy the leading position in the mobile payment market in China and even in Asia, even under multi-party competition. Although the previous third-party payment platforms faced regulatory loopholes and deficiencies, they have been improved and guaranteed under the new policy. Alipay has completely changed the digital payment method in Asia, which is a crucial transformative to mobile payment.
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