E-commerce Giants Boost Payment Integration, Seek New Opportunities

Interconnectivity will change the existing internet ecosystem, but there may be fluctuations and setbacks.

Recently, leading e-commerce platforms have further embraced interconnectivity. Following Taobao and Tmall's announcement to accept WeChat Pay, JD.com and Alibaba have also entered into new cooperation. Taobao and Tmall will integrate JD Logistics, and JD.com will adopt Alipay as a payment option. As of press time, neither Alibaba nor JD.com have responded to these developments.

Several industry insiders told Caijing that the new openness of e-commerce platforms is mainly influenced by two factors. First, there is a policy requirement; interconnectivity has become a regular regulatory direction. Second, platforms are actively seeking new growth opportunities, including new traffic, new data, and new business ecosystems.

Starting from September 27th of this year, consumers can use WeChat Pay when shopping on Taobao and Tmall. Taobao and Tmall are expected to integrate JD Logistics by mid-October this year, and JD.com is expected to adopt Alipay before the "Double 11" shopping festival this year. On September 4th, Alibaba and Meituan also opened up new cooperation, with Meituan's food delivery and hotel businesses, which are in direct competition with Alibaba, having already settled into Alipay's mini-programs.

As early as September 2021, three years ago, the Ministry of Industry and Information Technology had clearly proposed "interconnectivity" and that it is "irreversible." Overall, the current actions of internet platforms towards interconnectivity have taken a significant step forward, but there is still a long way to go to achieve true interconnectivity.

Li Mingtao, Dean of the Research Institute at the China International E-Commerce Center of the Ministry of Commerce, told Caijing that the essence of the internet is interconnectivity, and only through this can network effects and economies of scale be realized. In the past, the rapid development of e-commerce platforms and the construction of their own ecosystems, restricting competition externally, was a strategy that fit the business development at the time. However, today the period of high-speed growth has ended, and it is difficult to find new growth space relying solely on the platform's ecosystem; new possibilities must be sought through interconnectivity.

Short-term impact is limited, long-term effects are anticipated.

Many e-commerce merchants and consumers believe that the current interconnectivity has little impact on them. Some merchants mentioned that today's leading e-commerce platforms have very mature infrastructure. What merchants are more concerned about is the increasing cost of traffic, the difficulty of business growth, and that adding logistics and payment options does not directly lead to business growth.For consumers, new payment methods and logistics services do indeed bring some convenience, but it is also difficult for them to choose different e-commerce platforms solely based on these factors. Some consumers told Caijing that in the past, JD Logistics indeed had advantages in terms of delivery efficiency and door-to-door services, but recently Cainiao has also been improving its service level, and the overall difference is not significant. "I would prefer e-commerce platforms to reduce various complex activities and discounts, and not to have consumers compare prices everywhere, which would better enhance the user experience."

For platforms, the value of interconnectivity is more apparent at this stage.

For Taobao Tmall, the value of integrating WeChat Pay is quite evident. According to data from the China Payment and Clearing Association, in 2020, WeChat Pay's market share exceeded that of Alipay. Currently, WeChat Pay has over 1.1 billion monthly active users, while Alipay has over 1 billion monthly active users. Integrating WeChat Pay into Taobao Tmall will bring new users and transactions to some extent.

For Alipay, the impact is not very significant. As early as 2004, Alipay had already become an independent company, and after 2008, it opened up to the outside world, cooperating with many online and offline platforms and merchants. In 2014, Alipay's parent company was renamed Ant Financial, and in 2020 it was renamed Ant Group. In addition to payment services, its core business also includes financial technology services, cooperating with financial institutions to provide credit, insurance, wealth management, and other services.

According to Ant Group's 2020 prospectus, from June 2019 to June 2020, Alipay's digital payment scale was 118 trillion yuan. From January to June 2020, Ant Group collected 4.04 billion yuan in payment processing and escrow transaction service fees from Alibaba Group, accounting for about 5.6%. That is to say, most of Alipay's revenue mainly comes from other customers and businesses. After Taobao Tmall integrates WeChat Pay, Alipay may lose some transaction volume, but the overall impact is not significant.

Similar to Alipay, JD Logistics is also an independent subsidiary of JD Group. In addition, JD Technology and Cainiao are also independent subsidiaries. As the e-commerce ecosystem becomes more mature, payment and logistics, as infrastructure, are no longer simply business departments serving the group, but more need to develop independently. For them, in the past, due to competitive relationships, some customers were difficult to directly reach. After interconnectivity, on the one hand, it is beneficial for them to expand their business growth space; at the same time, it also helps to increase the stock prices of the group and its subsidiaries. Moreover, after opening up competition, everyone will be in a relatively fair competitive environment, which will also promote various payment and logistics companies to improve their product and service capabilities.

Today, the development speed of the domestic e-commerce industry has slowed down. Data from the National Bureau of Statistics show that in the first half of 2024, China's online retail sales were 7,099.1 billion yuan, a year-on-year increase of 9.8%, and in 2023 it was 11.0%. Before 2019, the growth rate exceeded 20%. All e-commerce platforms are accelerating the development of overseas markets, and in new markets, logistics and payment links are crucial. After interconnectivity, it can also help e-commerce businesses to quickly land in new markets.

Li Mingtao mentioned that in the short term, the current interconnectivity will not have too much impact, but in the long term, it will trigger a series of new changes. Platforms will break the single traffic rules and provide more diversified and composite services. They can also obtain richer business data from different channels. For merchants, in the past, they may have been strongly bound to a certain ecosystem, and in the future, they can join multiple ecosystems, and the traffic acquisition channels have been broadened, "the long-term value is very obvious."

Accelerating Interconnectivity

Since 2021, interconnectivity has become an important topic in the field of the Internet. In September of that year, the Ministry of Industry and Information Technology held a meeting and clearly required various platforms to remove blocks according to standards, otherwise, corresponding law enforcement measures would be taken. At the same time, the Ministry of Industry and Information Technology also stated that the implementation of interconnectivity would be carried out in batches and gradually, and would not set a one-size-fits-all timeline.Since then, many of Alibaba's businesses have already enabled WeChat Pay, including Ele.me and Youku Video. WeChat has also updated its external link management, allowing users to share Taobao links through WeChat.

By 2024, the pace of interconnectivity has noticeably accelerated. In January of this year, Alibaba's Xianyu launched a WeChat mini-program. In February, Taobao began testing WeChat Pay with some users. In March, Alibaba's office collaboration software DingTalk added a feature that allows users to hold DingTalk meetings on WeChat.

Alibaba's cooperation with Meituan is also an important step in interconnectivity. As early as 2011, Alibaba invested in Meituan, and the two sides cooperated closely. After 2015, Meituan merged with Dianping, Tencent added an investment of $1 billion, and Meituan turned to Tencent. In 2018, Alibaba acquired Ele.me, Meituan's biggest competitor. Meituan had partially blocked Alipay payments several times in 2016, 2018, and 2020.

In 2023, some of Meituan's businesses had already launched Alipay mini-programs, including shared power banks and shared bicycles. This September, Meituan's core businesses such as Meituan Waimai, Meituan Tuan, and Meituan Hotel have also launched Alipay mini-programs.

A person close to Meituan told Caijing that this time the cooperation with Alibaba is more influenced by policy.

In the past, during the rapid development of the internet, platforms focused more on their own market share and occupied more territory. The continuously expanding business volume was also enough to support their "strength" and "closure." In addition, data is an important asset for internet platforms, and a closed ecosystem can also help platforms better establish data algorithm advantages, and no platform is willing to share its transaction data.

Today, interconnectivity has become an irreversible trend. The focus of internet platforms has also shifted from competition to finding new opportunities in cooperation. This trend is not only happening domestically, but the US e-commerce giant Amazon has also broken with tradition and cooperated with competitors.

In November 2023, Amazon began advertising on Facebook, Instagram, and Snapchat, allowing consumers to directly purchase Amazon's products in these apps without jumping. This year, Amazon's cooperation has expanded to TikTok and Pinterest. Amazon calls this "Project Handshake."

In September of this year, at Amazon's annual merchant conference, Doug Herrington, Amazon's Senior Vice President of Worldwide Consumer Business, said that such a practice is indeed controversial, and if it were five years ago, Amazon would not do so. But Amazon believes that this can improve the consumer's shopping experience and also hopes to help Amazon increase overall sales, achieving a win-win situation. According to media reports, Amazon is doing this because its own business growth has slowed down and external competition is fierce, and Amazon needs to retain consumers and merchants.Li Mingtao stated that the interconnectivity among Chinese internet platforms has already begun. Each platform still has different decision-making controls, and the degree of interconnectivity varies. Platforms are still concerned about the impact after complete openness. "It will definitely be gradually promoted. When everyone realizes the benefits of interconnectivity, it will become more and more open. Of course, there may be some setbacks during this process."

For the entire industry, interconnectivity can bring more intense competition, further reduce business costs, and enhance the service levels of all parties.