How Alipay's global ambitions threaten traditional banks

When Ant Financial announced a deal to acquire MoneyGram, it put the international e-commerce and payments market on notice. As large as China's retail market is, it's not enough.

"Globalization is key for Ant Financial," said Souheil Badran, president of Alipay North America. Ant operates Alipay, the payments affiliate of China's Alibaba. And that plan goes well beyond payments.

"[Remittances] are core to Ant Financial's solution, and they represent a growing area not only of our business but also the global marketplace," Badran said, adding Alipay and Ant's goal is to build beyond remittances and P-to-P to provide financial services such as wealth management, credit, insurance and small to medium sized financing by working with its partners.

To date, Ant's Alipay has been comparable to PayPal, enabling digital payments on a massive scale for online marketplaces but seldom venturing beyond that core service. The financial products Alipay plans to pursue as it enters new markets put it more firmly in direct competition with mainstream banks.

Anthony Kwan/Bloomberg

Ant's MoneyGram deal, which it hopes to close by the end of this year barring any regulatory challenges from the U.S. Treasury, will feed not only an aggressive geographic expansion but also a major diversification of its product line.

MoneyGram is only the most recent of a series of deals and partnerships that allow Alipay to branch out beyond China. From First Data to travel retailer DFS to payment terminal maker Ingenico, Alipay is creating a presence around the world that can serve both an existing domestic and eventual international customer base as the company chases its goal of 2 billion users by 2025 (it currently has about 450 million).

"Our goal is to serve more small businesses and individuals all over the world through our expanded services and partnerships," Badran said, adding that in addition to Alipay's expansion in the U.S. market, it has also made other strategic investments, mostly in overseas markets including Paytm in India and Ascend Money in Thailand.

These investments are "foundational" as Alipay builds out payments platforms globally. "Different markets bring different sets of challenges," Badran said. "As a company with more than a decade of expertise in payments, big data and cloud computing, we have helped partners align their capability in ways that best serve their communities."

Remittances are attracting a lot of attention, mostly due to the possibility that President Donald Trump will somehow hinder the market to force Mexico to pay for the border wall. The administration has most recently downplayed that plan, instead proposing a general tariff on Mexican imports to the U.S. as a stick.

Politics aside, the lucrative U.S. to Mexico cross-border payments corridor would be a major introduction to the U.S. market, and a competitive one. "Mexico is a major destination for all U.S. remittance providers," said Talie Baker, an analyst at Aite Group.

Many of Ant's recent partnerships have been less about cross-border payments and more about following Chinese citizens as they travel to other countries. Like UnionPay, which is also collaborating with companies in different countries to chart an expansion, Alipay enjoys a substantial readymade market. Nearly 130 million Chinese people traveled outside of the country last year.

The nature of travel is also changing, as more people travel by themselves or with family as opposed to traveling with an organized tour group, Badran said, adding that provides the opportunity to travel further, experiences different cultures and visit more "exotic" places where they may be unfamiliar with local payment methods. If Alipay has a presence in these markets, it would be the go-to payment mechanism for Chinese travelers while building its brand among locals.

"This group of travelers is also becoming more connected to the digital world, using their mobile phones to research trendy places abroad, calling Uber, booking hotels or securing lodging through Airbnb, and making payments in stores with their own phones directly," Badran said.

This change has been spurred by China's overall economic growth and technology adoption, as nearly three quarters of online shopping in China is done on mobile devices, Badran said.

"Not surprisingly, this widespread mobile adoption is changing how Chinese consumers pay while abroad," Badran said, adding consumers at home and abroad are swapping cash for apps. "Chinese shoppers love the ease and simplicity of mobile phones, which is much safer than carrying cash or credit cards while overseas."