The Expanding Dominion of Alipay

SMITH BRAIN TRUST – Cash may be king in much of the world, but in China, Alipay wears the crown.

The mobile payment wallet is the world’s most heavily used fintech product, with 1.2 billion users in China and other parts of Asia. And the 2004 Alibaba spinoff is still expanding.

In the United States, it now partners with the likes of Walgreens and Neiman Marcus to serve its customers when they’re shopping in America. And it recently opened its app to allow American travelers to use Alipay in China, even without a Chinese bank account.

For Chinese consumers, Alipay bills (the company’s annual release of spending figures for individual users) “is a huge, viral topic on WeChat every year,” says David Liu-Yanxiang, executive director of Maryland Smith’s China Office. This year's statement, released recently, was more restrained than those in previous years, he notes, signalling that Chinese consumers are becoming “more rational in terms of consumption and showing off wealth.”

Bo “Bobby” Zhou, assistant professor of marketing at the University of Maryland’s Robert H. Smith School of Business, studies competitive marketing strategies and consumer regret. In an interview recently with Liu-Yanxiang, he shared these insights.

Q: What is the practical significance of Alipay's billing?

Zhou: Personal finance, particularly budgeting and planning, is extremely important in the digital age. When Alipay sends out annual billing statements, it gives consumers an opportunity to reflect on their spending habits across different categories. In the long run, consumers may become financially more savvy.

Q: How might you explain how electronic payments, advanced consumption and irrational consumption related to one another?

Zhou: Electronic payments are known for their convenience and security. Compared to the traditional payment methods, electronic payments simplified the transaction process for both consumers and the mechants. However, whether electronic payments can reduce irrational consumption remains to be seen.

On the one hand, they make it much easier for consumers to simply spend. On the other hand, if Alipay and consumers' bank accounts are seamlessly connected, then consumers may deliberate more before pressing the "Confirm" button because once they do, they will immediately see the reduction in their bank accounts.

Q: What is the trend of cross-border consumption in China in recent years?

Zhou: Cross-border consumption in China has been on the rise over the past few years. Alipay and WeChat Pay both contributed to this trend. In fact, these two electronic payment methods have become popular in China's neighboring countries, such as Vietnam and Thailand. Previously, consumers needed to exchange cash when engaging in cross-border transactions, but now they just need to swipe a few times on their phones.

Q: Has the China-U.S. trade war significantly curbed Chinese consumption in the United States?

Zhou: Counter to conventional wisdom, the trade war might actually increase Chinese consumption in the United States. Note that products imported from the United States to China have become more expensive (after increased tariffs). Therefore, it makes more sense for Chinese to directly purchase products when they are inside the United States.

Q: Can you compare online consumption between Chinese and the United States consumers – including by age groups?

Zhou: There are more similarities than one might think when we compare the online consumption patterns between Chinese and American consumers. One notable difference is that older consumers in China feel more comfortable shopping online, given the ease of using Alipay and WeChat Pay and the widespread adoption amongst merchants. Furthermore, online retail platforms such as Ping Duo Duo have provided a ton of inexpensive products for lower-income consumers, which further facilitated Chinese consumers' online shopping behaviors.