Online payment services in China: How does Alipay differ from PayPal?
There are large numbers of people shopping online in China nowadays. As a result many more people are using online payment services. Of course services like PayPal have been around for years, but its expansion into the Chinese market has been limited.
In China it would seem that the online payment service offered by the Alibaba group, Alipay, has cornered the market. I say it would seem that way because there is a new player on the market: Tenpay.
Just how much of a rival is Tenpay to Alipay? And where does PayPal fit into the Chinese market? Lets start by looking at PayPal and what they offer. Just why has the company struggled to gain a foothold in China?
PayPal in China
In August 2012 it looked like PayPal’s move into China was dead. Their partnership with Chinese wholesale firm DHgate was cancelled seeming to close the door on the Chinese market. Fast-forward to June 2013 and it seems that PayPal’s parent company, eBay, is leading the charge into China. Obviously the company does not want to give up on having a presence in China, but it seems they may have missed the boat.
PayPal is battling for a space dominated by the massive Chinese e-commerce firm Alibaba group. PayPal currently handles cross-border sales between Chinese merchants and foreign consumers, but is not in the more lucrative business of handling transactions between buyers and sellers within China. This area is controlled by Alibaba’s Alipay.
Alipay has been called the PayPal of the East, but I think that it is more than this. First it is important to understand how Chinese consumers use Alipay before making a comparison with PayPal.
In my experience most people who use PayPal to shop online use their credit card through the PayPal portal because of the security that PayPal provides. That’s certainly the way I do it, if I use PayPal at all. I have my bank account details attached to my PayPal account, but I prefer to use my credit card. Chinese consumers are the opposite.
There are 564 million Internet users in China, which is only 42 percent of the population compared to 78 percent in America. 82 Percent of those Internet users own at least one credit card, but don’t use western brands such as Visa and MasterCard to shop online, but instead they use UnionPay.
Even though credit card use is on the rise in China most Chinese people are big savers and prefer not to use credit. It’s partly a cultural phenomenon where spending money you don’t have is anathema compared to saving and buying something when you can afford it. It’s the opposite of recent Western trends in shopping if you like.
An alternative to using a credit card is Alipay. It can be linked to a bank account, much as PayPal can be. A straw poll in my office revealed that all my Chinese colleagues use Alipay because it is more than just a way to shop online. It has many uses that include:
- Transfer money to other bank accounts with payment made within two hours
- Transfer money to other Alipay accounts
- Pay credit card bills with no fee levied
- Pay utility bills with no extra fee levied
- Top up mobile phone with credit
- Buy bus tickets
- Check bank balance
- Use at online check-out on many websites (lots of websites it’s the only way to pay)
- Use to check-out on shopping apps Tmall.com and Taobao.com (these are escrow services)
- Use to pay for products in-store (although this is not so popular yet)
All of the above are free for transactions within China. The services are secure and trusted by Chinese shoppers hence the desire to use this service when they shop on foreign websites, which they are starting to do much more.
In fact Alipay is starting to move into the US market for this very reason. The company wants to make the service a viable way for customers to pay for products at checkout. But the reason for this expansion into foreign markets is not just about competing with PayPal. Alipay has a competitor at home who already has a presence in many foreign countries due to its strong social media showing.
Tencent Holding is the company behind the social media apps WeChat and QQ. If we are making comparisons, WeChat is a Chinese version of Facebook (which as we all know is blocked in China circumvented of course by using a VPN) for your mobile phone. There is an English language version which works anywhere in the world.
I have friends in America who discovered the app while living in China and have moved back home, but we still keep in contact via the app. We can both see each other’s pictures added to our news feeds and send instant messages as well as group chat. I even used the app while I was in England to keep up to date with friends in China and friends in Hong Kong also use it.
Tencent have moved into online payment services with the launch of their Tenpay service in 2013, a direct rival to Alipay which the company says has 550 million users compared to Tenpay’s 200 million plus. The fear for Alibaba is that because of QQ’s wide reach in China and WeChat’s presence abroad, users will use Tenpay as they have access to it. It has sparked a fierce battle amongst the two Internet giants in China.
Amongst my colleagues Alipay is the clear winner. It seems that for vendors and merchants who use Taobao and Tmall, Alipay is the payment service of choice too. Alibaba, having prevented vendors from advertising on WeChat, is trying to get a foothold in the social media landscape by producing its own apps to fill this gap.
Whether it works remains to be seen as Tencent wields the power in terms of social media. Users are engaged with WeChat and QQ and getting them to move to new platforms just because they cannot access Taobao and Tmall through these apps seems a little far fetched.
The strength for Tenpay is the mobile gaming market. Tenpay is mostly used to buy games on social media platforms or to add money to gaming accounts. At this moment in time Tencent don’t pose a big threat to Alibaba.
I would say that Alibaba’s real motive in its move into social media is fitting into the tablet/mobile arena. Mobile is the future and a presence in that space is essential.
Alipay versus PayPal
On the surface Alipay and PayPal’s online payment services would seem to be relatively similar. But I believe there are some significant differences. I would say that Alipay provides a more integrated service than PayPal even if PayPal has a bigger presence internationally.
The fact that Alipay can be used for everything at the press of a finger is significant. People use it to transfer money, pay their bills, check their bank balance and add money to their phone account. They then go shopping online and can pay for their products all through the same app.
Ostensibly PayPal can do all of this and very securely (too securely sometimes?). But do people use PayPal for this? It seems to me that PayPal is used more as an escrow service on sites such as eBay. When shopping online I think someone in England, America or Canada is more likely to use their credit card rather than use their PayPal account linked to their bank as people do in China.
PayPal is experimenting with its mobile payment solution Beacon, but there are too many issues for me. PayPal president David Marcus claims that PayPal will be used as a wallet with people paying through their phone, but I’m not so sure this will happen in the very near future. Right now PayPal does not feel as integrated as it should be yet for that type of transaction.
This type of service would be more successful in China because Alipay is essentially a wallet app. The problems with poor quality 3G coverage prevent this from happening at the moment so a service that does not require wifi, GPS or a wireless network signal would work extremely well in my opinion.
Do you agree with me? Do you use PayPal and if so what for? Please leave some comments or ask me any questions that you may have.