Payments

Alipay wants to take the US, but faces customer acceptance hurdles

  • Chinese e-commerce giant Alibaba’s Alipay has dominated the mobile payments market in China
  • It's now looking to the U.S. to find a new customer base -- but obstacles remain
close

Email a Friend

Alipay wants to take the US, but faces customer acceptance hurdles
For more than a decade, Chinese e-commerce giant Alibaba’s Alipay has dominated the mobile payments market in China. But with competitors like Tencent’s WeChat Pay entering and saturating the space, Alipay is on the lookout for a new market -- and is looking west. Starting last year, Alipay worked with payment processor FirstData to integrate its offering across 4 million U.S. retail locations in 2017. This year, that partnership has expanded to 35,000 more merchants including hotels, restaurants and high-end retail stores. Alipay, for its part, is so far focusing on the Chinese customer base that is already coming to the U.S. At home, Alipay has over 600 million active users. An estimate of 130 million outbound trips were made out of China, 25 percent of them to North America, according to a Nielsen report jointly issued with Alipay. This fifth-largest group of inbound tourists in the United States also spends about $4,462 per person on these trips to the United States. That makes for a big consumer base, which Alipay wants to lock down before WeChat Pay can. “They’re highly disciplined. They know exactly what they’re doing,” said Thad Peterson, senior analyst at Aite Group. “Their first priority is to lock down the home customer. That absolutely means going for the higher-end retail outlets that attracts Chinese tourists. They want to hold on to the Chinese market, and they don’t want WeChat Pay to take it away from them.” Alipay, which declined to make an executive available for an interview for this story, still faces an uphill battle when it comes to attracting American customers. “Our current system works really well. Customers have no liability, which was the big push for credit cards. Customers don’t see a need to change,” said David True, partner at Paygility Advisors. Add to that a whole demographic of people who have always relied on physical banking, transactions and the plastic economy, and customer resistance becomes a greater hurdle to overcome. “The big challenge is changing people who didn’t grow up using this system. Someone who is over 35 or 40 is hesitant to connect bank accounts,” said True. There may be concerns around security and control, which may or may not be right. But they’re persistent enough to discourage adoption of the app. The hope for Alipay then lies in banking on the millennial demographic, according to Bryce VanDiver, partner at Capco. “It’s not too far off [for Alipay] to see itself as a platform play and step in,” he said. “If you accept that model, then payments is commodity. It’s less about making money on payments transactions. It’s just a way to drive customers into your ecosystem.” The big question is why someone would choose Alipay over existing payment companies like Apple Pay or Samsung Pay. The two digital wallets are built-in apps for smartphone owners. That makes it easier for a potential customer to adopt their services instead of Alipay, which would be a foreign app. It would require a lot of brand awareness and acceptance on the consumer end for adoption. Already, digital wallets like Apple Pay and Samsung Pay have struggled to take off. A 2018 survey of U.S. internet users conducted by CivicScience showed only 1 percent of respondents used mobile payments as their primary payment method over credit and debit cards or cash. It all depends on the merchants. Adopting the QR code solution is an easy and inexpensive method, but each merchant's receptivity to it will differ. Big industries that rely on disposable income and discretionary spend are likely to be open to it, but merchants in industries that warrant a recurring bill spend may not make this available. “If I have many Chinese tourists coming through the door, then I’ll use Alipay,” said Peterson. “But if I run a general dollar store, then cost of adding that payment vehicle is going to be more than the average value of transactions coming to the store.” For now, it seems that Alipay is relying on its big-data capabilities and fully optimizing the American market in the given situation. “They know where their consumers are spending, and they’re honing with laser-like precision on those merchants, where they see consumers using their capability,” VanDiver said. “That’s been a backbone of their growth in China and will be the cornerstone of their U.S. growth strategy.”

0 comments on “Alipay wants to take the US, but faces customer acceptance hurdles”

Outlier OpinionsMakers

Lending, Payments

Can lenders improve the financial health of consumers through design?

  • Design can play a critical role in improving consumers' financial health when it comes to lending.
  • Research by the Financial Health Network shows that areas like defaults, making payments, and borrowing the right amount can be significantly improved through behavioral design principles, to ensure customers make decisions that improve their financial well-being.
Rabab Ahsan | May 26, 2023
Payments

5 questions with Zip CEO Larry Diamond

  • Payment act as a beachhead for financial services firms to more deeply serve customers, according to Zip's Larry Diamond.
  • We spoke to the payment firm's CEO about his new focus on the US and the future of the company.
Zachary Miller | May 15, 2023
Payments

Microsoft brings payments for businesses on Teams

  • Microsoft has collaborated with Stripe and PayPal to enable in-app payments for small businesses on Teams.
  • Connecting or signing up for one service – Stripe or PayPal – is required to set up the Teams Payments app, with support for GoDaddy in the cards.
Sara Khairi | May 11, 2023
Payments

Tokenization, programmable payments, inclusion: Unpacking near-term trends in the payments ecosystem

  • Very little appears to be staying the same where the payments industry stands in 2023 compared to where it’s headed in the next few years.
  • Tokenization beyond cards, borderless rails, credit for the underbanked, and the proliferation of payment acceptance options are some of the near-term trends in the payments ecosystem, suggests a new Mastercard report.
Sara Khairi | May 10, 2023
Payments

As Amazon Pay now offers Citi Flex Pay, will it help Amazon close the gap with PayPal?

  • Amazon has partnered with Citi Flex Pay to offer eligible card members the ability to pay over time at merchants who accept Amazon Pay.
  • Will gaining access to Citi's card network enable Amazon Pay to gain an edge over competitors like PayPal?
Rabab Ahsan | May 05, 2023
More Articles