#70 - Alipay + A Journey Towards Global Money Movement

The story behind Alipay+, how they're building the rails of global money movement and why you should take them seriously

Illustrated by Mary Mogoi - Website

Hi all - This is the70th edition of Frontier Fintech. A big thanks to my regular readers and subscribers. To those who are yet to subscribe, hit the subscribe button below and share with your colleagues and friends. Support Frontier Fintech by becoming a paid subscriber🚀

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Reach out at samora@frontierfintech.io for sponsorships, partner pieces and advisory work. Spaces are becoming limited on my advisory hours. I help clients with market entry, market mapping, strategic insights, sounding board to founders and general advisory across Pan-African Fintech.

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Introduction

The year is 2029, I’m on my Fintech app scrolling through a list of personalised ads that are curated to my budget and historical purchases. A sleek Xiaomi electric car appears in my favourite colour. The price is listed as US$ 15,000 and I can order it by paying a US$ 5,000 deposit and the balance in 24 months. Xiaomi has built a full-stack solution to enable me import it and pay everything including local taxes and clearance. At the click of a button, I make the deposit and commit to a 24 month payment plan with the first instalment starting when the car is officially in my possession.

The entire process from purchase to import and delivery is seamless and can be tracked from my Fintech app.

This may seem like a scene from the Jetsons but it’s actually a world that is under construction. At the core of this future lies Alipay+, Ant Group’s solution to global money movement and interoperability. I’ve always been fascinated by Ant Group. To me they’re the greatest Fintech company in the world. In this week’s article, I look at Alipay+, their solution to global wallet interoperability. A vision of seamless global money movement running on their rails. The article will look at the story of Alipay+ all the way from the birth of Alipay 21 years ago, provide an overview of Alipay+’s capabilities and reach, understand some of the foundational themes that are providing tailwinds to Alipay+ and look at some of the playbooks African Fintech leaders should look at to take advantage of this wave.

The Story of Alipay+

A picture that was taken after Alipay’s first successful payment in 2003

Understanding Alipay+ requires a historical understanding of Ant Group and their journey from escrow payments back in 2004 to their botched IPO in 2020. It’s a story of contextual innovation and constant adaptation to market realities. This history enables one to place Alipay+ in its proper context as a bridge to global wallet interoperability. It also makes it clear as to why interoperability matters and why they’re well placed to pull it off.

Origin Story and Contextual Innovation

Solving trust issues is at the core of what we do. We have a track record of solving real problems for consumers and small businesses. Sixteen years ago, Alipay pioneered online escrow payments to solve the problem of settlement risk due to a lack of trust between online buyers and sellers. - Eric Jing - CEO of Ant Financial Group

Alipay traces its history back to 2004 at a time when digital e-commerce in China was about to take-off. E-bay had entered the Chinese market by acquiring Eachnet, then a major competitor in the Chinese e-commerce space. Taobao, an arm of the larger Alibaba Group, had to really differentiate itself to gain market share. There were two core problems to be solved. One, online commerce was nascent in China and trust issues persisted. People didn’t trust that their counterparties would deliver the right product or even deliver anything. The second challenge was that Chinese merchants were wary of the high costs that were associated with card based payments.

Alibaba then launched Alipay to solve the trust problem. The product had an escrow mechanism that would receive funds from the buyer and only pay the seller once the transaction was completed successfully. Moreover, they focused on a payment rail that side-stepped the expensive card based systems to ensure merchants adopted it.

Solving these issues not only enabled Taobao to grow, it enabled Alipay to grow as a serious payments platform in the country. Various industry reports show that by 2010, Alipay was at the 100m mark in terms of customers and growing rapidly.

Source: Ant Group Prospectus

The Mobile Revolution and the Birth of a Super-App

By 2010, the mobile revolution was sweeping across the world inspired by Steve Jobs’ famous iPhone launch in 2007. Alipay cleverly rode this wave, moving from a PC based escrow payments system to a comprehensive mobile based financial ecosystem. A key moment was the launch of QR card based payments in 2011. What this did was two-fold. For one, it made merchant acquisition much easier because all a merchant needed was a QR code that could be printed on paper. This increased the number of merchants on the Alipay ecosystem, feeding one component of the multi-sided network. On the other hand, QR codes improved the “till environment” when paying. It made making payments so efficient that a busy shopkeeper was no longer inconvenienced by the time it takes to make a mobile payment. Additionally, QR codes enabled offline merchant acquisition.

The mobile wallet also improved. Users could store funds on an Alipay wallet, make peer to peer payments and pay utilities. The seedlings of a comprehensive super-app were firmly being planted. By 2013, the seedlings were turning into saplings when Alipay launched Yu’e Bao (left-over treasure). This was a money market fund that enabled merchants and users of Alipay to save money at rates that were much higher than what traditional banks offered. Users were using their Yu’e Bao accounts like checking accounts. The product was so popular that at some point in 2017, it had grown to be the largest money market fund in the world. A commentator on Chinese State TV called it a blood sucking vampire, probably alluding to how it sucked liquidity out of the traditional banking sector.

After their successful launch of a store of value product, Alipay followed with the launch of Mybank in 2014 and their credit products Huabei and Jiebei. These products worked by using Alipay and Alibaba’s large trove of data to do credit scoring and provide targeted offers. Moreover, in 2014, Alibaba spun off Alipay as a stand-alone company under the name Ant Financial. The name Ant was inspired by the idea that small is beautiful and small is powerful as Eric Jing mentioned in their IPO prospectus.

Source: Ant Group IPO Prospectus

This was a period of dizzying growth. Alipay was now a super-app with over 1 billion users and over 700 monthly active users. It had the largest market share in the Chinese mobile payments market. They had executed perfectly and now it was time to expand internationally.

First Steps at Globalisation

The seedlings of digital payments had turned into mature trees and it was time to expand. Jia Hang, the Regional Director for South East Asia at Alipay in an interview discusses what conceived the idea of internationalisation. He states that Alipay clients were asking; “Why can’t I use Alipay outside of China?’. He says that; “That’s when we started the international business in those days to enable merchants to accept the Alipay wallet from China…We basically followed tourists. If tourists liked to go to Japan, Korea, Thailand, Singapore, then we had to follow them and enable those merchants.” China was now the 2nd largest economy and the wealth created since Deng Xiaoping created the moniker “capitalism with Chinese characteristics” had led to the world's largest tourism source market.

They started by conducting research on how they could build wallets internationally. Their research pointed them to developing markets given the lack of developed card based payments systems or mobile wallets. Moreover, in areas like South East Asia, digital financial service penetration was only 20-30%. Their research showed them that they didn’t have the competitive capabilities to build standalone systems by themselves. There were strong players in each of their markets and what made sense was to provide investments and technical support. It was clear that wallets were becoming widespread and the best way to participate was to partner rather than compete. Their JV strategy took shape and they went on a shopping spree. Over a period of 5 years, Ant Group and the larger Alibaba Group made the following investments and partnerships;

1. 2015 - Took a stake in Paytm of India;

2. 2017 - Launched Alipay HK in Hong Kong;

3. 2017 - Took a stake in Kakao Talk of South Korea;

4. 2017 - Launched Dana in Indonesia through a Joint Venture with Emtek;

5. 2017 - Took a stake in Malaysia’s Touch n Go;

6. 2017 - Took a Stake in G-Cash in the Philippines;

7. 2018 - Took a stake in Pakistan’s Easypaisa;

8. 2018 - Took a stake in Bangladesh bKash;

9. 2018 - Took a stake in True Money from Thailand;

All these markets were traditionally cash heavy markets but were starting to see an increase in digital payments. A number of factors were converging such as UPI in India and growing e-commerce across Asia. In 2020, Covid accelerated digitisation with Thailand in particular witnessing a massive shift towards digital payments. These investments were beginning to pay off and as Jia says, “By 2020 the babies (local wallets) had become bigger and local leaders… Our involvement became less: now it’s up to them to find their own way in their own market, but on the other hand we can help them with the next step; we can build up overseas acceptance for them.”

I wrote in 2021 that the next phase of the wallet revolution was going to be the inter-connection of global wallets. Alipay shared this same idea but had yet to communicate this clearly. Nonetheless, it had all the ingredients it needed. Through both Alipay in China and their global network of partners, Alipay had access to over 1.6 billion wallets in the fastest growing wallet markets in the world.

The IPO Bust and the Birth of Alipay+

By 2020, Ant Group was now a global behemoth. Total revenues exceeded US$ 7 billion in 2019 but what was most impressive were its performance metrics. As Ant Group was planning for its IPO, it had the following metrics;

Source: Ant Group IPO Prospectus

In October, Ant Group was set to raise US$ 34.5 billion at a US$ 313 billion valuation. Investors across the world couldn’t wait to get their hands on what was promising to be the biggest financial supermarket ever created. However, things went belly up. The IPO was cancelled in interesting circumstances and the largest shareholder of both Ant Group and Alibaba went underground. I don’t think anyone truly knows what happens.

Nonetheless, from the ashes of what seems to be a debacle arose Alipay+, an elegant and well thought out product to drive the initial idea of wallet interconnectivity. Alipay was a solution to provide international connectivity to not only Alipay apps but those of its JV partners. Whilst the idea of Alipay+ had been piloted in 2020, it was officially launched in 2021. The conspiracy theorist in me strongly believes that it stemmed from the Chinese government corralling Ant Group into its larger network of large Chinese companies which are involved in the various Chinese projects be it the Belt and Road Initiative or the Digital Silk Road. Alipay+ as we’ll discuss, will play a big role in shaping cross-border payments for the 21st century.

Alipay + Now

“Digital payments are…the key to driving the digitalization of business activities. However, the uneven regional development and technical capabilities of participants have led to a lack of interoperability between existing digital payment solutions…resulting in the fragmentation of payment systems across the world. Alipay+ provides global cross-border mobile payments solutions which enables merchants, including small and medium-sized businesses, to better serve over one billion consumers (excluding Alipay) from all over the world, (mainly from Asia currently) by connecting merchants with multiple digital payment methods. Besides payments, Alipay+ also provides digital marketing solutions, which help global merchants to distribute various kinds of discounts to digital payment method users, helping them to gain and retain consumers across the world.” - Jia Hang - General Manager South East Asia at Alipay+

Alipay+ is an interesting proposition. It’s a combination of two core capabilities. On one hand, you can think of Alipay+ as the Visa Network for wallet interoperability enabling cross-wallet payment capabilities. On the other hand, Alipay+ wallettech is a division of the business that enables banks and other FIs to launch their own wallet propositions. It’s a comprehensive technology that provides the capabilities of Alipay in a box, the term for that would be Mobile Platform as a Services MPaaS. Vodafone in South Africa has successfully launched a wallet that runs on Alipay+ wallet tech.

We’ll focus on their cross-border capabilities in this article. Here’s a quick breakdown of their capabilities.