China’s online and brick-and-mortar retailers world are being forced to take sides as both giants battle it out for dominance over China’s $13 trillion mobile payment market.
Chinese tech giants, Tencent Holdings Ltd and Alibaba Group Holding Ltd are forcing merchants to choose sides midst a growing turf war for shoppers’ digital wallets.
Since 2017, both companies, between themselves, have spent more than $10 billion on retail-focused deals which have boosted the online reach as well as offline reach through their brick-and-mortar stores.
The feverish drive, supported by massive cash piles which have resulted in their share prices soaring, is part of battle to win over store operators and consumers to side with their payment, logistics, big data services and social media systems. As a result, thre are very few retailers who have no allegiance to either Alibaba or Tencent.
“All of the retailers in the brick-and-mortar world are very worried. They have to take a side,” said Jason Yu, Shanghai-based General Manager of market research firm Kantar Worldpanel. “Otherwise they are afraid they will be eaten alive in the future.”
While Alibaba, a key player in the e-commerce space in China, uses Ant Financial, its affiliate, to draw consumers to its side with its mobile payment platform, Tencent’s on the other hand uses its own digital payment, gaming and social media network to retain consumers and merchants on its side. Tencent has also purchased a majority stake in China’s second-largest online retailer, JD.Com.
Tencent and JD.com have also allied with French grocer Carrefour SA.
In the other camp, Alibaba has invested heavily in Lianhua Supermarket, Suning.com, Sanjiang Shopping Club, Intime Retail, Easyhome and Wanda Film.
Essentially both sides are battling for dominance over China’s $13 trillion mobile payment market, with Tencent and Alibaba going head-to-head in market dominance.
While Alibaba’s Ant Financial operates China’s top mobile payment platform, Alipay, Tencent’s payment platform uses the massively popular chat app, Weixin, and is catching up fast in market share.
Both giants are also making a big push in bio data and cloud computing.
“I think for payment (the retail push) is a very critical part because it’s almost a gateway,” said Yu.
Incidentally, brick-and-mortar stores account for nearly 85% of retail sales in China; this is a big lure for tech giants.
“That’s the pot that Alibaba, JD.com and even Tencent want a slice of,” said Yu. “That’s the majority of the business where they can actually look for future growth.”
Brick-and-mortar stores get access to to payment systems, logistics networks and other services and in return get reams of rich consumer data from tech firms.
Earlier this month, Alibaba invested $486 in a retail-focused big data firm, saying the deal could “help brick-and-mortar retailers succeed in the digital age.”