Walk-in the cashless and card-less society with Alipay

Alipay has the world’s biggest third-party online payments, which shift the traditional cash and card payment to the cashless and card-less mobile payments society via an internet platform. This essay will be focusing on the technologies and critical analysis of Alipay and the transformative effects on the e-commerce industry. For the first section of the essay, an overview of the function of Alipay will be provided. Then, the second part of the essay will discuss the historical development and regulatory challenge of Alipay. After that, the third and fourth part will examine the business model and the ecosystem of Alipay. At last, the essay will explore the transformative effects of Alipay.

What is Alipay?

Alipay is a third-party online payment service, and it is also a mobile payments APP provided in China (Choi, & Sun, 2016). Alipay aims to provide a safe, secure, and convince platform for both individuals and merchants to make and receive a transaction (Liu, 2015, p12). Alipay supports both online (such as e-shopping mall Taobao, Tianmall, games) and offline (such as supermarkets, restaurants, and bike-sharing) payments, which allow customers to make transactions by their mobile devices anywhere, anytime without transaction fees. The simple transactions between individuals and merchants could be done by using the “scan” (Quick Response code) and “pay” (barcode) on the Alipay APP (Lu, 2018). Alipay also provides an escrow service, which means Alipay, as a coordinator or intermediator, will hold the consumers’ payment until the customer has received the product (Liu, 2015). Furthermore, Alipay also provide other services such as wealth management and loans (ibid)

 

Historical development and privacy debates of Alipay

As How a Little Ant Challenges Giant Banks notes, in 2003 Jack Ma’s Alibaba Company launched Alipay as the payment tool for its online shopping platform Taobao (Lu, 2018). At the time, the biggest problem in online shopping is the mistrust of customers and businesses. Alipay, as a third-party payment tool, successfully helped Taobao solve this problem and opened the door to China’s e-commerce. In 2004, Alipay officially launched its website and became an independent payment system. After that, Alipay started working with major banks such as Visa, Online business, hotel booking, and airline website.

Moreover, in 2008, Alipay started to cooperate with utility companies and achieve the aim of provided services to people from all aspects of life. People could use Alipay to pay for their water fee, electricity fee, and gas bill. The following year, Alipay had reached an annual salary of CNY 130 billion ($19.49 billion) and have more than 200 million users (Lu, 2018).

 

“QR Code” example on Alipay app

Image: Congxian Qiu, Flickr, All rights reserved

In 2011, Alipay APP was officially launched, and “Barcode pay” appeared, which expend the payments service from online to offline. People can use their mobile devices to purchase anything. The emerged of “Barcode pay” marking the era of mobile payment.

While Alipay facilitates every aspect of life, it also collects people’s data. Consumer’s data can be collected through their transactions made on Alipay. How to regulate and use these data has always been a controversial issue, and concern for financial regulators (Lu, 2018). According to the China Daily report, in 2014, 20 gigabytes of personal data, including transaction records, phone numbers, and email addresses, were downloaded and sold to e-commerce websites (He, 2014). Although this event ended with Alipay’s s apologizes, the data privacy issues stills remain a big concern for the customer

 

The business model of Alipay

The reason Alipay can achieve great success in a short time and becoming the world’s largest third-party payment service is the unique business model. Unlike other third-party payment services such as PayPal, Alipay’s service does not stop at online shopping platforms Taobao.com and Tmall.com in China. It well integrated into our daily life. Nowadays, the mobile phone became ubiquitous, and 95% of people use their mobile phones to access the internet (Lu, 2018). Alipay uses this advantage and extends the service from online to offline. It signs up millions of retailers in China and makes Alipay has also become a common payment method (ibid). According to Smith’s statistic reports, Alipay has 320 million daily active users and 175 million transactions per day (2019).

QR code provided by the restaurant retailers

Image: amanderson2, Flickr, some rights reserved

With the escrow service system, Alipay act as an intermediator between consumers and sellers, it will hold the shopping money safety in the account for the consumers until the consumers receive and satisfy with the bought products. That means, before Alipay released the money to the seller, it has a considerable fund for Alipay to use on other investments. For example, Yu’E Bao is a wealth management product provided on Alipay apps. Users can deposit or withdraw funds on Yu’E Bao and earn a very high-interest rate. The escrow service, online and offline service, and the financial services form the success of Alipay’s business model.

 

Alipay’s internet ecology

The huge ecosystem is one of the salient factors of Alipay’s successful in the e-commerce industry. Alipay not only provides third-party payment service online but also offline and tightly integrate with people’s life. Many other services are also provided by Alipay, such as bike-sharing service, phone top-up, food delivering, airline and train tickets and hotels

The major competitor of Alipay is WeChat pay. WeChat is the most popular social media held by Tencent in China, and WeChat Pay is a service provided inside WeChat. WeChat pays provided very similar service as a third-party payment service compared to Alipay. As The Role of Alipay in Commerce in China notes, These two competitors both provide payment services online and offline, and both make use of the QR Code as the payment option. Companies such as PayPal, Apple Pay, Amazon Pay, Ten Pay, AsiaPay, and PayEase provide a similar service, but compare to Alipay, the market share they hold does not affect Alipay.

The primary service providers of Alipay is the banks. The banks provide service for Alipay account connect with a bank account so that consumers can transfer their money from bank account to Alipay account (Aleid, 2017). In 2015, the Commercial Bank of China and Visa were the earliest banks that collaborated with Alipay. After that, more and more banks started to collaborate with Alipay. Such as the Bank of China, China Construction Bank, Agricultural Bank of China and the Industrial and Commercial Bank of China. As Dr. Lerong Lu’s (2018) Decoding Alipay article notes, the People’s Bank of China (central bank) as the monetary authority and three other financial institutions regulate the banking, securities market, and insurance. These four regulators form the financial regulatory system in China. Alipay under the regulation of the People’s Bank of China. The core partners of Alipay includes the online shopping platform Taobao and Tmall and the third- party merchants, such as Airbnb, Didi taxi, and Qunar.com.

Below is a diagram of Airbnb’s internet ecology:

 Alipay’s transformative disruptive 

One of the biggest transformative effects of Alipay is the contribution to the repaid development of China’s e-commerce business (Liu, 2015). Before the emerge of Alipay, consumers in China are lack of protection from the law, and the protection from the bank is expensive and high risks. Chinese consumers were situated in a state of distrustful of banks and financial institutions.

The enrage of the disruptive innovation Alipay’s escrow service solve the trust issues caused by China’s weak consumer protection laws (Lu, 2018). The trust builds by Alipay between individuals and merchants, and the protection of consumer’s privacy encourages the online payment method (Aleid, 2017). Alipay, as the leader of China’s e-commerce, handles an average 85million transaction per day. The role of Alipay in China (2015) writes, the main engine driving domestic economic in China is the internet economy. The double eleven festivals are the product of the development of the Internet economy. This festival was first created by the online shopping platform Taobao, that every 11th November, Taobao, will provide a significant discount. Nowadays, double eleven became an annual shopping festival. 197 million transactions were handled by Alipay within 24 hours on the double eleven festivals in 2014.

Moreover, Alipay’s transformative innovation of the QR code mobile payment function simplified the cash and coin payment. This cost-effective payment option, along with the wide range of service provided, Alipay rapidly subverts the traditional cash and card transaction method, making mobile payment become the mainstream. Alipay is accepted by entertainment (KTV, game and shopping mall), food (restaurant, food delivery app), travel (Airbnb, flight ticket), or transportation (Didi Taxi), even street food and food markets. Customers only need a few seconds to finish the transaction by using the “scan” and “pay” function in the Alipay app. Alipay’s QR code is leading China towards a cashless era. The one-off QR code is safer and more convenience.

Video shows a cashless China

Source: Mamahuhu, Youtube

On another level, the rise and popularity of Alipay (mobile payment) had a significant blow on the traditional banks and the credit card payments systems. Alipay plays a disruptive role, and it breaks the long-dominant position of banks in China’s financial industry. In 2015, the number of retail sales paid in cash decreased by 20%, which caused the banks to lose a lot of potential transaction fees (Meertens, as cite in Aleid, 2017). Alipay handles the transactions uses its procedure. As the banks corporate with Alipay, it allows consumers to transfer their money from the bank account to the Alipay account. It means Alipay takes away the big data and information from the banks, which is very important for the bank to provide new competitive services and products in the market.

 

Screenshot of Alipay app

Image: Mikkel Stig Larsen, Flickr, All rights reserced

 

Furthermore, Alipay also provides many other financial services. For example, Yu’E Bao is one of the financial services on the Alipay app. Which provides the same function as a saving account provided by the bank, but instead, Yu’E Bao returns of 4-7% interest, which is much higher than the bank. Within less than a year after its launch, customers transferred as much as 59.96million from their bank accounts to Yu’Ebao, becoming the bank’s biggest competitor (Lu, 2018). As Dr. Lerong Lu’s (2018) Decoding Alipay article notes, many consumers were attracted by the return of high interest and used Alipay as the default banking account.

In summary, the emerges of Alipay brought revolutionary change to the internet. The escrow system business model of Alipay offset the deficiency of the consumer protection laws in China and promoted the e-commerce industry. The innovation of the QR code eliminated the traditional payment and financial industry, pushing China towards a cashless society.

 

Reference list:

Aleid, W. (2017). The Role of Alipay in Commerce in Cina (Master’s thesis).

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

He, W. (2014). Alipay apologizes for leak of personal info – China – Chinadaily.com.cn. Retrieved 7 November 2019, from http://www.chinadaily.com.cn/china/2014-01/07/content_17219203.htm

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

Lu, L. (2018). How a Little Ant Challenges Giant Banks? The Rise of Ant Financial (Alipay)’s Fintech Empire and Relevant Regulatory Concerns. International Company and Commercial Law Review (2018), Sweet & Maxwell, ISSN, 0958-5214.

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. pd f

Smith, C. (2019). 40 Crazy Alipay Statistics. Retrieved 11 November 2019, from https://expandedramblings.com/index.php/alipay-statistics/

Xu, Y., Ghose, A., & Xiao, B. (2018). Mobile Payment Adoption: An Empirical Investigation on Alipay. Available at SSRN.

Yu, E. (2014). Alipay sorry for customer data leak | ZDNet. Retrieved 8 November 2019, from https://www.zdnet.com/article/alipay-sorry-for-customer-data-leak/

Zhen, C., & Cheng, P. (2010, July). Construction of campus trading platform based on third-party online payment. In 2010 2nd International Conference on Industrial and Information Systems (Vol. 2, pp. 444-447). IEEE.

Шубич, М. Г. (2018). Cashless Payment Giant-Alipay.

 

Multimedia Reference List

amanderson2 (2017) Delicious bread for sandwhiches and QR codes for payment systems Chengdu China .Flickr. Retrieved from https://www.flickr.com/photos/amanderson/24230141057/in/photolist-rKt8Sc-RpMsXk-8DdKSM-CV8NLH-STjqJk-2h3R1Uu-ShUCE9-2amwfZt-T6qVTa-Lk8EoS-2fGUBUB-Resti2-2h3MoUF-24enUgi-2ccCgwf-2haXnc4-28oBo7W-2gMvw9M-EYsZwe-2dcNmNQ-2hdj42n-2hrugGW-2hugFrD-aYFuRr-2h67xGL-28oBnPG-TD3qaa-2fjd5AB-2ab35Du-28oBmpY-SyFpc2-LvdKM6-UiJF6s-PbEvUk-25H2f2o-HH8eQc-2d52zpp-UBdjyP-VmWYRM-26UBd8J-2ftK8Bv-UAZaw4-24tTjBT-UKuTYJ-NURRnJ-P2wB93-DkPGV1-RCNnxM-2gRdGQC-RvzTSo

Congxian Qiu, (2017) Alipay. Flickr. Retrieved from

https://www.flickr.com/photos/150168061@N04/34962434512/in/photolist-VgvBH3-2h4k4B7-22jUTi1-qgKVtF-8xXAPV-3b6x4n-KkEPZ-2d5mXMx-2h5w6tR-2gvvmx8-57RXuK-57RXrD-57Waxq-57RXii-57WaqE-57WamY-57RX8R-57RXGa-57WagQ-57Waeb-57Wa91-57RWTt-57WaZJ-57Wa41-6XjKwp-57W9Pd-57W9MC-57RWFH-57W9Y9-57W9Es-57W9GQ-RuyYHR-57RYrc-57RYwp-R7TAG7-57Wbfm-57WbjA-57RYi8-F3kRde-2d3D33L-8Zs5bS-2h2VpYE-6vA1hQ-6vzZ9G-qRs5YZ-6vvMHn-6vvMGc-6vzZcj-6vzZJQ-6vvNo2

Mamahuhu (Publisher). (2018) ‘CHINA IS BEYOND CASHLESS’ [Video]. YouTube. Retrieved form https://www.youtube.com/watch?v=gysKE3POUv0&t=1s

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Victor Zheng
(2018) WeChat Pay and AliPay. Flickr. Retrieved from

https://www.flickr.com/photos/157762144@N07/45151811555/in/photolist-2bMUQvz-71rXKp-bRsYNa-7fLvmC-6XoJ3q-Ceq3qZ-WqhpsV-kyNwUd-WBWaoV-StXwv8-6ZonVN-WBWa46-W8725p-BUzbrU-gzdP42-WqhpE8-9repnV-5UVQ6c-6XoHzU-uULSs9-7xJyMp-E3P4Z1-2cyQKDt-7Vymg2-6YjPFC-6fiDyR-2geXvTU-2g6zi14-DuUcrX-2dYUZQb-Tfhzip-M99dKJ-DuUetc-228VrHW-2d26o3H-228ViAo-5cwbdg-27D3T96-2gvs7Rn-2gvrERR-2gvs7fT-2gvs7oZ-22bEb1V-2gvrEDG-2gvrEBH-ZQgPoD-228VkjU-E3P1hb-ZQgJCB-kDjvUc

 

 

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