Fintech is a new industry that has been growing over recent years. The volume of sales in e-commerce has increased by at least 1,000 billion US dollars between 2014 and 2017. In addition, it is expected that sales will continue rising, reaching over 4,000 billion dollars in 2021. Within this Industry, there are different segments of online payments where the 3 companies that we have selected for this report operate. The International strategy of Apple Pay, AliPay and PayPal will be analysed; focusing on the location and entry modes.
a) Apple Pay
Apple pay is a Mobile payment and digital wallet service launched in September, 2014, that lets users make online payments on contactless terminals using Apple devices
This software allows you to make a payment and to receive and send money to family and friends through messages. Although the Apple company, owner of Apple Pay, does not belong to the Fintech industry; It is a clear example of how digital payment methods have evolved in recent years, increasing competition in the market through companies that diversify their products and invest in an industry that is revolutionizing payment methods.
Before determining what type of international strategy we consider Apple Pay to follow, we will analyze how the internationalization process has been based on the choice of location and entry modes.
Regarding the choice of location, Apple analyzes several features of which we have highlighted two. The first would be Smartphone penetration in the country and the second and most important, Apple’s market share in that country. This is because Apple Pay is considered to be complementary product, meaning you need to have an Apple device to be able to use this mobile payment software.
Once the new location is chosen, it is essential to determine the entry modes to be able to operate in that country. In the case of Apple Pay, these methods are based on alliances with international credit card companies such as Amex, Visa and MasterCard; with local banks and with businesses that operate both nationally and internationally.
Finally, we consider that Apple has taken an international strategy because the local competences of the company in foreign markets are exploited with small adaptations to local conditions.
Alipay is a Chinese third-party platform that offers online and mobile payment services and electronic payment processing. Originally created in 2004 by the global e-commerce conglomerate Alibaba, and now a part of Ant Financial Services Group, Alipay officially overtook PayPal on its way to becoming the world’s largest mobile payment platform in 2013, gaining the striking 54% of the Chinese mobile payment market.
But despite the huge success on local territory, Alipay quickly realized that operating exclusively in the Chinese market is limiting its natural opportunities for growth. Internationalization was the next logical step for embracing the massive expansion of e-commerce and m-commerce globally. According to Euromonitor, mobile commerce is expected to reach $972 billion by the end of 2017, and the impressive number of $3 trillion by 2021.
As a fully digital payment platform, Alipay accounts for a Global strategy developed under high pressure for global integration and low local responsiveness. Due to the lack of physical products and the easy online availability to the company’s services from any corner of the world, Alipay coordinates all international operations from its home-country headquarters, without the need for physical establishments on local territories. However, because digital, mobile and online payments are strictly related to e-commerce which is expanding internationally, the company has a really high pressure to provide global services in various currencies instead of a local-only approach.
Due to the low pressure for local responsiveness, the company replicates its original competencies and services, adapting them only in terms of each country’s currency and commissions. As an online payment processing platform that is fully capable of operating worldwide without a physical establishment, Alipay has developed its internationalization based on strategic alliances and joint ventures with other financial institutions.
Currently, the company is operating with more than 65 banks and financial institutions such as MasterCard and Visa under a strategic non-equity alliance that allows Alipay to provide payment services to foreign countries. On an international level, the company has partnered with more than 300 merchants in order to sell directly to Chinese consumers. Currently, Alipay supports 14 major foreign currencies.
Last year, Alipay started an extremely rapid expansion of its mobile payment system to global markets, signing up with more than 80,000 retailers in 70 countries. The company has developed its strategy on targeting travelling Chinese customers – last year, 120 million Chinese spent approximately 200 billion dollars during their overseas trips.
Since Alipay’s most important target are Chinese citizens, the company chose for its internationalization strategy the countries that are most visited by Chinese tourists, such as Hong Kong (35 million in 2016), Macau (17 million), Thailand (7.7 million), South Korea (6.9 million), Japan (5.5 million), Taiwan (3.8 million), USA (2.6 million), Singapore, (2.45 million), etc. Alipay partnered with retail and airports to let Chinese citizens pay with their preferred method even when they are abroad.
When it comes to location decision, due to high pressure for global integration and the digitalization of its services, Alipay has taken a different approach. Instead of building local establishments on other territories, the company went international by simply identifying the 70 most popular travel country destinations for Chinese tourists, and making Alipay payments available there via strategic partnerships. The company itself didn’t have to relocate neither expand physically to other territories, and the easy access to its online services was quite favourable for its global penetration – so there was no need for any physical location decision.
PayPal is an American company with worldwide presence which operates an online payments system that supports online money transfers. It operates as a payment processor for online vendors, auction sites and other commercial users.
The company was once the industry’s pioneer, being acquired in 2002 by eBay on a move that consolidated it as the number one payment system on the internet.
By 2010, and after many years of growth and company acquisitions, Paypal had over 100 million active user accounts in 190 markets through 25 different currencies. As of 2017, PayPal operates in 203 markets and has 210 million active, registered accounts.
First, their strategy was focused on expanding its service among eBay users in the United States, then it began expanding to eBay’s international sites, and then the company started to build business off eBay, as explained by former eBay CEO Meg Whitman.
Nowadays, as explained by the company’s vice president and general manager for Continental Europe, the Middle East, and Africa, Laurent Le Moal, Paypal takes two different approaches based on specific market characteristics, when expanding into new geographies and deciding where to allocate resources.
On one side, the company identifies a set of countries as “cross-border”, which are the ones who buy products from abroad because their internal supply is small and will remain small. A lot of these countries can be found in Africa for example. For these countries the company can serve its consumers without investing locally.
On the other side are domestic markets, in which consumers can find the supply and the delivery service they want within their own country. On these, Paypal is willing to allocate resources. For example, Russia five years ago was a cross-border country with Russian consumers buying from abroad. After a lot of investment, the market grew in size making it a desirable destination for the company to allocate its resources.
Regulations are also an important factor. Understanding each country’s laws regarding payment and the associated costs of compliance with those laws are important for decision making. Different countries have different conditions, for which Paypal has tailor made up to 4 different payment solutions, each one valid on a different set of countries.
So as far as we can see, the company takes into account consumer behaviour, market size and regulations when deciding its international location. Every country has specific characteristics for which Paypal adapts its strategy.
Also, the company takes an approach on strategic partnerships to address new markets and reach more people. For example, it recently partnered up with the Chinese giant Baidu. Under the agreement, Baidu’s payment platform, Baidu Wallet, will be accepted by roughly 17 million PayPal merchants globally, strengthening the aforementioned cross-border strategy.
This can also be seen as a response to aggressive moves by its direct competitor Alipay to expand their payments overseas.
Southeast Asian markets have also been targeted in the recent years through local partnerships after failed attempts to enter the Chinese market directly due to tight regulation and strong local players.
The international growth of Online payments: A comparison
Due to the similar nature of each company, all three take similar approaches when internationalizing, focusing on strategic partnerships to reach more people and bite a bigger size of the market, especially in China, where the online consumer market is growing at a very fast pace.
Both Alipay and PayPal pay special attention to the Chinese, partnering up with strong players to reach those customers.
However, Paypal focuses more on allocating resources on countries with big domestic markets, whereas Alipay and Apple Pay trust on partnerships.
As scalability is relatively easy in this business, expansion has been quick, reaching millions of users and allocating their services on very similar countries, with special focus on United States, Europe and Asia.
In this sense, Apple Pay has had a competitive advantage thanks to their mobile devices. Only in 2016 Apple sold 211 million iPhones, each one of them geared up with the brand’s payment software, allowing them to reach users instantly. However, relying only on physical devices, which can also be used to pay with other platforms, could be a mistake on Apple Pay’s strategy.
Finally, it can be concluded that these three companies take on similar approaches in their international strategy due to the nature of the business, differing on specific approaches towards some markets and countries, being Paypal the one which takes a more active stance on deciding where to allocate their resources.
It would be interesting to follow how the competition develops between these three companies, analysing how each one of their strategies has had an effect on growth, sales, and the global market share.