How Online-Payment Service Alipay Will 'Revolutionize' Retail

PayPal-Like System Allows Chinese Consumers to Shop on the Internet With Currency Instead of Credit Cards

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HONG KONG (AdAge.com) -- China's largest e-commerce company just launched an online-payment service that for the first time makes it easy for millions of middle-class Chinese to shop online anywhere in the world.
Buy the book: Alipay could open up China for e-commerce giants such as Amazon.
Buy the book: Alipay could open up China for e-commerce giants such as Amazon. Credit: Bobby Yip

Alipay originally was developed by Alibaba Corp. for its own business-to-business flagship site, Alibaba.com. Later, Alipay was used for Alibaba consumer site Taobao.com. Alipay is similar to global online-payment services such as eBay's PayPal but until now has handled transactions only in local currency. Through a partnership with two Chinese banks, it now facilitates transactions in 12 foreign currencies, including U.S. dollars, Japanese yen and euros.

That makes Alipay "the biggest retail story in China in the last decade," said Shaun Rein, managing director of China Market Research Group in Shanghai. "This will revolutionize the way retailing is done in China."

Opening doors
Alibaba executives doubt Alipay's foreign-currency service will attract global brands such as Nike or luxury-goods giant LVMH Group, which have brick-and-mortar outlets and online distribution channels in the mainland. But Alipay could open up China for e-commerce giants such as Amazon and global businesses lacking the scale and manpower to set up retail operations on the ground in China.

"Now is the time for big online retailers who aren't already here to jump into China," said Porter Erisman, Alibaba's Hong Kong-based VP-corporate affairs.

Foreign companies often have trouble getting licenses to sell online in China. "With Alipay, foreigners don't need to worry about licensing; they can piggyback on Alibaba's license," Mr. Rein said.

What's really bringing together foreign retailers and Chinese shoppers, however, is the currency transaction service, particularly in categories such as cosmetics and apparel. Millions of middle-class Chinese have money, style and a hunger for new products -- but no plastic for shopping. Without a secure payment method to shop online, cash-on-delivery has become popular, and "that's hard for the big foreign retailers to manage," Mr. Rein said.
Alibaba Chairman Jack Ma
Alibaba Chairman Jack Ma

Alibaba's chairman, Jack Ma, didn't set out to be a payments broker. But with few credit cards and no trusted alternative, he reassured both shoppers and sellers by holding payments for products until goods were delivered to buyers. According to independent research institute Analysys, Alipay controls more than 50% of China's online-payment services with more than 47 million users and 78,000 daily transactions worth more than $20 million. More than 80,000 users register each day.

"Now that Alipay is China's most popular online-payment system, it's a natural step for us to expand the service globally," Mr. Ma said in a statement. "To buy the latest products from Paris, London, New York and Hong Kong, all a China consumer needs is an internet connection and an Alipay account."

Spending power
And an Alipay partner. So far, "few companies outside China have realized Alipay is a very big deal. The world hasn't woken up to the fact that Chinese can now buy many foreign products online for the first time," Mr. Erisman said.

An Eddie Bauer spokesman, for instance, said the U.S. retailer has no plans to work with Alipay, and that most of the company's business is from the U.S. and Canada, with only a "minuscule" number of orders from China.

Alibaba's first international partners sell the products -- cosmetics, apparel and electronics -- that Chinese buy in droves when they travel overseas. They include Asian cosmetics retailer Sa Sa International Holdings, discount beauty-products seller StrawberryNet and J Shoppers, a subsidiary of Japan mail-order company Nissen Online. Alibaba predicts monthly transactions will exceed $100 million by the end of the year.

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Contributing: Emily Bryson York
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