The new wave of global trade: How Alipay connects US businesses with Chinese consumers
Douglas Feagin, SVP, Global Strategic Partnerships & Investments, Ant Group
On a recent visit to a CVS near his home in Vero Beach, Florida, Douglas Feagin realized he forgot his wallet. It was an old habit, really. Feagin, who is a senior vice president of the China-based fintech company Ant Group, usually spends a great deal of time in Asia, where his phone doubles as his wallet. "I don't ever use my wallet in China. The phone is your payment mechanism," he said. But here, in the United States, he promptly returned home to get his wallet (only Chinese citizens can use the Alipay app to make payments outside of China).
In fact, China leads most markets in its adoption of mobile payments, and Ant Group owns and operates one of the country's largest e-wallets, Alipay, which has more than 1 billion users. Alipay facilitates transactions both online and in physical retail stores. In 2020, U.S. brands sold $54 billion worth of products to Chinese consumers online through Alibaba's ecommerce platforms – sales that were facilitated by Alipay.
U.S. retailers accepting Alipay can also reach the Chinese customer at their stores in China as well as their stores here in the United States. Indeed, prior to COVID-19 travel restrictions, between April 2019 and March 2020 the Alipay app facilitated $232 million in transactions made in person by Chinese travelers at U.S. businesses.
Pre-pandemic China led the world in spending on global tourism, according to the United Nations World Tourism Organization. In 2019, Chinese tourists spent $254.6 billion, which is nearly one-fifth of total international tourism spending. Today, as travel restrictions begin to lift around the world, business owners everywhere are preparing for a travel boom, including an influx of visitors from China. Feagin said merchants can draw those visitors in by simplifying transactions using Alipay.
"Alipay is the form of payment that's most trusted by the Chinese consumer. It's the form of payment that they use at home at both traditional brick-and-mortar stores and for ecommerce. Because of that trust, they're more likely to prefer it over other payment options such as cash when traveling abroad — and, when it is an option for paying, to spend more, and to do more," said Feagin. According to Nielsen Report's 2018 Trends for Mobile Payment in Chinese Outbound Tourism, 94% of Chinese tourists said they would pay with their phones if the method becomes more widely adopted overseas; 93% said using that method would likely increase their spending. To meet them where they are, more and more U.S. companies — both here and in China — are embracing Alipay.
Alipay allows U.S. businesses to conduct transactions seamlessly with Chinese citizens, both at home and in China. Millions of businesses accept Alipay, such as CVS (including that one Feagin went to in Florida), Walgreens, Sephora, Target, Hilton, Hyatt, Marriott International and Rebecca Minkoff, as well as online stores through Shopify's platform and Alibaba's marketplaces.
Feagin said that by facilitating sales between U.S. businesses and Chinese consumers, Alipay opens the door for those U.S. businesses to a global audience and invites the potential for growth. "China's consumer market is one of the biggest consumer markets in the world. It's one of the fastest growing, and in many ways, one of the most attractive, because China's development has been on a very accelerated pace for several decades," he said. "We know U.S. merchants are asking, 'Where can I sell my product and actually reach a lot of customers who can pay a lot of money?' and China is a hugely attractive market for that reason."
Protocol recently sat down with Feagin to talk about the Alipay app, what it offers Chinese consumers and U.S. businesses and his vision for the future.
First, I'd love to hear a bit about Ant Group. I understand Ant's name comes from its belief in serving "the little guy" and that "small is beautiful, small is powerful." How does that come across in day-to-day business dealings?
The name Ant Group comes from the view that ants are creatures to be emulated. An ant is small, it's powerful and can carry many times its body weight; it's industrious and it works very well as part of a team. That's what we're all about as an organization.
But most importantly, I think, Ant Group — and Alipay — is all about financial inclusion and bringing in people who are underserved, or in some cases unserved, by current payment and financial service providers, and really enabling them to have access to simple, low-cost services that are available to the many, not the few. The way that works day-to-day in China, where we have 1 billion people who use Alipay, is that basically everyone in the country can use the service, from the smallest transaction, say, the person buying an apple from a rural farmer for one renminbi, to the person shopping at a Michael Kors store in a luxury mall in Shanghai.
Who uses the Alipay app?
It's a Chinese app for Chinese consumers. They can use it for online as well as in-person transactions in China, and also when they travel abroad, including in the United States. And so American businesses can accept it as a method of payment for both online and in-person transactions in China and the United States to transact with Chinese consumers who are traveling here. Our customer is both the U.S. business who chooses to accept Alipay at a point of sale and the Chinese consumer who utilizes the Alipay app to make purchases.
How does the Alipay app work?
It's very simple and easy to use. Let's say a Chinese tourist goes into a Coach store in New York and they want to buy a purse. The salesperson asks to see their Alipay QR code, and then they will scan the customer's code and complete the transaction. One of the great things about Alipay is that relationships can continue after the purchase. Let's say the consumer loves that purse so much that when she gets back to China, she wants one in green, too. She can make that purchase online through Coach using Alipay. And she can also receive content, promotions and coupons that keep her connected to the retailer.
What are the benefits to U.S. businesses and the U.S. economy as a whole?
The numbers speak volumes. In 2020, despite the difficult year, U.S. merchants sold over $54 billion worth of products to Chinese customers online on Alibaba's ecommerce platforms, which rely on Alipay to facilitate those transactions. If you look at the year prior to the pandemic – April 2019 through March 2020 – Chinese tourists in the United States engaged in 800,000 transactions using the Alipay app, for sales valued at $232 million in the aggregate. So the retail transaction volume is quite substantial. To complete these transactions, we are pleased to have many relationships with U.S. payment companies and banks who enable us to make these services available here.
Another benefit of Alipay is that transactions are completed through the simple scanning of a QR code. The codes can be scanned through a merchant's existing payment structure or can be greatly simplified by using a merchant's printed QR code. The most simple form is where a merchant prints their QR code on a piece of paper, and then the consumer pays for something by scanning that code and entering the amount of money that is to be paid. This simple form has enabled Alipay to greatly expand mobile payments to over 80 million merchants of all types, including mom-and-pop stores and street vendors. So today, even a small merchant can sell their product to the Chinese consumer and reach essentially all 1 billion of them either through online ecommerce or in their retail stores by using Alipay as a payment mechanism.
The vast majority of merchants we work with are very small merchants who would otherwise have no access to this kind of customer base. This is kind of the dream of a small business, when you start to think about a globally connected world and someone who has a great idea and wants to access global consumers: With Alipay they can actually do that. Businesses can grow very rapidly through this kind of connectivity. You're not limited by where you are or what you know. You can access a huge marketplace relying on a trusted payment mechanism.
How has Alipay evolved since the early days?
It's evolved to a great extent. Alipay started in 2004 as an escrow service. That was in the nascent days of ecommerce in China, and there was a lack of trust between buyers and sellers. The fundamental issue was people wanted to buy something online, but that was a very new experience, and they didn't know whether they were really going to actually receive the product. As an escrow mechanism, Alipay would hold the funds until the goods were delivered. This bridged the trust gap between buyers and sellers, enabling ecommerce in China to grow extremely rapidly and to become the major portion of overall retail volume that it represents today.
Today this is a truly global ecommerce market. Global merchants such as Starbucks, Walmart, Airbnb, Uber, Apple's App Store can use Alipay to transact with over 1 billion Chinese consumers. As China's consumption economy continues to grow at a rapid pace, the opportunity for merchants to expand sales is tremendous.
What are your expectations for growth in the coming years?
I think the growth is going to be enormous. China's economic performance has been quite strong, and the consumption portion of GDP has expanded particularly quickly. Chinese consumers are demanding more and more high quality U.S. products and are seeking to travel abroad to the United States in greater numbers. So we anticipate tremendous growth in the next couple of years coming out of the pandemic, and then into the longer run. For U.S. businesses, I believe there's a huge opportunity to reach the most attractive consumer market in the world by using Alipay as your payment partner.