FINANCE: WeChat Sips with Starbucks; Alipay in Europe, Australia

Bottom line: Starbucks’ selection of WeChat before Alipay for in-store electronic payments is a symbolic victory for the former, while Alipay’s aggressive global expansion could eventually help it to overtake UnionPay outside China.

WeChat ties with Starbucks

China’s two leading mobile payments services are both in the headlines, led by word of a major new tie-up between Tencent’s (HKEx: 700) WeChat and coffee lifestyle titan Starbucks (NYSE: SBUX). I have to admit that my interest in this particular tie-up is somewhat personal, as I’m a big fan of both of these companies and have been waiting a long time for such a partnership.

But equally significant is the fact that Starbucks chose WeChat before archrival Alipay. That same Alipay is in a couple of its own headlines, both showing how it’s trying to expand abroad to compete with China’s other major electronic payments system, the state-owned UnionPay. One of those headlines has Alipay in a new tie-up in Australia, while the other has it announcing partnerships with four major financial companies to expand its footprint in Europe.

These two stories nicely reflect the bigger picture of what’s happening in China’s electronic payments space, where Tencent, Alipay and UnionPay are all competing for market share. Tencent is the youngest but also the fastest growing of the trio, thanks mostly to the huge popularity of WeChat. Alipay is the second most popular and also growing fast. But it’s playing catch-up to UnionPay, the oldest of the trio, which is also the most advanced overseas.

Let’s begin with the Tencent-Starbucks tie-up, which is most significant because it will finally allow WeChat’s more than 800 million users to pay at the coffee chain’s 2,500 China stores using the platform’s electronic payments function. (company announcement) As a regular visitor to Starbucks, I always found it strange that this trendy chain previously didn’t accept payments from either Alipay or WeChat, even though both services are available from almost any other merchant in most big cities.

It’s obvious now that Starbucks has probably been negotiating with both companies for a while for a broader alliance, and its selection of WeChat first seems to have big symbolic significance. That’s because Starbucks is as much a lifestyle brand in China as a coffee seller, catering to wannabe yuppies. Thus its selection of WeChat over Alipay means it sees the former as the trendier, more desirable of the pair, reflecting WeChat’s rapidly rising status.

Alipay Partnership Coming?

This new alliance will also include an array of marketing and promotional elements, which WeChat is probably more suitable for due to its status as a social networking platform. I suspect we’ll see Starbucks announce a similar partnership with Alipay in the next 6 months, as it really can’t afford to ignore that popular service either. But the selection of WeChat first is highly symbolic in showing who Starbucks sees as the most up-and-coming player in the market.

Next there’s Alipay, the main asset of Ant Financial, which itself is the financial services affiliate of e-commerce giant Alibaba (NYSE: BABA). Alipay is making headlines in Australia, where it has just formed a tie-up with Quest Payment Systems to bring its service to the country. (company announcement) This particular tie-up looks quite limited but has room for growth, and will see Quest initially roll-out Alipay service at a drug store chain called Chemist Warehouse.

The other headline looks a bit bigger, and has Alipay announcing partnerships with 4 financial companies, Barclays (London: BARC), BNP Paribas, UniCredit and SIX Payment Services. (English article) Those 4 will be able to give Alipay access to their combined network of nearly 1 million merchants throughout Europe. Alipay notes that in both instances its overseas presence will initially target Chinese traveling abroad.

These Alipay announcements look quite similar to a steady stream that comes from the stodgier UnionPay, which began its global expansion more than 5 years ago and is now the best option for overseas Chinese travelers. But no one pays attention to UnionPay too much these days, as it’s getting overshadowed by Alipay and WeChat. That’s not to say that UnionPay isn’t a company to watch either, though I suspect it will eventually get overtaken by both Alipay and WeChat wallet, which are far more nimble.

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