While Alipay's partnership with First Data gives the Chinese payments company a significant beachhead into the U.S. and other Western markets, it's goal of serving consumers inside the U.S. remains elusive for now.

Like many plays from China-based payment companies, the near-term benefit for Alipay's access to First Data's network of 4 million U.S. merchants will be an extension of access for Chinese visitors to the US than building a payment system for domestic users.

It seems somewhat inevitable that Ant Financial, the owner of Alipay, will aspire to also enter the fray of ‘pays’ here. In January, Souheil Badran, president of Alipay North America stated, "Globalization is key for Ant Financial." However, the success of Alipay in the US is far from assured for a variety of reasons.

Death by a thousand wallets. The U.S. digital wallet landscape is best described as fragmented at this time, with wallets scattered across handset vendors, issuers, retailers and other third parties.

There is some gravitation towards handset based wallets such as Apple Pay, Samsung Pay and Android Pay based on these payment systems being embedded at an OS level which makes them both ubiquitous and extremely simple to use, but usage on these appears to be flattening. For example, Apple Pay usage, based on First Annapolis research from March 2017, grew just one percentage point from 23% of iPhone users in June 2016 to 24% in January 2017.

Some of this may be apathy around the value proposition, but it could also be due to consumers simply preferring to use the ‘pay’ that is associated with their primary financial institution or favorite restaurant that provides loyalty and rewards. Should Alipay desire to throw their hat into this (very crowded) ring, they need to focus heavily on how they will stand out in order to gain traction in this splintered landscape.

Market differences. Not only is the digital wallet landscape in the U.S. radically different to China, so are patterns of usage and behavior relating to technology and payments. Cellular penetration in U.S. and China are both extremely high, but China lags way behind on household Internet access, just 57% compared to 94% in the U.S.. As a result of this, the mobile phone has been the de facto form of digital commerce and the Alibaba retail site the primary place to shop via mobile. About half of all sales over the internet in China take place via mobile phones and Alipay, launched in 2004, was a logical extension of this.

Alongside Tencent’s WeChat messaging / payment platform, both services account for 63% of payment transactions in China and a staggering U.S. $3 trillion in payment transactions in 2016 . The U.S. differs greatly in the evolutionary path of digital wallets adoption, with social messaging payments only just beginning to gain traction via platforms such as Facebook Messenger and Snapchat. Alipay cannot simply replicate the Chinese model with a build-it-and-they’ll-come mentality, but will have to carefully adapt to an entirely different payment culture in order to have a chance of success.

Geopolitical challenges. Alipay’s parent company, Ant Financial, has had other designs to move into the US market, with the intended acquisition of remittance powerhouse, MoneyGram. In April, Ant Financial upped its bid to $18 per share in an attempt to displace a competing offer, but being a Chinese based company has also involved political scrutiny.

American lawmakers are urging the Committee on Foreign Investment in the U.S. to conduct a “ full and thorough” review of the deal. Given the current geopolitical climate and the propensity of the Trump administration to blow hot and cold on relations with China, Alipay’s expansion in the US could be embraced or shunned, or possibly both.

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Nick Holland

Nick Holland

Nick Holland is a Senior Analyst at PaymentsSource. He has previously held analyst roles at Javelin Strategy & Research, Yankee Group and Aite Group.