Jan 10, 2014 05:51 PM

Tencent, Alibaba Have their Eyes on Mobile Payment Prize

(Hangzhou) – It can be tricky to get a taxi at the Hangzhou airport. But recently Beijinger Zhang Rui, who was on business trip to the bustling eastern city, walked out of the airport, past a long line of people and hopped right in a cab.

Zhang had booked the taxi using the taxi-hailing app Didi Dache, which is one of the latest services to link with Internet giant Tencent Holdings Ltd.'s hugely popular voice and text messaging app WeChat.

When Zhang reached her destination, she paid for the ride with another app, called Alipay Wallet, an offering from e-commerce giant Alibaba Group. "Technology has really changed life," she said.

The transactions are part of what is sometimes referred to as online-to-offline, or O2O, business, an arena where Alibaba and Tencent are busy battling for supremacy. Late last year, Tencent, which is listed in New York, invested in Didi Dache. Before that, Alibaba put cash into promoting a similar app, called Kuaidi Dache.

And the rivalry is not limited to taxi-hailing apps. The two firms are expanding their offline frontiers to shopping malls, movie theaters, convenience stores and restaurants. Both are beefing up their mobile payment systems – the key to connecting online and offline services – to compete head to head with credit cards and cash payments.

The company that can expand its mobile payment services fastest and marry user habits to its services could well be the country's champion in the mobile Internet age.

Tit -for-Tat

Tencent launched its mobile payment service in August with an updated version of WeChat, which – with more than 270 million active users – is one of the country's most popular social networking tools.

The company's goal is fairly straightforward: convert WeChatters into mobile payment clients. The first phase involves finding businesses, such as restaurants, stores and movie theaters, where customers can use their WeChat apps to pay. Various incentives are offered to lure users.

On December 24, WeChat began cooperating with popular hotpot eatery Haidilao, which has hundreds of stores in 21 Chinese cities. Diners who pay through WeChat – accomplished by scanning a quick response (QR) code on checks – get a 10 yuan discount. (QR codes are those small squares of usually black and white blotches that can be scanned using a phone's camera, conveying some information to an app.) 

To link their bank account with their WeChat account, people use a tab in the messaging app called My Bank Cards, a step that involves using a six-digit code known only to the account holder. The actual payment is handled by Tencent's Tenpay service, which users never see. Some 20 million WeChat users have linked their app with their bank accounts and 200,000 more join every day, Tencent says.

Meanwhile, the payment service that dominates on standard computers – Alipay – is not embedded in any other apps. The app version of the Alipay, known as Alipay Wallet, has more than 100 million users.

In late December, Alibaba announced a partnership with Meiyijia, the country's largest convenience store chain with 5,000 shops across the country. To pay at Meiyijia, shoppers open the Alipay Wallet app on their smartphone and let the cashier scan a barcode on their screen. The transaction should take just a few seconds.

A source at Alipay said the company was working to make deals with other stores, such as 7-11. Alibaba has also partnered in recent months with China Railway Corp.'s online ticket sales system, movie theatres, supermarkets and universities.

Going Offline

Tencent has two approaches to mobile commerce. The first is its e-commerce website Yixun, which includes its own offerings, but also allows third-parties to sell their wares. The second is the online-to-offline business, which involves both retail and services.

The goal for Tencent is to figure out a way to get people to use WeChat for more than just chatting and making payments. Zeng Ming, vice director of the product department at WeChat, put it this way: "We have been searching for a way to create a closed loop between e-commerce and WeChat payment."

Tencent, Zeng said, is positioning WeChat as an app that "connects people with people, devices, businesses and services." One small example of this was seen in an update to WeChat in December that prompted users to enter a delivery address in their profile, a step that would facilitate shopping on Yixun.

Song Yang, assistant director of Tencent's e-commerce department, said about 150,000 products listed on Yixun are sold through WeChat and the number of return customers is growing. WeChat is also looking to include third parties to expand its online shopping section. Late last year, it introduced a special shopping section for sporting brands such as adidas and Nike.

"In the past, e-commerce was mainly based online," Zeng said. "Now it is time to move e-commerce offline."

Return Customer

Meanwhile, Alibaba is working to defend it top position in an era that many say will be dominated by mobile Internet. The company already has the country's largest e-commerce base – Taobao, where e-shoppers can buy anything from sunglasses to snacks – and the popular Alipay.

In October, Alibaba announced its "All-In Mobile" plan, which meant putting a great amount of resources into developing the app for Taobao. Working in the opposite direction WeChat did, the Taobao app soon expanded to includes social networking features. Naturally, all transactions on the Taobao app can be completed with Alipay.

Alipay's greatest advantage is its established user base of 300 million people, which means consumers trust it with their personal and banking information more than they do with the relatively new WeChat payment option. In addition, money parked in Alipay can generate interest income through a money market fund embedded in the service, while WeChat does not offer any opportunity for capital gain at present. For these reasons, WeChat is not yet posing a serious threat to Alipay Wallet, a source at Alipay says.

"Right now, WeChat is better at managing customer relations but not as good as Alipay at generating transactions," said Wang Can, public relations director at Pod Inns, a chain of boutique hotels. He was referring to a WeChat group of customers he maintains.

Ultimately, it appears as though apps like WeChat and Alipay will play larger roles in how we carry out our daily transactions. After Zhang, the Beijinger who was visiting Hangzhou, got out of her taxi, the driver asked for her WeChat details so he could add her to a group of frequent customers he maintains. Then the next time she flew into town, she could just forward him her arrival time so he could pick her up.

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