Article / 25 September 2015 at 4:35 GMT

Alibaba employs smart timing for new watch

China Watcher / Shanghai
China
  • Alibaba has launched the Pay Watch smart watch
  • Its main purpose is mobile payments
  • Pay Watch will use Alipay's network of 130,000 offline stores and restaurants
  • It is deliberately aimed at combating the threat from Apple 

By Neil Flynn

Alibaba announced that it is set to enter the smart watch business with the launch of Pay Watch, which, as the name suggests, will be used to expand the ecosystem of its mobile payments platform Alipay. 

Alibaba launched the watch as a crowd-funded project on Taobao Crowd Funding in order to produce a cheap rival to the Apple Watch. With the primary purpose of the device being payment, Alibaba says the watch will use Alipay’s network of 130,000 offline stores and restaurants that are eligible to accept payment through the Alipay platform. In addition to convenience stores and restaurants, this will also include large foreign supermarket brands in China, such as Carrefour and Wal-Mart. 

For users that supported the Pay Watch on Taobao Crowd Funding, the price will be RMB 699 ($109), while the price for mass retail will be RMB 899 ($141).

Pay Watch
Source: Alibaba

The expansion of mobile payments onto the smart watch is a natural progression because of the simplicity of using a watch to pay for goods in store and in restaurants. The concept of the Pay Watch will allow users to simply load the QR Code for their Alipay account on the smartphone for it to be scanned at the point of sale.

The watch will be the first to be equipped with its proprietary YunOS operating system, something that I spoke about last year. I expect that this will be a gradual rollout throughout its ecosystem over the next few years. 

The problem that Alibaba faces is that the majority of its mobile services are used on smartphones and tablets (and now watches) that use either the iOS or the Android operating systems. Weaning users away from those and onto its YunOS will be a slow and careful process, and will be done through its proprietary hardware products. 

The Pay Watch is a good start, and the internet-connected vehicle that will be released next year with manufacturer SAIC will certainly use YunOS.

Mobile payment in China has seen its popularity and usage grow exponentially over the past few years, to be point where I rarely need to use cash. For example, convenience stores all accept payment via the likes of Alipay and Tencent's WePay; food can be ordered and paid for through O2O food apps; taxis can be hailed via smartphones and paid for with payment apps, and restaurants that offer daily deals (nearly all do) can only accept payment via a payment app. 

The growth in the adoption of mobile payments is common across wealthy Asian nations, particularly in South Korean and Japan. However, one concern that I do have is illustrated on Ele.Me. When a user is given the option to pay via a mobile payment platform, there's also an option for Fengqi, which is a short-term loan provider that specifically targets cash-poor and financially naive students. I believe that consumer credit platforms such as this will soon be curbed.

Alipay has been in operation for over a decade and has successfully staved off competition from most domestic and foreign competition including PayPal. The only real rival to Alipay is WePay, simply because it’s a function of the primary messaging app WeChat. However, Apple Pay is soon to launch in China, and given the strong demand for anything with an Apple logo on the Mainland, Alipay needs to solidify its market leading position. 

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 Alipay's Pay Watch is designed to combat the threat from Apple Pay. Photo: iStock

The Apple Pay feature on smartphones shouldn’t be a major issue for Alipay simply because it has already built up a major mobile user base. However, with the launch of the Apple Watch, which is becoming a more frequent sight in China, the ease of which goods can be paid for via the smart watch would act as a major rival to the smartphone. 

Alipay’s launch of its own smart watch is deliberately aimed at combating the threat from Apple. Nevertheless, it should be noted that Alipay is already available on the Apple Watch. The launch of the Pay Watch is simply a way for Alibaba to benefit from the smart wearables trend that is growing in China. 

– Edited by Gayle Bryant

Neil Flynn is a China watcher based in Shanghai. Follow Neil or post your comment below to engage with Saxo Bank's social trading platform.

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