Alipay, China’s largest third-party e-payments provider, is diversifying into the collect-on-delivery (COD) market by introducing a handheld device that package deliverymen can use to track parcels and accept payments for merchandise ordered online.
At a press conference in Beijing today, Alipay officials announced plans to invest RMB500 million ($79 million) over the next three years to roll out the portable terminals, which are already being adopted by couriers, shippers and shopping websites that run their own delivery services.
The rollout is an attempt by Alipay, which is affiliated with e-commerce giant Alibaba Group, to better meet the logistics requirements of e-commerce in China, officials said. Alipay holds almost half of the online payment market, but the majority of Chinese consumers prefer to pay for goods purchased through the Internet off line, at the time of delivery. About 70% of all online purchases made on China’s B2C sites, not counting sales on Alibaba Group’s Tmall, are settled by COD, according to Alipay.
Alipay officials argued their wireless device, which is not much bigger than a mobile phone,is an improvement over currently available COD solutions because it consolidates logistics records, such as package-tracking details, with credit and debit card data capture in one machine.
Currently deliverymen in China typically carry two devices, one for logistics, the other a portable point-of-sale terminal. Using Alipay’s solution, merchants will receive payment within 24 hours of delivery, faster than the current industry solution, which can take several days, officials said.
Alipay Vice President Fan Zhiming said his company was not competing with China’s banks by entering the COD market. A small processing fee paid by consumers upon delivery will be split with UnionPay, a banking consortium that runs the country’s interbank network, as well as the bank providing the card. Alipay will receive 20 percent of the fee, banks 70 percent and UnionPay 10 percent, according to an Alipay spokeswoman.
Alipay will focus on offline payment for online purchases only and will not compete with banks by offering retail point-of-sale terminals, Fan added.
Each Alipay device costs RMB3,000. To speed adoption Alipay is allowing package delivery services and e-commerce sites to use them for an unlimited period of time by paying a RMB500-per-device deposit.
So far, about 60 logistics companies have signed on and a few thousand of themachines are already in service, the company spokeswoman said. Alipay hopes to install 30,000 of them in China’s first and second tier cities by the end of the year.
By essentially giving away thedevices – the expense of which accounts for much of the RMB500 million the company says it will invest in the COD program – Alipay is showing it’s willing to lose money on hardware in exchange for a piece of the potentially vast revenue stream from COD processing fees.
The strategy also could help Alipay expand its presence by providing payment services for other shopping websites in addition to Alibaba Group’s Taobao, which accounts for the lion’s share of e-commerce transactions in China. All online payments on Taobao and Tmall are facilitated by Alipay.
It’s unclear if Alipay’s COD solution will be adopted by other websites, since many consider themselves to be competitors of Taobao and Alipay. Dangdang, one of China’s largest B2C websites, is using the Alipay COD devices. Alipay officials said they are also in talks with Amazon.cn, the China arm of Amazon.com.
