Gao Feng's new insight paper -- "Why online payment provider Alipay is more than just the Chinese equivalent of Paypal" co-authored by Managing Director Matthias Hendrichs and Consultant Alan Chan. To highlight the differences between Alipay and Paypal, the authors took a closer look at Alipay as an integral part that connected closely to Alibaba's ecosystem.

1. Matthias Hendrichs
Alan Chan
Why online payment
provider Alipay is more
than just the Chinese
equivalent of PayPal

2. Preface
The recent events of PayPal and eBay splitting into two separate
entities and the newly released version of Alibaba’s mobile payment
app Alipay 9.0 inspired me to take a closer look at these two
unequal rivals. However, comparing Alipay with PayPal directly
doesn't seem to do the former much justice. As with many of the
leading Chinese digital players, Alipay is an integral part and closely
connected within Alibaba’s ecosystem. In fact, Alipay has created its
own Internet finance ecosystem. So instead of reviewing the
strengths and weaknesses of those two players, we decided to first
take a closer look at the role that ecosystems play in China’s
business landscape.
© 2015 Gao Feng Advisory Company

3. Why Alipay is more than just the Chinese equivalent of PayPal
China is a highly complex, diverse and
very dynamic business environment.
Developments are often
multidimensional, non-linear and even
discontinuous, and they take place
multiple times. Such conditions provide
the breeding ground for a new generation
of entrepreneurs who have formidable
sensing capabilities to identify market
opportunities, take risks and develop
businesses, often with new and
unconventional business models.
Fast-changing market conditions and
rapidly evolving consumer behavior
present challenges to established
businesses with narrowly focused core
competencies and limited capabilities.
Many traditional companies find
themselves unable to capture new
opportunities or stay ahead of future
disruptions.
Chinese entrepreneurs, such as Jack Ma,
Lei Jun or Pony Ma have started to grow
their core businesses into collaborative
ecosystems, which often involve cross-
industry partnerships, acquisitions and
investments in companies that can
provide complementary capabilities. Such
ecosystems are flexible and scalable,
allowing their orchestrators to leapfrog
into other industries and build a more
complete customer experience. Over
time, companies can adjust the focus and
exact direction of their business as they
gain more insights and clarity.
3
The rise of Chinese
business ecosystems
The ecosystem play is particularly
prevalent in China, with companies such
as Alibaba, Tencent and Xiaomi being
among the most innovative and
successful. Many of these companies
were only founded in the last 10-15 years
– some even less, the lack of legacy
allows them to innovate and take risks
without the limitations of following
established policies, rules or procedures.
This makes these players even more
dangerous for century-old, traditional
companies.
Lei Jun, the founder of Xiaomi and
Shunwei Capital is building an Internet of
Things (IoT) ecosystem. Founded in
2010, Xiaomi forms the core of the
ecosystem. It started as a low-cost
smartphone maker but then grew into a
smart device company with extensive
software, hardware and services layers.
The five-year old company is now valued
at USD 45 billion. Together with Lei Jun’s
venture capital firm Shunwei Capital,
Xiaomi expanded its capabilities by
acquiring, investing and partnering with
more than 30 companies in multiple
industries, ranging from manufacturers of
wearable devices for health monitoring to
smart home appliances, from online video
content producers to online streaming
sites, which are all centered around MIUI,
Xiaomi’s own operating system.
A different form of ecosystem has been
built by Haier, the leading Chinese white
goods manufacturer. Haier has been
revolutionary in transforming its traditional
pyramid-shaped, top-down corporate
structure into a platform-based,
decentralized and flat organization by
injecting corporate entrepreneurship into
its ecosystem.
© 2015 Gao Feng Advisory Company

4. Why Alipay is more than just the Chinese equivalent of PayPal
4
Zhang Ruimin, the chairman of Haier
group, led the transformation and
encouraged his employees to set up their
own “micro-enterprises” within the
organization. As a result, employees
contribute to the process of designing and
shaping Haier’s ecosystem.
Both Xiaomi and Haier leverage their
online platforms to crowd-source
customer feedback and new product
ideas. By incorporating customers into
their ecosystems, it has helped both
companies to facilitate and accelerate
their idea generation and product
development cycles, while at the same
time increasing alignment with consumer
needs.
Such collaborative ecosystems enable
the core company to overcome capability
gaps and access new opportunities in
adjacent industries that were previously
out of reach. Companies in an ecosystem
embrace “co-opetition” – both competing
and cooperating simultaneously to
maximize their benefits.
The merger of Didi Dache and Kuaidi
Dache, the two leading car-booking apps
in China backed by Tencent and Alibaba
respectively, is an example of such “co-
opetition”.
Inside many business ecosystems, there
is not just one but various types of
business models. Different industry
focuses can co-exist and prosper next to
each other. This “biodiversity” makes the
ecosystem difficult to be disrupted and
hence promises long-term business
sustainability and co-evolution even in a
chaotic and uncertain business
environment.
© 2015 Gao Feng Advisory Company
Advantages of ecosystem
play
The traditional western management
theory of “core competency” introduced in
the early 1980s has become quasi
obsolete in today’s China. Building static
competitive advantages and maintaining
a narrowly defined core business limits
Chinese companies to adapt to disruptive
market changes and capture tomorrow’s
opportunities. Constant evolution is
essential for companies to survive and
thrive in a dynamic market with blurred
boundaries. Companies staying at their
own core are merely backward-oriented
and will struggle to leap forward.
Chinese ecosystems usually start out by
co-developing a collaborative
environment and creating network effects
around the core.

5. Why Alipay is more than just the Chinese equivalent of PayPal
5
Before looking at today’s situation of
PayPal and Alipay, we ought to start with
the beginning when online payment
solutions first started to emerge.
In the late 1990s, smaller online
businesses with relatively low sales
volume were unable or unwilling to accept
credit card payments due to high
transaction fees. In those days, it was
also costly and time-consuming for online
businesses to build their own e-
commerce checkout systems with
sufficient fraud protection and a user-
friendly interface.
Consumers typically had to enter their
payment and shipping information every
time they made an online purchase. In
addition, there were concerns about
revealing personal and financial details
on e-commerce sites that lack proper
protection. For peer-to-peer payments,
wire transfers, paper checks or cash
payments were the dominant means of
transaction.
In 2001, PayPal entered the market to
tackles these pain points. It originated
from two start-ups Confinity and X.com
that merged in 2000 and renamed
themselves PayPal a year later. Confinity,
founded in 1998 by Peter Thiel, Max
Levchin and Luke Nosel, focused on
securely transferring money on PDAs,
whereas X.com, founded by Elon Musk,
was centered on payments by email.
PayPal’s early payment solution was an
encrypted digital wallet that stored and
safeguarded bank, debit or credit card
details enabling users to make online
payments on websites via their PayPal
accounts without giving away sensitive
personal information to sellers. It provided
a convenient and secure online payment
experience as users only had to register
with their email account and input their
payment details once in order to make
purchases globally. For sellers, it
provided a ready-made checkout system,
allowing small and medium sized
businesses to accept online payments via
PayPal.
Besides offering solutions for businesses
and their customers, PayPal also
understood the need of individuals to
make personal transfers to other
individuals in their own country or abroad,
using PayPal’s global multi-currency
platform.
In the early days, PayPal’s major rival
was Billpoint, a peer-to-peer money
transfer service founded in 1998. It was
purchased by eBay in 1999 and re-
launched as a joint venture with Wells
Fargo Bank as the payment solution for
eBay. PayPal eventually became the
more preferred payment option among
online buyers and out-competed Billpoint
both in terms of the number of sign-ups
and overall eBay user adoption.
PayPal had its IPO in 2002 and was
acquired by eBay for USD 1.5 billion later
that year. eBay benefited from PayPal’s
large user base and improved its user
experience by fully integrating PayPal’s
payment features.
© 2015 Gao Feng Advisory Company
The beginning of online
payment solutions and the
rise of PayPal

6. Why Alipay is more than just the Chinese equivalent of PayPal
Today, PayPal is active in 203 countries
in 26 currencies. With 165 million active
users, PayPal handles on average 12.5
million payments per day. In the year of
2014, PayPal processed USD 228 billion
worth of transactions, generating a total
revenue of USD 7.9 billion (44% of
eBay’s total revenues).
6
PayPal’s future outlook
While PayPal remains to be the global
leading online payment service provider,
it has been struggling to gain a significant
market share in China, the country with
the largest Internet population in the
world – 668 million active Internet users
(49% of China’s population) and 594
million total mobile Internet users. China’s
online payment market is dominated by
Alipay (50%) and Tenpay (20%).
© 2015 Gao Feng Advisory Company
eBay, PayPal’s parent company decided
in early 2015 to spin off PayPal as a
separate company, allowing both eBay
and PayPal to grow more independently.
PayPal started trading as a separate
business in July 2015.
Going forward, PayPal is facing potential
threats from emerging players such as
Apple Pay, Square, Stripe, Google Wallet
and Alipay. The spin-off is intended to
give PayPal greater flexibility and develop
a stronger focus on future opportunities in
the area of mobile payment.
In 2014, more than a quarter of the
payments made with PayPal were
conducted on mobile devices. Given the
continuous shift of users from PCs to
mobile devices, PayPal recently launched
a new mobile-first feature called PayPal
One Touch. This allows users to pay with
a single touch without having to log into
PayPal or download PayPal’s app onto
their phones.
PayPal is also experimenting with its
mobile payment and shopping solution
PayPal Beacon, leveraging Bluetooth
low-energy technology to create an
innovative location-based online-to-offline
retail experience.
Alipay as part of Alibaba’s
ecosystem play
Looking at China’s online payment
market, we see Alipay right in the center,
handling more than 50% of all
transactions. However, rather than
looking at Alipay as a stand-alone entity,
we must recognize Alipay’s role as part of
the Alibaba ecosystem.
Alibaba started to build the core of its
ecosystem in 1999 as a business-to-
business trading website (Alibaba.com).
In 2003, Alibaba expanded into customer-
to-customer e-commerce (Taobao) in
2003 and business-to-customer online
retailing (Tmall) in 2008. To further
support the exponential growth of the
group, Alibaba has built its own cloud
data service platform (Ali Cloud
Computing), entertainment businesses
(Alibaba Pictures and Ali Music) and
financial ecosystem (Ant Financial). It has
also formed strategic partnerships with a
network of logistics companies (Cainiao
China Smart Logistics) and invested in
numerous companies across multiple
industries in China and overseas (Kuaidi
Dache, SingPost, Snapchat, Kabam,
Paytm, etc.).

7. Why Alipay is more than just the Chinese equivalent of PayPal
Most companies in Alibaba’s ecosystem
are interconnected and centered around
Alibaba’s core e-commerce business.
Collectively, they are strengthening the
capabilities of the entire group and thus
extend Alibaba’s reach into multiple
sectors and industries.
7
During Chinese New Year, users can
send “red envelopes” (small monetary
gifts) to friends and family members.
Alipay is a fully integrated and user-
centric solution that covers a great variety
of payment needs in people’s daily life.
Alipay has over 350 million registered
users and processes more than 80 million
transactions per day. It is reported that
Alipay handled USD 778 billion in the
year ending June 2014. According to
Juniper Research, this is three times the
amount handled by PayPal, and the
equivalent to one-third of the USD 2.5
trillion in total global online payments in
2014.
In 2014, Alibaba established its finance
affiliate Ant Financial to consolidate its
various financial service activities under
one roof. Ant Financial is now running
Alipay and other services, such as the
market fund Yu'eBao, online credit
scoring service Sesame Credit, Internet-
only bank MYBank, third-party financial
service platform Zhao Cai Bao and micro-
loan provider Ant Micro.
Yu’eBao, launched in June 2013, is the
largest money-market fund in China. It
allows Alipay users to earn high-yield
returns on their idle cash, with interest
rates much higher than those offered by
banks. The fund has captured 186 million
users and accumulated USD 93 billion in
assets by the end of 2014.
© 2015 Gao Feng Advisory Company
Alipay, in the center of
Alibaba’s Internet finance
ecosystem
Alipay is the origin and forms the core of
Alibaba’s Internet finance ecosystem.
Launched in 2004 as an online payment
and escrow service, Alipay may at first
appear as the China’s equivalent of
PayPal. But the latest version of the
Alipay mobile app (9.0 in Jul 2015) has
proven once more that it has grown from
being “only” a payment system into a
one-stop portal for payment solutions.
The user experience on Alipay’s mobile
app is designed based on actual usage
scenarios. For example, users can
transfer money to other Alipay members
and share or split bills among them using
QR codes. Alipay can be used to pay
utility bills, top up mobile phone credits,
buy train tickets or check the balance of a
connected bank account. Alipay has
partnered with many small businesses to
allow its users to make payments on
many Chinese websites and at an
increasing number of offline shops. Alipay
most recently struck deals with Wal-Mart
and Carrefour to enable its members to
pay through Alipay when shopping at
these supermarkets.

8. Why Alipay is more than just the Chinese equivalent of PayPal
Sesame Credit, launched in January
2015, uses big data collected from
Alibaba’s various platforms and partners,
as well as the online and offline history of
transactions to generate credit ratings of
consumers and small businesses. It
enables credit providers to obtain more
accurate and data-driven insights to
assess user’s creditworthiness and offer
credit-related services, such as loans and
microfinance services.
MYBank, debuted in June 2015, is the
first privately owned Internet bank in
China. It provides innovative financial
solutions for the under-banked urban and
rural consumers and small businesses.
These are some of the key services of
Alibaba’s Internet finance ecosystem.
They are fully integrated within the Alipay
platform, leveraging its large user base to
drive further growth. Alibaba is on a
promising trajectory to disrupt personal
and corporate banking and financial
services in China, which today is still
largely controlled by state-owned banks.
Ant Financial is constantly working on
new, innovative payment technologies. As
part of that, it is experimenting with a
service called “Smile to Pay” that uses
face-recognition technology for payment
verification.
On the global front, Ant Financial is
engaged in a number of initiatives. It
invested in Singapore-based security
technology company V-Key and Indian
payment service Paytm, which
strengthens their overall technological
capabilities and global presence.
8
On the commerce side, Ant Finance
launched a product called Alipay ePass
that offers U.S. retailers like Neiman
Marcus and Saks Fifth Avenue logistics
and financial support selling to customers
in China. In Europe, Alipay has entered
into a partnership with the Swiss tax
refund company Global Blue that allows
Chinese tourists abroad to credit value
tax refunds on their overseas purchases
directly to their Alipay accounts.
Generally, Alibaba’s Internet finance
ecosystem is well-aligned with the
group’s overall mission of supporting
small and medium-sized businesses in
their efforts of globalization, cross-border
e-commerce and market penetration in
rural China. Alibaba will continue to
orchestrate China’s Internet finance
development and thus pose high-entry
barriers for new entrants, like PayPal. It
remains to be seen how much Alipay can
use their ecosystem play to grow outside
of China and compete with the likes of
PayPal.
© 2015 Gao Feng Advisory Company

9. Why Alipay is more than just the Chinese equivalent of PayPal
Comparing Alipay and PayPal, it seems
that PayPal is still very much focused on
the core of its business of payment
processing, whereas Alipay has moved
ahead and expanded from its initial core
into other related areas. PayPal has built
a strong brand, standing for reliable,
secure payment processing, mostly
related to eBay but also beyond. It has
established a followership in the U.S.,
Europe and parts of Asia. Alipay on the
other side, is predominantly focused on
the Mainland Chinese market. In Hong
Kong for example, where over 30 retail
chains accept Alipay payments, only
users with linked Mainland Chinese bank
accounts can use their Alipay wallets for
their purchases.
Alipay is much more integrated into the
everyday life of their consumers and
offers a much more complete customer
experience, whereas PayPal only gets
involved when it comes to the final
payment transaction.
While both are successful companies,
Alipay is pursuing a much bigger picture
with a much more attractive value
proposition to its users. This is something
that many people would hardly expect
from a Chinese player. Within the broader
context of Alibaba and other Chinese
digital companies who have developed
impressive ecosystems, we will see more
and more innovative business models
coming from China that will hopefully
inspire entrepreneurs around the world.
9
In their home country in China, the likes
of Jack Ma, the founder of Alibaba have
already inspired the generation of 20-30
year-olds to follow their footsteps,
creating a new breed of young innovative
and risk-taking entrepreneurs.
© 2015 Gao Feng Advisory Company
PayPal versus Alipay – so
who wins?

10. About the Authors
Matthias Hendrichs is a Managing Director at
Gao Feng Advisory Company. He leads the
firm’s Hong Kong office and is responsible for
the Digital practice across Greater China. Over
the last 19 years, Matthias held management
positions at a leading strategy consulting firm
and Fortune 500 enterprises. He also
spearheaded several entrepreneurial activities.
He has worked in China for the last 10 years
advising clients on digital strategy and
transformation. He possesses deep industry
expertise in Digital, Telco/Media/Technology,
Consumer & Retail and Chemicals.
Email: matthias.hendrichs@gaofengadv.com
Alan Chan is a Consultant at Gao Feng Advisory
Company based in Shanghai. He is a member of
the Gao Feng Digital practice, focusing on
Chinese business model innovation, corporate
digital transformation and connected mobility. He
has worked in both multinational organizations
and Internet start-ups across Mainland China,
Hong Kong and the United Kingdom.
Email: alan.chan@gaofengadv.com
Gao Feng Advisory Company (www.gaofengadv.com) is a pre-eminent strategy and
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© 2015 Gao Feng Advisory Company