Nearly a decade ago Alibaba Group launched Alipay – China's answer to online payment giant PayPal. Today it's seen as the magic password at the gate of China's online commerce treasure trove.
My son's birthday is coming up again. That means I have a ton of presents and party supplies to shop for. And the best way to do that in China -- Taobao -- the country's biggest online shopping site, part of Alibaba Group. China is already the world's biggest e-commerce market by some measures. But how did that happen so fast in a country where consumers rarely trust what they can't touch? Jeff Walters, Managing Director of the Boston Consulting Group, gives most of the credit to Taobao's customer review system and Alibaba's payment system Alipay. (SOUNDBITE) (English) MANAGING DIRECTOR OF THE BOSTON CONSULTING GROUP, JEFF WALTERS, SAYING: "These two innovations together back in 2003 were a catalyst that helped really accelerate the growth of the e-commerce in China. The Alipay escrow service meant that consumers did not release the funds for a payment until they had received the goods and they were satisfied with the quality of the goods." (SOUNDBITE) (English) REUTERS REPORTER, JANE LANHEE LEE, SAYING: "Let me show you how that works. So here I've found a set of Spiderman hats and cups and plates - 39 yuan. So I click, and then I choose Alipay. I've already transferred money online from my bank into my Alipay account. Unlike Paypal, which sends the funds immediately after an order is placed, Alipay doesn't release payment to the seller until 10 days after the product is shipped. That period can be extended if there are any problems. And trust me, sometimes I have fake goods shipped to me by Taobao, so there are problems. But I've always managed to get my money back." And of course you can also use Alipay to cover utility bills or top up your mobile phone. Alipay has about half of China's online payment market. Alibaba's arch-rival Tencent also has a payment platform, but it comes in a distant second with about 20% of the market. But Alipay is facing pressure, with some big competitors like 360buy dropping the service. For global investors eyeing Alibaba's expected IPO...sorry, whatever shares you get are unlikely to buy you a piece of Alipay which was separated from the group into an affiliated company in 2011. But Alipay is still key to the Alibaba empire -- and for China's cautious shoppers, the open sesame into the treasure cave of online retail. ENDS