Amazon, Alipay, PayPal are quietly becoming big lenders
SAN FRANCISCO – Amazon.com, PayPal and Alipay are quietly becoming lenders to their e-commerce customers, amassing loan portfolios that dwarf traditional banks.
China-based Alipay processed payment transactions worth at least $10 billion in the second quarter, according to the updated IPO filing of Alibaba.
Alipay, which is controlled by Alibaba co-founder and CEO Jack Ma and other insiders but no longer owned by the e-commerce giant, processed just over $50 billion for the 12 months ended in March. While that's still a fraction of the hundreds of billions of dollars processed every year by Visa and MasterCard, it's larger than the loan portfolios of many smaller U.S. banks.
Alipay's business is also growing rapidly – along with China's Internet sales – becoming the payment method of choice for a large majority of the quarter-billion users of Alibaba's Taobao and Tmall shopping sites.
The Alipay numbers come to light just weeks after Amazon (AMZN) unveiled its own payment service, called Local Register.
Amazon CEO Jeff Bezos entered the market aggressively, offering an introductory fee of just 1.75 percent per transaction.
That significantly undercuts the 5% or so that credit card companies typically charge.
After Oct. 31, Amazon will offer its online merchants a rate of 2.5%, slightly lower than the 2.75% fee charged by payments upstart Square of San Francisco.
Alipay charges 0.3% to 5% for financing transactions, based on the type of goods sold, the latest Alibaba IPO filing says.
All of these tech companies are looking to garner a greater share of the exploding market for online payments, and the Alipay numbers show how that can quickly become a large business.
The company processed 78% of Alibaba's $13 billion in gross merchandise value in China for the quarter ended in March, as the number of active Alibaba shoppers surged 45%, to 255 million.
Yet China isn't the only place where tech firms are capturing a greater share of the payments business.
PayPal is still much larger than Alipay, with $55 billion in total transactions for the quarter ended in June – a jump of 29% from a year earlier.
The eBay EBAY unit captured revenue of $1.9 billion, or 3.45% of the transaction total, for the latest period, representing year-over-year growth of 20%.
Meanwhile, eBay's total sales are expected to rise 13% this year.
Some eBay shareholders are agitating for the company's board to consider a PayPal spinoff to unlock more value from that business, saying an independent payments company could expand its market to other online platforms.
Square is reported to be raising a round of investment at a valuation of $6 billion.
The financial services industry is looking to counter the push by tech firms via partnerships.
Apple AAPL is reportedly in talks with credit-card issuers and other finance partners to provide buyers on its iTunes store with electronic-payment processing.
Apple's new service, expected to be announced next week, will allow consumers to use its latest iPhones and iPads as virtual credit card for mobile purchases on its iTunes store.
With tech firms entering the e-commerce finance market aggressively, look for the cost of sending and receiving online payments to come down for consumers and businesses alike.
[Editors note: According to Alibaba's latest regulatory filing, the company's board in 2011 "restructured the ownership and control of Alipay into a company wholly owned by PRC (People's Republic of China) nationals in order to obtain a payment business license within the time period prescribed by the PBOC (People's Bank of China) regulations."]
John Shinal has covered tech and financial markets for more than 15 years at Bloomberg, BusinessWeek,The San Francisco Chronicle, Dow Jones MarketWatch, Wall Street Journal Digital Network and others. Follow him on Twitter: @johnshinal.