Everything You Need to Know about Alipay and WeChat Pay (2017-2022)
Product strategy, global expansion, aborted IPO, and blockchain / crypto.
When I first wrote about Alipay and WeChat pay in March 2017, my initial goal was simply to share with my friends and colleagues what these super apps can do. I never thought it would become a popular post - reaching over 100k total readers and even being quoted as a source on Alipay’s Wikipedia page.
Almost six years later, we are living in a totally different world now:
Political noises have drastically curbed Alibaba’s and Tencent’s ambition to dominate the online world;
COVID has reshaped China and the world for the past three years;
Ant Financial aborted its mega IPO, detached itself from its founder Jack Ma, and reformed into a traditional financial holdings group;
The fintech revolution has taken place across the world, especially in Southeast Asia, where Alipay / Ant / Alibaba and WeChat / Tencent have invested heavily, but also inspired a lot of competitors;
not to mention the booms and busts of the crypto / web3 world and how that impacted the “traditional” fintech strategies of Alipay and WeChat.
There is a lot to unfold, and some very controversial topics are involved. So let me clarify that everything I’m writing here represents my personal view and doesn’t reflect my countries - China, where I was born and grew up, or the US, where I live now - nor my companies - Adyen and Strike, which are fintech / crypto players, and Franklin Templeton where I select startups for its fintech incubator, as well as the other fintech startups I advise, such as Factor and Bluedot.
I. Product Strategy Shift - Domestic China
For their core product functionalities and primary use cases, Alipay and WeChat pay have continued to grow in all aspects, as I last described. They have essentially covered all the aspects of everyone’s lifestyle: from shopping / ecommerce, to dining, utilities, accommodation, travel, commuting, and entertainment.
However, the rises of Meituan and Douyin (the Chinese domestic version of TikTok) have caused profound shifts in the product strategy of Alipay and WeChat - as “every company is a fintech company,” the war of payment / fintech has well expanded to broader territories.
I.1. Alipay: Eleme vs Meituan
Food delivery in the US and Europe didn’t really see explosive growth until COVID broke out in early 2020, even if companies DoorDash, UberEats, Deliveroo, and JustEat had already had pretty good traction as early as 2017-2018. Mainstream penetration only materially reached a new level since more people started working from home because of the lockdown.
But in China, the competition in food delivery had already become one of the central stages of battles between internet giants in 2018 - when on April 2, Alibaba announced the $9.5 billion buyout of Eleme, one of the leaders of food delivery in China. The announcement marked Eleme’s showdown against its main competitor - Meituan, which initially emerged as the Groupon of China, but then pivoted to become the dominator of mobile internet-based lifestyle & services in China. (You can read more about the story of Meituan in my other post, which I look to provide an update here on Substack soon.)
Since the takeover, Eleme has occupied the primary real estate in the Alipay app - on the top left corner of the home screen, for the optimal entry point and traffic conversion. However, except for in a few cities, Eleme couldn’t keep its original leading position. Now Meituan is widely seen as the market leader country-wide. Many have attributed the defeat of Eleme to its loss of control from conflicting priorities and resources against Alibaba’s other business units.
I.2. WeChat: Channels vs. Douyin (TikTok) & Kuaishou
Similar to food delivery, the short video is another example of a mobile internet-native industry, originated from the Chinese internet ecosystem and brought to the global mainstream spotlight.
Like how TikTok dominates the global mobile entertainment realm, especially among Gen Z, its counterpart in China - Douyin, under the same parent company ByteDance (read more about ByteDance here) - is also a dominator in the Chinese internet entertainment world. Douyin has had Kuaishou as its main competitor in short videos for many years. Still, they have gradually moved on to different market segments: Douyin targets the middle class, while Kuaishou targets the lower-income but much more mass market.
If you think of short video entertainment as an extension of social media, it’s not surprising to see WeChat, the king of social network in China, finally launching into the already cutthroat competition between Douyin and Kuaishou. Leveraging its ecosystem of Official Accounts and Mini Programs (read more about the context on these features here), WeChat seamlessly rolled out a new feature called Channels, which personal accounts and official accounts can use to share short videos (and even livestream too). Channels have such a high strategic priority for WeChat that its entry point is put right under WeChat’s most frequently used feature — Moments.
Combined with WeChat pay, any business can build a full-cycle conversion funnel in the WeChat environment, with text content from Official Accounts and video content from Channels as customer acquisition channels (probably why the name).
Douyin definitely copied WeChat’s strategy by launching it’s in-app wallet/payment feature in Jan 2021, after acquiring a payment license in Aug 2020. And internationally, it is reported in Jan 2023 that TikTok is working with JPMorgan to improve its in-app payment and wallet functionalities. (In China, ByteDance also obtained insurance and lending licenses in 2018 and 2020 — stay tuned for more analysis on ByteDance’s fintech ambition.)
I.2.a. Short Videos & Livestreaming
Speaking of short videos and livestreaming, there’s also a critical difference in their use cases in China vs. the rest of the world: whereas most teenagers consume UGC on TikTok, advertising is mainly in the form of promoted ads outside of the UGC, similar to how it works on Facebook and Instagram; however, in Chinese internet, it’s more common to see hosts directly promoting certain products as part of the UGC.
Thus, in China such videos and streaming platforms are essentially ecommerce platforms. This is why we will eventually see another direct battle between Alibaba and Tencent - the war of Taobao/Tmall vs. WeChat Channels, after the war of payment between Alipay and WeChat pay.
But outside of China, it’s rare to see people comparing TikTok with Amazon as competitors. We started to see them collectively eating a larger market share of advitising — 2022 marked the first year which Facebook and Google combined accounted for less than 50% of global online advertising, and guess who are the runner-ups — TikTok and Amazon. So maybe it’s just a matter of days until we see them compete against each other beyond advertising and directly in ecommerce.
II. Challenging Global Environment
The past six years haven’t been the best era for globalization - with the impact of COVID since 2020 and with Trump’s presidency in 2017-2021 triggering protectionism on a global scale, the global ambitions of Alipay and WeChat were substantially curtailed.
Moreover, the success story of Alipay and WeChat has inspired a group of startups in Southeast Asia, where Alipay and WeChat have zoomed in for their global strategic expansion and have faced some severe competitors there.
II.1. The impact of COVID and the opportunity ahead
As I wrote in the 2017 post, an essential piece of their common global strategy is to connect Chinese travelers and shoppers with retail brands and tourist attractions overseas. Back then, I worked at a payment service provider - Adyen, and some of my work was directly involved with Alipay and WeChat on this front.
The music went louder and louder in 2018 and 2019, with almost all global luxury brands and trendy boutique brands, famous shopping malls, tourist attractions, and even public transportation systems, all integrated with Alipay and WeChat pay to benefit from Chinese tourists’ spending spree … until it stopped suddenly in early 2020.
You know the rest of the story - no Chinese tourists for the next three years, and it won’t get any better in early 2023, given the newest round of breakout in China. Even though ecommerce has saved the game to some extent, as increasingly more Chinese shoppers are making purchases online and shipping overseas back to China - either directly on the brands’ web stores or via 3rd party platforms - but it wasn’t enough to make up the lost in-store revenue. So it’s understandable why these brands no longer focus on Alipay and WeChat as their top-of-mind.
However, I believe the invested infrastructure of these payment rail integrations is no money wasted. The Chinese tourist wave might be delayed, but the pent-up demand is definitely going to come back - maybe as early as the May 1 holiday or October 1 holiday this year. As the news of China easing COVID measures just broke out, we saw a sharp increase in the demand for domestic travel as well as international travel - so sharp that several top tourist destination countries such as the US, Japan, and Korea had to put up strict measures to curb the re-import of COVID. But it definitely proves that the demand is strong and that spending is going to back sooner or later.
II.2. Protectionism is the real threat
COVID is the killer of the transaction volume of Alipay and WeChat pay, but the real killer of the user growth is the anti-China movement brought by Trump and the induced protectionism over the concern of data security.
Before then, since the domestic Chinese market was saturated as both Alipay and WeChat pay had over 1 billion users in China, both have started to look at the international market for user growth.
It is easier for a non-fintech product to grow globally since it is not subject to strict financial regulations. That’s why TikTok was able to see exponential growth to the extent that it is posing a severe threat on Facebook / Instagram. But for Alipay and WeChat to grow their international user base, they have to integrate with local financial infrastructure such as the banking system, obtain local fintech licenses, and comply with local regulations, all of which were moving slow - till this day, I was still unable to add my Chase card to my Alipay and WeChat wallet.
Then came Trump, who threatened to shut the door on TikTok together with WeChat and Alipay and triggered a global wave of anti-Chinese tech and fintech. Both teams quickly switched directions to focus more on the domestic market’s user retention and engagement, instead of trying to find new users outside of China. In fact, I had spoken to some other China-based global fintech companies, and they all adopted the same strategy shift.
Reciprocally, Chinese regulators were doing the same - pulling Chinese tech and fintech players out of the global markets. For example, when Ant Group planned its IPO in 2020, it only chose Hong Kong and Shanghai, instead of New York where Alibaba IPO took place in 2014. Even though Didi managed to IPO on NYSE, Chinese regulators managed to quickly force it to quit listing and imposed a fine of 8 billion RMB (~$1.2 billion) over the concern of data security.
When I was traveling the world actively in 2018 - 2019, I used to see Didi growing rapidly in other Asian countries and in Latin America (oh the free beers in Bogota thanks to Didi’s promotion). But since 2020, many of Didi’s international leaders have left the company to either come back to China or join other startups / tech companies. Didi isn’t alone - Bytedance is setting a clear boundary for its Douyin (domestic Chinese) and TikTok (international) products, and those who work on the international product were relocated to outside of China.
II.3. Fintech revolution is bringing up competitors
Another factor restricting Alipay and WeChat pay’s global expansion is the rising fintech competitors around the world, especially in Southeast Asia, which both companies see as a strategic market.
As I mentioned in the 2017 article, both Alipay and WeChat pay have been using a combination of strategic investments and tech / knowledge support to partner with local fintech companies. The trend continued.
In April 2017, Ant Financial partnered with Emtek in Indonesia to create DANA, a digital payment product launched in 2018. In Sep 2017, Ant Financial partnered with Kasikornbank in Thailand to promote QR code-based digital payment. In Sep 2018, Ant Financial formed a joint venture with Touch ’n Go in Malaysia to provide a digital wallet used in public transportation. At the end of 2019, it also invested in eMonkey in Vietnam, which acquired a local financial license. On the WeChat side, in Nov 2018, Tencent strategically invested in Voyager in the Philippines and offered support for its PayMaya mobile wallet (and competed with GCash, which was invested by Alipay).
However, local players also see the potential of mobile payment and are not willing to give up the market to foreign companies such as Alipay and WeChat pay. Famously, Grab from Malaysia and Gojek from Indonesia have been copying the “super app” strategy of Alipay and WeChat and launched their own payment products in many Southeast Asia countries - known as GrabPay and GoPay.
Besides, there are competitors from other areas. From ecommerce, Shopee launched ShopeePay to compete directly with HelloPay of Lazada (invested by Alibaba). In Thailand, many banks have launched their own version of mobile wallets, such as SCB Easy from Siam and PromptPay from the Bank of Thailand. LINE, the Japanese social network, has also entered the Thailand market via a partnership with Rabbit to support mobile payment on transportation and retail. There are also gaming companies with fintech ambition, such as Garena’s AirPay in Thailand.
Local players are quickly learning from Alipay and WeChat pay and closing the tech and knowledge gap. The best strategy for both Alipay and WeChat remains to be via B2B strategic investments and partnerships, but that also means they won’t be able to evangelize their brands among the local consumers like how Visa and MasterCard have been able to do globally.
III. The aborted Ant Group IPO in 2020
III.1. The systemtic risk of Ant Group
The failed IPO of Ant Group in 2020 could have been the largest in history - expected to raise $34.5 billion and pushing the company’s valuation to above $300 billion, overpassing Saudi Aramco’s IPO earlier that year which raised $29.4 billion.
Dramatically, only two days before its duo public listing in Shanghai & Hong Kong, Chinese regulators suspended the IPO over the concerns about fintech regulation. The Chinese regulators’ move was at lightning speed - just one day after Ant Group’s (& Alibaba’s) founder Jack Ma publically criticized China’s fintech regulation at a financial summit attended by Wang Qishan, the Vice President of China.
It was an unprecedentedly serious move - it wasn’t just one regulator, but all four top financial regulators of China: the People’s Bank of China (PBOC, the central bank of China), the China Securities Regulatory Commission (CSRC, the SEC of China), the China Banking and Insurance Regulatory Commission (CBIRC, the top regulator of banks and insurance companies of China), the State Administration of Foreign Exchange (SAFE, the top regulator of foreign exchange of China).
One of the fundamental reasons for the regulators’ shocking reaction was Ant Group’s sheer size of impact on China’s financial market. As of June 2020, total outstanding consumer credits on Ant Group’s platform reached 1.7 trillion RMB (~$250 billion), or 21% of the total outstanding consumer credits in China. This crazy level of concentration screamed a huge financial risk since the company was not regulated as a financial institution, and Jack Ma’s speech was simply the last straw on the camel’s back.
III.2. The transformation of Ant Group
With the cancelation of the IPO, the regulators gave five key orders to Ant Group:
To correct the improper competition in the payments industry.
To break the financial information monology.
To change from a tech company to a financial holdings company.
To put in tighter measures to control credit risk on its lending products (e.g., Huabei & Jiebei).
To put in tighter measures to control liquidity risk on its money market fund product (e.g., YuEBao).
The core principles of these measures are essentially 2-fold:
To stop the duopoly in payments between Alipay and WeChat and the unhealthy competition it has caused. You can read more about the duopoly from my original post on Alipay and WeChat — they have become so powerful that all the banks (and China UnionPay — the Visa/MasterCard of China) have been significantly overshadowed. Back in 2018, PBOC established a joint venture with Alipay, WeChat pay, and UnionPay and set up the internet payment clearing house, trying to alleviate the duopoly and competition and bring payments back under the control of the banking system, but the move wasn’t powerful enough. Alipay and WeChat were rocket ships, and they couldn’t care less about anything other than growth, not to mention there were other eager and ambitious competitors behind them, such as ByteDance, Meituan, and Didi. The suspension of Ant Group’s IPO came as a final warning. But even with that ultimatum, it wasn’t until 2022 that the brick wall between Alipay and WeChat pay systems was brought down, when users can finally interact between the two systems and their ecosystems behind (Alibaba & Tencent) — something India’s UPI has achieved more easily than PBOC.
To regulate fintech companies more like financial institutions than like tech companies. For years before its attempted IPO, Alipay had been rebranding itself as a “tech-fin” company rather than a “fin-tech” company, meaning that it’s more focused on providing the technical infrastructure instead of competing with the banks for financial services. However, the Chinese regulators didn’t see it that way (and to some extent rightly so - or how can you justify a “tech” company accounting for 1/5 of the country’s total outstanding consumer credits). The bigger backdrop is, globally, all regulators are struggling to manage the disruption of fintech, combined with rampant chaos of data security and privacy issues across. So it’s no surprise that the Chinese regulators finally pulled the triggers. In the following two years, Ant Group obeyed the orders of the regulators and established a financial holding company to handle its consumer credit services. The holding company attracted a total investment of 18.5 billion RMB (~$2.7 billion) — with Ant Group itself controlling 50% of the stakes, and the rest coming from 11 other investors including some state and local-governement controled enterprises and public companies in China. The plan was finalized as of December 30, 2022. Compared to the previous version of the plan from Dec 2021, the total committed investment grew by 10 billion RMB, signaling that Ant Group is still an attractive and systemically important business. Meanwhile, the size of its money market fund YuEBao shrank from 1.2 trillion RMB as of Dec 2020 to 722 billion RMB, a 40% decline in total AUM. The financial risk is better controlled.
Even if heavily punished and cracked down by the regulators, and even with the measures curbing its influence such as breaking the silo with WeChat and integrating with PBOC’s digital RMB, Ant Group is still a very powerful player in the financial services sector in China, and now officially allowed to compete head-to-head with the banks and insurance companies because it is regulated as one.
IV. Limited ambition in crypto / web3
Since China outlawed cryptocurrency activities in 2021, almost all Chinese companies that are involved with crypto / web3 have been moving out of China. So no surprise, neither Alipay nor WeChat pay have been involved with any global crypto / web3 activities (i.e., on the globally available L1/L2 or in DeFi).
Most of Alibaba/Ant’s and Tencent’s strategies in crypto have been primarily focusing on the blockchain technology itself, such as AntChain of Ant and TrustSQL of Tencent. The hope is to leverage Alibaba Cloud — by far the dominant player in the cloud computing industry in China — and Tencent Cloud — with a competitive advantage in its AI power — over enterprise blockchain services. In this aspect, you can think of them as similar to IBM and HyperLedger.
In 2021, Ant made a relatively controversial move to list some NFTs on Alipay. But different from the NFTs you might be more familiar with, they were not built on internationally-accessible L1s like Ethereum or Solana, but on AntChain. And they were not issued by individual artists but by state-owned museums trying to promote traditional Chinese arts and crafts. Even so, some of the NFTs were traded at a high multiple after being minted, causing a lot of public debate.
On the WeChat side, many Public Accounts have been involved with fraudulent activities of illegally promoting cryptocurrencies, NFTs, and metaverse projects and thus have been banned. Therefore, unless Chinese regulators change their stance on cryptocurrency, I don’t expect Alipay and WeChat to be visibly involved with the global movement of web3 in the near term.