Alibaba and Tencent Set Fast Pace in Mobile-Payments Race

By Newley Purnell Features Dow Jones Newswires

Silicon Valley is home to the world's most influential consumer-tech firms, but China's online corporate titans are way ahead in the race to build mobile-payment services in many of the world's fastest-growing consumer markets.

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China's digital-payments market, by far the world's largest, is dominated by e-commerce giant Alibaba Group Holding Ltd. and social-media champ Tencent Holdings Ltd. Now these giants have started transferring money, product advice and technical know-how to mobile money startups in other Asian markets, from Indonesia to India.

As people across Asia increasingly move from cash to smartphone apps for buying goods and transferring money between individuals, U.S. firms remain "still very focused on their home market" and trying to increase usage there, said Shiv Putcha, an analyst at research firm IDC in Mumbai.

Mobile payments in China were a $9 trillion market last year, according to iResearch -- almost 90 times the size of the U.S. mobile-payment market of $112 billion, according to data from research firm Forrester.

Two payment platforms -- Alibaba-backed Alipay and Tencent's Tenpay -- handle some 90% of China's online payments by transaction value, iResearch says. As China's market matures, Alibaba and Tencent are chasing growth overseas, helping local startups in emerging markets run mobile-money systems that don't require plastic.

Chinese investors supplied the bulk of $2.7 billion in funding to Asian financial technology startups in the second quarter of 2017, according to research firm CB Insights. Their experience in China and technical savvy may prove even more valuable.

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As in China, merchants in many emerging markets lack point-of-sale machines needed to process payments via Apple Inc.'s Apple Pay and Alphabet Inc.'s Android Pay. Meanwhile, few consumers in these markets have credit or debit cards that other payments require.

Executives at India's largest mobile-payment app, Paytm, drew inspiration from Alibaba, one of its main funders. Paytm's chief financial officer, Madhur Deora, said his company benefits from frequent meetings with senior Alibaba executives. Paytm staff travel to Alibaba's offices in China and vice versa.

"We exchange thoughts on design and product," Mr. Deora said, referring to the way apps appear graphically on smartphone screens and services can increase user engagement. It is "invaluable," he said, to have a backer who knows that if a new feature takes off, "you could have 100 million people using it."

Mr. Deora and his colleagues had noted that Alibaba was offering users of its app access to online money-market funds, so the Indian firm decided to riff on that product. "Our takeaway was that it had to be an instrument people could relate to," Mr. Deora said.

The result is a savings product that Paytm's more than 225 million users in India can use to purchase portions of gold bars through the platform -- an idea designed to appeal to consumers accustomed to storing wealth in the precious metal.

When India's government last year suddenly canceled 86% of currency in circulation to clamp down on corruption and tax evasion, Paytm swooped. It blanketed India's merchants -- the vast majority of which don't accept credit cards because they lack swiping machines -- with stickers bearing the Paytm logo and QR codes, which smartphone owners use widely in China to pay bills and make purchases in shops and at vending machines. Paytm's user base skyrocketed.

Now, Paytm is used in India to pay for items from roadside hawkers, rides from auto rickshaws and more. Sellers don't need special gadgets beyond the QR code, which transfers money from a buyer's mobile account into the vendor's. Paytm in May raised $1.4 billion from Japan's SoftBank Group Corp.

Alphabet Inc.'s Google on Monday launched its own mobile-payment smartphone app in India, which people can use to transfer money to individuals and businesses without the use of a credit or debit card. Meanwhile, Alibaba and its affiliate Ant Financial have invested in Thailand in a financial-services company called Ascend Money.

China's digital-payment kings have another incentive -- to tap Chinese international tourists, a fast-growing consumer group. Alibaba and Tencent want to build links in their mobile-payment platforms back to the core services, analysts says, to ensure these services are available to Chinese consumers wherever they travel.

Ant Financial has partnered with the media conglomerate Emtek to launch a digital payments service in Indonesia, and with a financial technology firm in the Philippines. Alibaba has been helping startups learn to use new cloud technologies to handle transactions efficiently, according to a person familiar with the matter. Engineers for Emtek traveled to Alibaba's headquarters in Hangzhou for training in how to use cloud technologies that they can apply at home in Indonesia, the person said.

Alibaba processes a "huge amount of payment transactions in peak moments, " and that kind of experience is "hard to acquire," the person added. An Emtek spokesman declined to comment.

Tencent last year led a $175 million round of fundraising in Indian messaging app Hike Ltd. In June, Hike brought a payments feature to its platform, beating larger competitors.

Hike founder Kavin Bharti Mittal has said the app has drawn upon Tencent's experience running China's biggest social network, WeChat, which is popular for its messaging, mobile payments and entertainment features. A Tencent spokeswoman didn't respond to requests for comment.

"China is a few years ahead of us," said Amit Sinha, chief operating officer of Paytm's e-commerce marketplace. Working with Alibaba is "sort of our university."

Write to Newley Purnell at newley.purnell @wsj.com

(END) Dow Jones Newswires

September 22, 2017 05:44 ET (09:44 GMT)