China has not really been ahead on the digital finance game until very recently. In fact, even cheque books were not familiar in China. Paying bills was an onerous process, involving visits to the bank where the utilities company had its account. But all that has recently changed with the arrival of Alipay. Alipay is an online payment service that allows people to transfer money. According to Christina Larson (2015) writing for the MIT Technology Review, Alipay initially started as a service to assist customers wanting to buy goods from Alibaba. The Alipay app provides an opportunity for smartphones to be used for payments. The new technology is considered easy to use, and the Alipay Yu’ebao money account even gives higher interest than a bank account.
By late 2014 Alipay already had in excess of 300 million registered users in China, with 17 million more overseas. People have been eager to sign up because the service allows them to shop with ease at Chinese retail sites of Alibaba, Taobao.com and Tmail.com. The service works similarly to PayPal, with the exception that funds are kept in an escrow account, and when the customer receives the goods the funds are released. The Alibaba and Alipay services are closely linked to one another and help each other to exist. However, while Alibaba was the original business concept, it is considered likely by experts that Alipay will in the longer term be the business that really pays off. For now though, Alibaba is massive and in 2014 had its IPO on the New York Stock Exchange. It raised $25 billion, which is the biggest ever entry. Indeed, Alibaba has been instrumental in driving online sales in China to a market that is lapping it up. Partly as a result of the e-tailing and partly due to the other uses of the app like paying bills, according to Larson:
“Between July 2013 and June 30, 2014, Alipay handled $778 billion in transactions.”
Indeed, the app started out for e-payments, but now also offers financial services to those that may not have had opportunities for payments online in the past. It provides online transactions, money market accounts and small business loans. While competitors are emerging, such as Tencent’s Weixin Wallet, the fact that Alipay already has a massive user base from Alibaba gives it a tremendous competitive advantage. Traditional financial institutions are being left far behind.
While the service is commonly compared to PayPal, and the backend functionality is considered to work similarly to that service, the user interface differs considerably. The difference between the two is explained that PayPal is the service used at the end of the transaction on a retail website, while with Alipay the customers go into the app or website to buy tickets or check on investments. It is ideally designed for phone users. The Alipay revolution has meant that the Chinese financial system has skipped out on desktop banking and the use of cheque books. Rather, people have gone straight to Alipay instead. It is explained that according to a study by consultancy firm Pricewaterhouse Coopers, 79 percent of the Chinese consumers included in a survey reported being comfortable getting coupons on their mobile devices, while only 53 per cent were happy with that worldwide. Additionally, and demonstrating the importance of the mobile market in China, 55 per cent of Chinese customers reported that they believed that their phone would be the most important means for them for making purchases going forward, while only 29 per cent globally felt the same way about this.
When you think about it, the scale of change in China is phenomenal, given that just a few years ago people did things the old way, by going to the bank. And that was only possible if consumers had access to a bank. There was no possibility of going online to pay bills, and few had access at all to wealth management opportunities. In fact some experts believe that with regard to the spread to digital finance, China is at the forefront. All of this is consistent with the government’s plans to create a society that is more consumerist as well, which is only likely to fuel digital finance growth further in this booming country.
Paula Newton is a business writer, editor and management consultant with extensive experience writing and consulting for both start-ups and long established companies. She has ten years management and leadership experience gained at BSkyB in London and Viva Travel Guides in Quito, Ecuador, giving her a depth of insight into innovation in international business. With an MBA from the University of Hull and many years of experience running her own business consultancy, Paula’s background allows her to connect with a diverse range of clients, including cutting edge technology and web-based start-ups but also multinationals in need of assistance. Paula has played a defining role in shaping organizational strategy for a wide range of different organizations, including for-profit, NGOs and charities. Paula has also served on the Board of Directors for the South American Explorers Club in Quito, Ecuador.