Ben Cavender
Ben Cavender

Much attention has gone to the massive e-commerce giant Alibaba and its IPO, but its financial arm, Alipay, might in the long run become the bigger operation, says business analyst Ben Cavender in the Technology Review.

The Technology Review:

Alibaba and Alipay, which has been incorporated as a separate company since 2011, helped drive the very rapid expansion of online sales in China—now the world’s second-largest “e-tail” market. McKinsey Global Institute estimates that by 2020, Chinese e-tailing could generate as much as $650 billion in sales, and China’s market “will equal that of the United States, Japan, the United Kingdom, Germany, and France combined today.”

As much as Alibaba has driven China’s booming e-commerce market, it’s possible that Alipay will ultimately have the bigger impact on the Chinese economy. Alibaba and Alipay “are integral to each other’s success,” says Ben Cavender, principal at China Market Research Group in Shanghai. “But I wouldn’t be surprised if, in the long term, Alipay turns out to be the more important business—it’s so flexible and has so many potential uses.”…

With … new mobile payment technologies, China has leapfrogged both checkbooks and desktop banking. Jane Yang, for example, went straight from paying rent in cash to paying via Alipay. According to PricewaterhouseCoopers, 79 percent of Chinese consumers surveyed said they were happy to receive coupons via their mobile devices, versus just 53 percent globally. And 55 percent of Chinese consumers said they expected their phone to be the main way they made purchases in the future, versus 29 percent globally.

This is a remarkable turnaround for a country that for years seemed to be stuck in a far earlier, low-tech era of consumer financial services. “The banks did nothing to make customer service easy,” says ­Cavender, who notes that for many years paying a credit card bill required standing in line at a bank. It could not be done through the mail or online. Only those who had significant funds to invest and lived near large bank branches had easy access to wealth management options.

More in the Technology Review.

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