Alipay is a Chinese mobile and online payment platform created in 2004 by entrepreneur Jack Ma as the payment arm of Taobao, a major Chinese eCommerce site. Alipay, therefore, is the B2C component of Alibaba Group. Alipay makes money via escrows transaction fees, a range of value-added ancillary services, and through its Credit Pay Instalment fees.
Origin Story
Alipay is a Chinese mobile and online payment platform.
It was created in 2004 by entrepreneur Jack Ma as the payment arm of Taobao, a major Chinese eCommerce site. In this capacity, Alipay also served as the B2C component of Alibaba Group.
Alibaba is an e-commerce platform that generated over $134 billion in revenues in 2022, and over $7.4 billion in net income. Alibaba has six main segments: core commerce (revenues generated in China), international commerce, local consumer services, cloud services, Cainiao (logistics), digital media, and other innovation initiatives.
After eBay acquired Chinese eCommerce company EachNet, Taobao made moves to secure competitive advantage by increasing the trust between the buyer and seller.
At the time, this was the most pressing issue in the Chinese eCommerce market.
Alipay is one of just three central digital payment providers in China, serving as the brand of parent company Ant’s consumer finance app.
The company also has customers in e-wallet partner countries, including Malaysia, Indonesia, Pakistan, Thailand, and South Korea.
Alipay revenue generation
As noted earlier, Alipay revenue generation is focused on increasing trust between the buyer and seller.
In many countries this would not be profitable, but commerce in China traditionally involved cash purchases in brick-and-mortar stores.
Such was the lack of trust in other forms of payment that a merchant would not ship a product until it was paid for. A buyer, on the other hand, would only pay once they had the product in their hands.
With all of that said, let’s look at how Alipay makes money and has revolutionized Chinese commerce in the process.
Escrow
Alipay offers an online escrow system that holds the buyer’s funds until they have received the product.
Information concerning real-time payment and delivery is tracked and shared with both the consumer and merchant.
For small-time users, the escrow service is free. For transactions over 20,000 CNY – or just over 3,000 USD – merchants are charged 0.1% per transaction.
Note that this is substantially lower than competitors such as PayPal, who charge around 3% irrespective of the transaction amount.
Value-added services
Consumers using Alipay wallet also have access to a range of ancillary services, including:
Train ticket purchasing.
The ability to check balances on connected bank accounts.
Utility bill payments.
Insurance.
Mobile phone credit purchasing.
The ability to make offline payments in affiliated Chinese shops and websites.
The ability to split restaurant bills with friends or family.
Credit card servicing payments. In this case, Alipay charges a 0.1% fee for all monthly credit card payments exceeding $299.
Depending on the product or service, Alipay charges an average merchant transaction fee of 0.55%.
It also collects interest from the funds sitting in customer accounts.
Credit Pay Instalment
Alipay also extends credit to consumers via the Credit Pay Instalment facility.
Similar to a BNPL service, consumers can pay for goods and services over 3, 6, or 12 installments. Alipay charges 2.30% for the three-installment plan, while the 12-installment plan attracts a charge of 7.50%.
Key takeaways
Alipay is a Chinese third-party transaction facilitator. It was created by Jack Ma to establish trust between the buyer and the seller in the cash-dominated Chinese market.
Alipay is primarily an Escrow service that holds payments until goods are delivered. It charges a flat 0.1% for transactions over a certain amount. Smaller, less frequent transactions are free of charge.
Alipay also offers an extensive range of value-added services, including insurance, utility payments, and credit cards. The platform also enables consumers to purchase on credit and pay back over a predetermined period.
Acorns is a fintech platform providing services related to Robo-investing and micro-investing. The company makes money primarily through three subscription tiers: Lite – ($1/month), which gives users access to Acorns Invest, Personal ($3/month) that includes Invest plus the Later (retirement) and Spend (personal checking account) suite of products, Family ($5/month) with features from both the Lite and Personal plans with the addition of Early.
Starting as a pay-later solution integrated into merchants’ checkouts, Affirm makes money from merchants’ fees as consumers pick up the pay-later solution. Affirm also makes money through interest earned from the consumer loans when those are repurchased from the originating bank. In 2020 Affirm made 50% of its revenues from merchants’ fees, about 37% from interests, and the remaining from virtual cards and servicing fees.
Alipay is a Chinese mobile and online payment platform created in 2004 by entrepreneur Jack Ma as the payment arm of Taobao, a major Chinese eCommerce site. Alipay, therefore, is the B2C component of Alibaba Group. Alipay makes money via escrow transaction fees, various value-added ancillary services, and its Credit Pay Instalment fees.
Betterment is an American financial advisory company founded in 2008 by MBA graduate Jon Stein and lawyer Eli Broverman. Betterment makes money via investment plans, financial advice packages, betterment for advisors, betterment for business, cash reserve, and checking accounts.
Chime is an American neobank (internet-only bank) company, providing fee-free financial services through its mobile banking app, thus providing personal finance services free of charge while making the majority of its money via interchange fees (paid by merchants when consumers use their debit cards) and ATM fees.
Coinbase is among the most popular platforms for trading and storing crypto-assets, whose mission is “to create an open financial system for the world” by enabling customers to trade cryptocurrencies. Its platform serves both as a search and discovery engine for crypto assets. The company makes money primarily through fees earned for the transactions processed through the platform, custodial services offered, interest, and subscriptions.
Compass is a licensed American real-estate broker incorporating online real estate technology as a marketing medium. The company makes money via sales commissions (collected whenever a sale is facilitated or tenants are found for a rental property) and bridge loans (a service allowing the seller to purchase a home before the revenue from the sale of their previous home is available).
Dosh is a Fintech platform that enables automatic cash backs for consumers. Its business model connects major card providers with online and offline local businesses to develop automatic cash back programs. The company makes money by earning an affiliate commission on each eligible sale from consumers.
E-Trade is a trading platform allowing investors to trade common and preferred stocks, exchange-traded funds (ETFs), options, bonds, mutual funds, and futures contracts; acquired by Morgan Stanley in 2020 for $13 billion. E-Trade makes money through interest income, order flow, margin interests, options, future and bonds trading, and other fees and service charges.
Klarna is a financial technology company allowing consumers to shop with a temporary Visa card. Thus it then performs a soft credit check and pays the merchant. Klarna makes money by charging merchants. Klarna also earns a percentage of interchange fees as a commission and for interests earned on customers’ accounts.
Lemonade is an insurance tech company using behavioral economics and artificial intelligence to process claims efficiently. The company leverages technology to streamline onboarding customers while also applying a financial model to reduce conflicts of interest with customers (perhaps by donating the variable premiums to charity). The company makes money by selling its core insurance products, and via its tech platform, it tries to enhance its sales.
NerdWallet is an online platform providing tools and tips on all matters related to personal finance. The company gained traction as a simple web application comparing credit cards. NerdWallet makes money via affiliate commissions determined according to the affiliate agreements.
Robinhood is an app that helps to invest in stocks, ETFs, options, and cryptocurrencies, all commission-free. Robinhood earns money by offering: Robinhood Gold, a margin trading service, which starts at $6 a month, earns interests from customer cash and stocks, and rebates from market makers and trading venues.
SoFi is an online lending platform that provides affordable education loans to students, and it expanded into financial services, including loans, credit cards, investment services, and insurance. It makes money primarily via payment processing fees and loan securitization.
Stash is a FinTech platform offering a suite of financial tools for young investors, personalized investment advice, and life insurance. The company primarily makes money via subscriptions, cashback, payment for order flows, and interest for cash sitting on members’ accounts.
Wealthfront is an automated Fintech investment platform providing investment, retirement, and cashmanagement products to retail investors, mostly making money on the annual 0.25% advisory fee the company charges for assets under management. It also makes money via a line of credits and interests on the cash accounts.
Zelle is a peer-to-peer payment network that indirectly benefits the banks’ consortium that backs it. Zelle also enables users to pay businesses for goods and services free for users. Merchants pay a 1% fee to Visa or Mastercard, who share it with the bank that issued the card.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
