A pitched battle between China's technology titans for control of the world's largest mobile-payments market is starting to ripple overseas.
The biggest combatant is Ant Financial Services Group, an affiliate of e-commerce giant Alibaba Group Holding Ltd. and the owner of China's dominant Alipay service. Alipay lets users pay for everything from haircuts to houses via codes generated on their smartphones, instead of cash or cards. It is facing off against Tenpay, a similar service attached to WeChat, a popular messaging platform run by Chinese social-media firm Tencent Holdings Ltd.
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Alipay is losing ground fast. From a near-stranglehold of 80% of China's mobile-payments market by transaction value in mid-2014, Alipay's share has steadily fallen to just above 50% at the end of June, according to data from research firm iResearch.
Tenpay's share has risen to 40% from 7% over the same period, buoyed by WeChat, which has extended its chat functions to allow friends to split dinner tabs, square small debts and more. Chinese spend a third of the time they are on smartphones using WeChat, and that number is rising, surveys show.
Now, Ant is trying to take advantage of its edge in e-commerce and follow Chinese shoppers abroad, where there is the promise of booming Chinese tourism and new foreign users. Tencent is close behind.
"It's like what happened in the 1950s when U.S. banks followed their corporate customers overseas," said Paul Schulte, founder of fintech-focused consulting firm Schulte Research. "They are following their tourists, and they are following their commerce."
Conceived in 2004, Alipay fueled the first explosive growth in China's online payments market, then the shift to smartphones within it. Mobile payments now account for three-quarters of such payments, up from 4% in 2012, according to iResearch data.
Alipay says it has 520 million registered users, many drawn in through Alibaba's online marketplaces, like Taobao.
Tenpay made its debut in 2005, and began rapidly growing in 2012 when it was opened to WeChat users. Among the app's most popular features are electronic "red packets" -- token amounts of cash distributed as gifts -- that users can send to friends.
WeChat counted 963 million active users a month at the end of June. Tencent said this week that Tenpay has been able to grow its transactions so quickly in part by adding merchants via partnerships with restaurant-bookings startup Meituan-Dianping.
Alipay and Tenpay started expanding overseas in earnest two years ago, taking aim at the 120 million Chinese who travel abroad annually. They've signed partnerships with merchants in Southeast Asia and Europe, and are looking to invest in payment systems in other countries.
Now, the domestic battle between the two companies is being replicated abroad.
Take Sun Xiaomei, a 23-year-old Chinese student living in South Korea. Her Alipay Gold Membership confers discounts for her online purchases, and she uses Alipay to pay her Korean university tuition.
Until recently, Ms. Sun rarely used Tenpay. But after some foreign friends downloaded WeChat as Tencent amped up its services there, Ms. Sun started sending red packets for fun.
"Alipay is a great platform to represent China abroad," she said. "But in some ways, WeChat might be more convenient."
Ant has been fastest off the block in expanding overseas. Chinese consumers can now use Alipay in 28 countries; TenPay is in 15.
Until May, the HighKr Lanna gun range in Thailand's city of Chiang Mai offered only Alipay for its Chinese visitors, partly because it was already embedded in Thailand's 7-Eleven convenience stores. But HighKr soon added Tenpay.
"WeChat is more popular among our customers, though Alipay is more often seen in Thailand," said Wang Zidan, one of HighKr's Chinese co-investors.
Ant says its ultimate goal is to help build a payments infrastructure abroad.
One of Ant's most high-profile pursuits is a $1.2 billion bid for U.S. payment firm MoneyGram International Inc., now mired in regulatory review. If the deal goes through, it would give Ant a boost in its rivalry with Tencent by introducing its technology to MoneyGram's global network of 2.4 billion bank and mobile accounts.
While Tencent has also taken stakes overseas firms, it has shown a preference for replicating its domestic strategy. Tencent's favored weapon: Red packets, which when launched in 2014 helped Tenpay gain 100 million WeChat users that year. Tencent didn't respond to requests for comment.
Red packets featured in Tencent's strategy for courting users in Hong Kong and South Africa last year. And in June, Tencent-backed Indian platform Hike Messenger launched "Blue Packets," citing inspiration from WeChat.
The acid test will be whether such tactics can help Alipay or Tencent make real inroads among foreign users away from the peculiarities of China's domestic market, which curbs competition from other third-party payment providers such as credit cards and shields its internet from foreign competitors.
Daniel Lee, a 26-year-old facilities manager native to Hong Kong, said he doesn't use Alipay or Tenpay, citing worries "about security on these apps."
Mr. Lee's preferences? The American platform WhatsApp for messaging, and stored-value cards for purchases.
--Xiao Xiao in Beijing contributed to this article.
(END) Dow Jones Newswires
August 19, 2017 08:14 ET (12:14 GMT)