Same playbook, new field ... Alibaba invests in India's Paytm
- India offers Alibaba the same benefits it found in China a decade ago
- This won’t be the last investment that Alibaba makes in India
- There are slim prospects for latecomer platform Apple Pay in the China market
By Neil Flynn
Alibaba has reportedly invested $680 million into the parent company of Indian mobile payment platform Paytm, which is also under the same umbrella as an e-commerce platform. It will come as no surprise that this sounds very similar to Alibaba’s own structure in China, as the firm looks to leverage its experience in e-commerce and payment in the ‘next big emerging economy’.
What makes this investment interesting that that Alibaba and Ant Financial (Alibaba’s financial subsidiary and parent of Alipay) both hold 20% stakes in Paytm, which is a strong indication that investment in Indian e-commerce and mobile payments will be a major focus over the next 12 months.
Expansion outside of China is something that I have suggested that domestic firms should aim to do. Whilst some firms, such as Baidu, have a business model that is difficult to use overseas due to Western rivals, Alibaba has a somewhat unique business model for emerging markets that developed market rivals have found difficult to adapt to. India is a key hunting ground for Alibaba because it offers the same conditions that the firm exploited in China a decade ago: a growing middle class, lack of consumer retail products, huge smartphone adoption, and limited existing technological infrastructure. I remain convinced that this won’t be the last investment that Alibaba makes in India.
Rivalry from Apple Pay
Alibaba has made a concerted effort over the past two years to solidify Alipay’s position as China’s dominant mobile payment platform, amid technological advances and new rivals emerging. Alipay has seamlessly moved from PC to smartphone over the past three years, and now the next stage for the platform will be the transition to the smart watch. In China, Alipay is used in offline stores by opening the QR code for your personal account on a smartphone, and the cashier scanning it at point of sale. The strategy for the smart watch is very similar, where the Pay Watch will load that QR code automatically, in order to reduce the ‘hassle’ of taking your smartphone out and loading the code manually.
I recently discussed how Alibaba is launching a smart watch that is specifically designed for quick payments using Alipay (Alibaba employs smart timing for new watch). Whilst it may offer convenience to users, the main reason for the watch is to stave off competition from the recently launched Apple Watch and Apple Pay, which will soon be launched in China.
My personal expectation is that Apple Pay will take a small share of the online payments market in China. Alipay is by far and away in the strongest position, given that it was launched years before any of its major rivals. The only real competition that Alipay faces is from Tencent's WePay, which is only popular because it is part of the WeChat messaging app, allowing users to make purchases through the app. Both platforms have boosted their user base through promotion in taxi hailing apps and food delivery O2O apps, encouraging users to pay via one of the platforms in order to receive a discount.
Baidu has tried to implement a similar strategy for its Baidu Wallet platform, with heavy invest in Uber and its food takeaway app. However given its late entry into the market, both apps are essentially forced to offer users the option to pay via Alipay and WeChat, meaning that there's no real need to switch to Baidu Wallet.
So with Apple Pay set to enter the Chinese market, the single most important question to ask is ‘Why would anyone need to use it?’ Even despite Apple’s popularity in China, mobile payment platforms are much more common here in China than in the West, and the potential for it to become a dominant platform are slim to none.
– Edited by Robert Ryan
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