Chinese consumers know what they want: streamlined mobile payment options. And perhaps no one knows this better than China’s most-used mobile payments provider, Alipay.
Established in Hangzhou, China, in 2004 by Alibaba Group and founder Jack Ma, Alipay split off from Alibaba in 2011 and is now operated by parent company Ant Financial Services Group, an affiliate of Alibaba.
But while the service (users receive financial incentives to take money out of their bank accounts and temporarily store it on the platform) has exploded in China, there still are major hindrances to getting the mobile payment provider into the hands of Western hospitality chains.
While Alipay would not disclose the estimated cost to hospitality companies using the service in and out of China, independent marketing consultant Simone Puorto says there’s a large disparity.
“The real problem is a logistical problem,” says Puorto, based in Val-de-Marne, France. “When it comes to accepting Alipay payments (outside China), you have to go through a third party and it’s a struggle.”
But it’s a problem that Western hotel companies are trying to solve. And quickly. In 2015, nearly 2.6 million Chinese travelers visited the United States, representing an 18% increase over the previous year, according to a 2016 U.S. Department of Commerce report. The number of Chinese visitors to the U.S. is expected to grow by 16% per year with an estimated 5 million visitors from China anticipated in 2020, the report says. According to that report, this group spends – a lot. Chinese travelers to the U.S. are the highest-spending international visitor group, typically dropping from US$6,000 to US$7,000 per person per trip.
“For people who want to impulse spend or impulse buy in industries where they might not have bought something at the hotel or spent more at the bar or the restaurant, being able to accept Alipay is obviously so friction-free,” says Paris-based marketing adviser Martin Soler of Soler & Associates. “There’s a massive opportunity for hotels, even the small ones.”
Through a joint survey with global market research company Nielsen, Alipay recently found that 91% of Chinese travelers surveyed would be more willing to shop and spend overseas if merchants accepted Chinese mobile payment platforms.
Though Alipay competitor WeChat Pay has been experiencing faster growth (users spent an average of 66 minutes per day on WeChat in 2016, according to Quest Mobile, while the average user only opens Alipay between one to two times per day), Alipay claims to have some 600 million users and remains China’s most used mobile payments provider.
The majority of those users are still based and active within China where, according to a report from Chinese internet research firm Analysys International, the mobile payment market had reached ¥23 trillion (US$3.5 trillion) by the end of 2Q 2017, up some 22.5% from the previous quarter.
The biggest challenge? Trying to hit those numbers in countries where processing mobile payments like Alipay isn’t so streamlined.
Challenges
“In the west we still need to go through payment providers and that’s where it gets complex,” Soler says. “Before we made the Chinese adapt to our ways – when they went to travel, they had to go and get a credit card,” he says. “Whereas now we’re seeing this market as a big market, and eventually we need to bring in the proper technology and make it easier for them to spend, not harder.”
In 2017, Alipay announced a partnership with Atlanta, Georgia-based credit card processing company First Data that would roll out Alipay to 4 million U.S. merchants. As of March, some 35,000 merchants are able to offer a seamless version of Alipay to the traveling Chinese consumer.
IHG first offered Alipay to guests within its China-based properties in 2016. According to Billy Turchin, vice president, digital and voice for IHG Greater China, one of the big learns for IHG about Alipay transactions at hotels is that they’re different from retail transactions: Hotels often require a pre-authorization or guarantee of payment at check-in, but final payment occurs at check-out.
“Most commonly Alipay is not used in this way. It’s usually used for a real-time instant payment transaction,” Turchin says. “Mobile payment solutions for pre-authorization use cases are relatively new, and this is something we’re actively looking into.”
While Turchin declined to talk specifics on ROI in terms of rolling out Alipay in China, he says that one of IHG’s China-based hotels had close to one-third of its eligible bookings paid with Alipay.
Forward-looking
In February, Los Angeles-based Luxe Hotels announced that its Los Angeles and Beverly Hills hotels would be the first in the area to accept WeChat Pay and Alipay. In 2015, Marriott International announced it would be offering Alipay at select Chinese properties with plans to unveil the e-payment provider in key markets outside of Asia. But technical barriers persist for countries looking to offer Alipay on a larger scale.
“Integration of any technical infrastructure can be a challenge,” says Souheil Badran, president, Alipay Americas. “Training local merchants how to accept Alipay at the register can also be an issue.”
In addition to rolling out the remainder of its 4 million merchants in the U.S. (Alipay could not give a timeline for when that process would be complete), the company also plans to build an open technology platform, encouraging a wider range of applications for financial-grade technologies, including cloud computing, blockchain, biometrics and artificial intelligence.
IHG wants to scale Alipay for all payment options in the hotel, including restaurant, bar, spa and more. “We want to enable an end-to-end mobile payment experience,” Turchin says. “Alipay itself is also scaling internationally, and we want to be there with them.”