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Series Report on Ant Financial, Part III – Comparison between Alipay and Tenpay
Series Report on Ant Financial, Part III – Comparison between Alipay and Tenpay
Alipay and Tenpay dominate the third-party payment market. Photo: Credit to Unsplash website
Associated Company
Ant Financial Ant Financial

Regulatory changes and technologies are reshaping China’s financial activities. The speed of financial evolution in China is vastly ahead of other countries, leapfrogging from the credit card system to mobile payment. After we go through the payment history of China in PART II of this series report, we can have a comprehensive understanding of the background when groups of hybrid fintech companies rising after Ant Financial, for example, Tencent, JD, and Ping An. They have emerged at the heart of China’s financial industry, making financial services more convenient and accessible for consumers.

Launched in 2004, Alipay is the pioneer in acting as the escrow service provider in online transactions. It allows consumers to verify the receipt and quality of goods before releasing the money to sellers, which solved the lack of trust for e-commerce in the early stage.

Escrow service is based on the innovation of virtual account started by Alipay, when the buyer places an order, the payment is kept in the virtual account in a trustee bank, after seller received the payment information, they shipped the ordered goods. Then the buyer received and confirm the order completion, the payment will go from the virtual account to the sellers’ account. This innovated payment method has replaced the manual clearing system and built the foundation of third-party payment.

Since then, the third-party payment has grown rapidly in China since 2012. The third-party payment via desktop has increased with a 4-year CAGR of 53% in 2016, but mobile payment has grown even faster with a 344% 4-year CAGR from 2012 to 2016. Mobile payment accounts for more than 75% of all third-party payments, from only 4% in 2012. Alipay has been the biggest payment company in both desktop payment and mobile payment. From the overall situation in 2018, the market share of Alipay is around 53%.

However, its market share has been declining since 2014, especially in mobile payment, as Tenpay (财付通) entered the race.

Tenpay (WeChat Pay and QQ Wallet) is currently the second largest player with a 38% market share in 2018. Its market share has doubled since 2014.

The rest of the market is scattered. Among the other players, the relatively sizeable ones are Ping An e-wallet, JD Pay, Yifubao. There are also payment companies that specialize in only one platform or product. For example, Lakala mainly focuses on providing mobile payment solution to physical retailers. Players like China UMS, 99Bill and ChinaPnR have sizeable market share in desktop payment, but little exposure to mobile payment. Banks have also been trying to play catch-up, providing much more streamlined mobile payment service through its mobile application, such as QR code scans and innovative functions such as payment through mobile phone number.

Currently, there are around 250 payment companies in the payment value chain. However, Alipay and Tenpay together represent a more than 85% market share. The mobile market is even more concentrated with Alipay and Tenpay taking up 91% of the market share. As the rest are tiny ones compared with Alipay and Tenpay, this article will focus on the top two players on its key merchants, pricing, product lines, and overseas expansion strategies.

Key Merchants

Key merchants of Alipay are Taobao, Tmall, Ctrip, Weibo, Didi Chuxing, millions of offline merchants, and millions of SMEs in Alibaba’s ecosystem

Alipay, obviously relying on the huge advantage of Taobao e-commerce, shopping on Taobao, Tmall, payment methods should only Alipay and UnionPay, WeChat is blocked. Then in terms of occupying huge online shopping, as well as online business payments. Alipay has a greater advantage.

Key merchants for Tenpay are JD, Didi Chuxing, Meituan Dianping, Watsons, 7-Eleven, eLong, and offline merchants.

We can conclude from the merchant type that Alipay handles more B2C or consumption-related payment activities, while Tenpay has a larger share of C2C transfers.

Pricing Strategy
The reason for the explosive growth of mobile payment in a short period of time is absolutely inseparable from the burning-money model of Alipay and Tenpay.

In order to expand their influence and expand the market to attract users, a variety of patching styles have been applied, including the most common red packet, this popular promotion activity started by Tenpay can increase the viscosity between the user and the platform. Individual merchants can transfer their money in Alipay to the linked bank card for free, while individual consumers will be charged 0.1% after reaching a lifetime quota of RMB 20,000. For Tenpay,  individuals are subject to 0.1% charges, each individual is entitled to RMB 1,000 cumulative free transfer amount.

In addition to individual users, merchants also benefit greatly from the attracting-users competition due to important part merchants play in the development of offline mobile payment market. 

Alipay offers various payment services for merchants, including desktop payment, mobile o payment, and offline QR code payment designed for offline small merchants. The pricing of these services is set from 0 to 1.2% of the transaction value. Alipay is currently promoting QR code payments to small offline merchants and this service is offered for free when consumers pay by scanning the merchant’s QR code. For SME merchants, they are entitled to a cheaper rate of 0.55%.

For Tenpay merchants, Tenpay charges them no more than 0.6% of transaction volume for most of the industries. For enterprise accounts that subscribe to Tenpay’s instant transfer services, they are charged 0.4% to 1.5% of transaction volume, depending on the plan they choose and transaction volume. To transfer money to bank accounts usingTenpay, merchants can transfer for free.

After Feb. 1, 2019, Alipay and Tenpay agreed upon a flat rate of 0.6% for most of the industries, put the money-burning race to an end, and seek a more healthy way of long term development.

Product Lines

Alipay, together with other products showed below, provides comprehensive financial services for consumers. From Alipay's payment as an entry point, its financial sector is completed by wealth management, credit scoring system, internet banking, small loan, and insurances, etc., creating a one-stop or closed loop for users.

Alipay’s role as the payment infrastructure of Alibaba and Ant Financial’s ecosystem differentiates itself as being more commercially relevant compared to Tenpay. According to Alibaba, 70% of Alipay’s transactions are commercial transactions

Other than payment processing for merchants, Tenpay’s main product offerings are through WeChat and QQ, the social networking apps that used by more than 80% of the whole population in China. Peer transfer and red packet: this feature leverages and reinforces WeChat’s social feature, allowing users to transfer money to WeChat friends (can be in red packet format), to send a probability-based red packet to group chats, and to request for payment in a group chat. QQ Wallet also innovates “Password Red Packet”, giving red packet only to those who repeat a certain “password”, making money transfer more social and engaging.

WeChat Pay also provides payment services for WeChat Mini Program, empowering offline SMEs and connecting offline services to online users.

WeChat Pay and QQ Wallet provide an entry point to Tencent’s wealth management platform Licaitong (理财通), which is a marketplace for wealth management products such as money market fund and index funds.

Tenpay’s key advantage lies in the ubiquity of Tencent’s social and communication assets, WeChat and QQ (with 938mn and 861mn MAUs respectively as of 1Q17), through which Tenpay’s services are offered. This significantly lowered the customer acquisition cost (CAC) for WeChat Pay and QQ Wallet and underpinned their strong performance in mobile and offline payment scenarios.

Overseas Expansion Strategy

From the above arguments, we can see the fierce battle between Alipay and Tenpay has never stopped. As the coverage of the consumption scenario approaches saturation, these two giants have further infiltrated into the scenario on one hand, and have begun the overseas expansion to find new growth possibility on the other hand. Although the pattern seems to be the same, they actually differ on focused strategies. 

Alipay has established cooperation with more than 250 financial institutions around the world to provide online payment services for overseas merchants and users. On the other hand, it provides overseas consumers with offline payment services in 54 countries and regions around the world to help Chinese people realize “One mobile phone travels all over the world”. More importantly, it develops 9 other “local version of Alipay” to serve local users in 9 countries and regions.

Since the countries along the “Belt and Road” are densely populated and generally young in age structure, the supply of financial infrastructure services is insufficient. Therefore, Alipay's "investment + technology + experience" mode has been well accepted along these regions and in return boost the payment infrastructure building before Alipay's globalization strategy.

Tenpay is slightly behind Alipay in both overseas merchant cooperation and global investment. However, Tenpay is infiltrating into every corner of the world. The number of countries and regions that can use Tenpay (WeChat mainly) has increased to 49, and the number of billable currencies has increased from 12 to 16.

In South Africa, Tenpay has launched an international payment solution that allows users to send and receive money using WeChat wallets or withdraw cash from ATMs. They also work with global payment technology company Adyen to help companies around the world reach new customers abroad. Right after Alipay's investment in the largest payment company GCash in Philippine, Tencent invested Paymaya, the second largest payment player of the country.

The contest between the two in the international market is not only in the Southeast Asian market but also in the economically developed regions. Alipay acquired cross-border payment company WorldFirst in Feb. 2019 while Tenpay started the cooperation with Line in Japan aiming at the tourist from China in their retail-related consumption.

After the comparison of the two giants in the payment industry, we see the importance they put in controlling the consumption scenarios by creating a closed loop of the financial ecosystem and in the overseas expansion. Clearly, the payment as service functions not only as an entry point of fin-life but also an infrastructure weapon to the future world. Alipay who owns the B2B gene from Alibaba, has more first-mover advantage in the trial of globalization.

Enterprise Information

Ant Financial is an online payment services provider that enables individuals and businesses to execute payments online in a secure manner.
CATEGORIES: Fintech
Last Funding Type
Series C
Number of Employees
5001-10000
Number of Funding Rounds
3
Total Funding Amount
14.75B

Enterprise Information

Ant Financial
Ant Financial is an online payment services provider that enables individuals and businesses to execute payments online in a secure manner.
CATEGORIES: Fintech
Last Funding Type
Series C
Number of Employees
5001-10000
Number of Funding Rounds
3
Total Funding Amount
14.75B

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