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Let online payment battle commence
By Ding Yining |
May 26, 2011, Thursday
|
Print Edition
Print Edition
LAST week, online shopping website 360Buy said it has scrapped a deal allowing users to pay for goods and services using accounts with third-party online payment company Alipay.
The decision is the latest twist in the rapid reconfiguration of payment systems for the popular and burgeoning online shopping sector.
"We have to pay more than 5 million to 6 million yuan (US$923,000) in commission to Alipay every year, which is higher than other third-party payment platforms," 360Buy Chief Executive Liu Qiangdong was quoted as saying at a media briefing in Beijing last week. "That is why we won't renew our partnership with Alipay."
Liu said 90 percent of orders through 360Buy are paid by cash on delivery. He further claimed that only 1 percent of total transactions handled by his website go through Alipay, with the majority of the sales using other payment platforms, such as 99Bill and Tenpay.
However, his figures seemed a bit askew. Based on 30 billion yuan of sales for 360Buy last year and the 0.4 percent commission rate charged by Alipay, the math works out to be something around 1.2 million yuan in commission.
Industry watchers suspect that Liu's public accounting has more to do with guarding his company's finances than in presenting an accurate picture of commission payments.
Alipay is the sister company of Taobao, which hosts consumer-to-consumer vendors on its popular auction website and bigger business-to-consumer vendors on an independent sector Taobao Mall.
Commission fees vary from vendor to vendor, usually based on volume. The rate ranges from 1.2 percent for small vendors to less than 0.8 percent for larger vendors.
A customer service official from 360Buy said the website stopped accepting payments through Alipay from the middle of this month.
The online shopping sector is highly competitive, and payment systems have become an important weapon in this battle.
Traditional retailing groups are expanding into their own payment systems and decreasing their dependence on third-party payment providers.
Shanghai-based Lianhua Supermarket Holdings said earlier this month it will stop allowing Lianhua OK Card owners to transfer remaining sums to their Alipay accounts.
Lianhua OK Card is a kind of prepaid shopping card that can be used at local stores and at an online shopping platform run by the Bailian Group, parent of Lianhua.
It is widely used as a bonus or allowance that companies give to employees and clients other than cash and for the past two years users were able to transfer the balance in OK Card to Alipay accounts so they could be used not only in supermarkets but also for online shopping.
Bailian said it has invested 100 million yuan to start up its own payment subsidiary.
Lianhua and 360Buy are not the only ones to abandon partnerships with Alipay.
Nong Gong Shang Supermarket Group, another Shanghai-based supermarket chain that operates shopping malls and convenience stores, established its own payment platform called Bianlitong at the end of 2009, with an initial investment of 150 million yuan.
Last June, the People's Bank of China stipulated that non-financial institutions must hold licenses to operate third-party payment services, starting on September 1 this year. Nong Gong Shang is among those who have applied.
The central bank prohibited such third-party payment platforms from depositing money in each other's accounts or transferring capital from one to another.
Capital transferring between third-party payment operators should be conducted through financial institutions. These requirements are aimed at curbing money laundering activities in the country's financial system.
The new regulation requires payment platforms operating on a nationwide level to have registration capital of 100 million yuan. Regional operators must have 30 million yuan.
Strangely, central bank regulations required platforms to stop deposits and transfers between each other last June, but partnerships involving the likes of Lianhua, Nong Gong Shang and Alipay were unwound only recently.
In terms of volume, Alipay had 45.5 percent of the online payment market, with a total value of more than 397.3 billion yuan in the first quarter, according to data compiled by Analysys International.
Tencent's payment division Tenpay trails Alipay with a 20.3 percent market share, and Shanghai-based 99Bill has 6.1 percent of the market.
"After all, Alipay is not an independent company and its relationship with Alibaba Group gave it a strong foundation," said analyst Zhang Meng at research house Analysys International. "It will surely face competition from other players in the long term."
Cheng Baoshan, an analyst with Internet consultancy iResearch, said the central bank licenses will help encourage more payment service operators to join the industry and no longer will just a few players dominate.
He estimated the overall market size for third-party payment systems could jump more than 10-fold to dozens of trillion of yuan in the next few years as more sellers turn online.
In my view, online vendors, as well as conventional retailers, have every reason to choose their payment service vendors or even set up their own payment systems.
After all, payment tools are set up to provide convenience to users. The only worry is that the establishment of competing payment services may erupt into a cat fight that jeopardizes user convenience.
If every retailer and vendor eventually set up their own separate payment systems and boycott other third-party partners, customers would be forced to deal with a myriad of payment platforms every time they shop online.
Cooperation and interface are needed for the online market to develop smoothly.
The decision is the latest twist in the rapid reconfiguration of payment systems for the popular and burgeoning online shopping sector.
"We have to pay more than 5 million to 6 million yuan (US$923,000) in commission to Alipay every year, which is higher than other third-party payment platforms," 360Buy Chief Executive Liu Qiangdong was quoted as saying at a media briefing in Beijing last week. "That is why we won't renew our partnership with Alipay."
Liu said 90 percent of orders through 360Buy are paid by cash on delivery. He further claimed that only 1 percent of total transactions handled by his website go through Alipay, with the majority of the sales using other payment platforms, such as 99Bill and Tenpay.
However, his figures seemed a bit askew. Based on 30 billion yuan of sales for 360Buy last year and the 0.4 percent commission rate charged by Alipay, the math works out to be something around 1.2 million yuan in commission.
Industry watchers suspect that Liu's public accounting has more to do with guarding his company's finances than in presenting an accurate picture of commission payments.
Alipay is the sister company of Taobao, which hosts consumer-to-consumer vendors on its popular auction website and bigger business-to-consumer vendors on an independent sector Taobao Mall.
Commission fees vary from vendor to vendor, usually based on volume. The rate ranges from 1.2 percent for small vendors to less than 0.8 percent for larger vendors.
A customer service official from 360Buy said the website stopped accepting payments through Alipay from the middle of this month.
The online shopping sector is highly competitive, and payment systems have become an important weapon in this battle.
Traditional retailing groups are expanding into their own payment systems and decreasing their dependence on third-party payment providers.
Shanghai-based Lianhua Supermarket Holdings said earlier this month it will stop allowing Lianhua OK Card owners to transfer remaining sums to their Alipay accounts.
Lianhua OK Card is a kind of prepaid shopping card that can be used at local stores and at an online shopping platform run by the Bailian Group, parent of Lianhua.
It is widely used as a bonus or allowance that companies give to employees and clients other than cash and for the past two years users were able to transfer the balance in OK Card to Alipay accounts so they could be used not only in supermarkets but also for online shopping.
Bailian said it has invested 100 million yuan to start up its own payment subsidiary.
Lianhua and 360Buy are not the only ones to abandon partnerships with Alipay.
Nong Gong Shang Supermarket Group, another Shanghai-based supermarket chain that operates shopping malls and convenience stores, established its own payment platform called Bianlitong at the end of 2009, with an initial investment of 150 million yuan.
Last June, the People's Bank of China stipulated that non-financial institutions must hold licenses to operate third-party payment services, starting on September 1 this year. Nong Gong Shang is among those who have applied.
The central bank prohibited such third-party payment platforms from depositing money in each other's accounts or transferring capital from one to another.
Capital transferring between third-party payment operators should be conducted through financial institutions. These requirements are aimed at curbing money laundering activities in the country's financial system.
The new regulation requires payment platforms operating on a nationwide level to have registration capital of 100 million yuan. Regional operators must have 30 million yuan.
Strangely, central bank regulations required platforms to stop deposits and transfers between each other last June, but partnerships involving the likes of Lianhua, Nong Gong Shang and Alipay were unwound only recently.
In terms of volume, Alipay had 45.5 percent of the online payment market, with a total value of more than 397.3 billion yuan in the first quarter, according to data compiled by Analysys International.
Tencent's payment division Tenpay trails Alipay with a 20.3 percent market share, and Shanghai-based 99Bill has 6.1 percent of the market.
"After all, Alipay is not an independent company and its relationship with Alibaba Group gave it a strong foundation," said analyst Zhang Meng at research house Analysys International. "It will surely face competition from other players in the long term."
Cheng Baoshan, an analyst with Internet consultancy iResearch, said the central bank licenses will help encourage more payment service operators to join the industry and no longer will just a few players dominate.
He estimated the overall market size for third-party payment systems could jump more than 10-fold to dozens of trillion of yuan in the next few years as more sellers turn online.
In my view, online vendors, as well as conventional retailers, have every reason to choose their payment service vendors or even set up their own payment systems.
After all, payment tools are set up to provide convenience to users. The only worry is that the establishment of competing payment services may erupt into a cat fight that jeopardizes user convenience.
If every retailer and vendor eventually set up their own separate payment systems and boycott other third-party partners, customers would be forced to deal with a myriad of payment platforms every time they shop online.
Cooperation and interface are needed for the online market to develop smoothly.
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