Alipay operator Ant Financial’s proposed $1.2 billion purchase of Dallas-based money transfer firm MoneyGram was finally blocked by the Committee on Foreign Investment in the United States (CFIUS), a U.S. government inter-agency regulatory body. Ant Financial was unable to convince the committee, even with three filings for approval, that Ant Financial would be able to protect the personal information of U.S. citizens. It’s a big blow to Ant Financial parent Alibaba and CEO Jack Ma’s global ambitions. This is a confirmation that Alipay, and by extension Tencent’s WeChat Pay, will be forced to focus largely on Chinese tourists globally, without pursuing users from other markets.
The blocked deal means that the only customers that Alipay can target globally are Chinese tourists
2017 was the year of the Chinese tourist for both WeChat Pay and Alipay. But that hasn’t stopped Alipay in signaling its interest in building up user bases in other markets. Ant Financial has intimated in the past that it hopes to release Alipay under another brand in Japan for local users. The MoneyGram deal would have been by far the most dramatic move for Ant Financial in seeking new users. It would have given Ant Financial access to 350,000 outlets around the world.
Ultimately, these efforts by Ant Financial were attempts to diversify its user base and revenue streams as it faces increased competition from WeChat Pay and to a lesser extent UnionPay for access to Chinese spending both in and outside of China. With seemingly everyone in China using mobile payments now, there just isn’t much room to expand. Estimates for the total volume of mobile payments processed by Chinese firms range as high as $5 trillion.
There’s isn’t much room for growth for mobile payments in the China market
The most significant potential for increased adoption of Ant Financial’s mobile payments platforms is abroad. Similar offerings like Apple Pay and Android Pay haven’t taken off globally, and this represents a big opportunity for Chinese firms.
The real question here is how Ant Financial or Tencent can move away from its sole dependence on Chinese users. Ant Financial aptly recognized that the most straightforward solution was an acquisition of a firm that already had an established user base and infrastructure globally, in this case, MoneyGram.
Given the relationship between the Chinese government and Chinese firms, it seems highly unlikely that any of them, even one as large and influential as Alibaba, could deny requests for user information. Companies like Tencent and Alibaba are already handing over a lot of user data to the Chinese government. CFIUS blocking the MoneyGram deal effectively means that both firms are locked out of the U.S. market.
The failure of the MoneyGram deal indicates that U.S. regulators likely won’t approve any expansion for the time being
Even acquisitions or establishment of new services in other large markets overseas seems like it will be a challenge. There are few nations around the world with a large potential for revenue and/or spending via mobile payments that are on good terms with China.
India, for example, is another developing country where mobile payments are becoming increasingly popular, in part due to a push by the Indian government under Prime Minister Narendra Modi. Google parent Alphabet Inc. even launched a new mobile payments platform in India last year.
But given the often strained relationship between Delhi and Beijing over territorial disputes and other geopolitical concerns, it seems highly unlikely that such an offering would be allowed in India by a Chinese firm. Chinese smartphone company Xiaomi has already come under fire in the past because of security concerns over user data and the Indian Army and Air Force have issued warnings in the past over Xiaomi hardware and software.
Geopolitical concerns will be a challenge for Ant Financial to expand in most major markets
In short, there doesn’t seem to be a clear path forward right now for Alipay or WeChat Pay to move away from its focus on Chinese users and Chinese tourists. Of course, there may be smaller, developing markets that might be willing to welcome Alipay or WeChat Pay wholeheartedly, but the big markets are likely all out of the question for now. For the time being, both companies’ global ambitions will be limited to Chinese tourism.