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Mainland Chinese tourists are flying overseas in record numbers and leading e-payments provider Alipay is going along for the ride.
With more than 700 million registered users, Alipay dominates China's domestic online payment market with a 48 percent market share. Outside of China, however, the company has been conservative in its efforts to expand as a cross-border e-payments provider.
That's starting to change as Alipay, an affiliate of e-commerce giant Alibaba Group, is being selected as an online payment choice by an increasing number of airlines and other travel-related companies eager to boost their Chinese tourism business.
In the past year, the number of international airlines offering Alipay on their ticket-reservation websites has grown from three to 15, among them Hong-Kong-based Cathay Pacific, Singapore's Jetstar, Malaysia's Air Asia, Korean Air and KLM Royal Dutch Airlines. Alipay recently has also been added by Agoda, a hotel reservations website serving Asia Pacific owned by Priceline.com.
Kiki Wu, director of Asia Pacific for Alipay's International Business department, said the growth is directly tied to China's booming travel market, which has shown no signs of flagging despite the country's economic slowdown.
China in recent years has relaxed overseas travel restrictions placed on its citizens. Coupled with the growing prosperity of China's middle class, the result has been a wave of mainland tourists traveling abroad, mostly to Asian destinations but also to Europe and the U.S.
According to China’s Ministry of Public Security, 38.6 million Chinese ventured outside the country’s borders in the first half of this year, up more than 18 percent compared with the same period last year and close to double the number in 2007. Chinese tourists are on track to take around 80 million overseas trips in 2012.
Among the traveling classes, the Chinese are now the world's third-biggest spenders behind only Germans and Americans. Chinese tourists shelled out a total of $73 billion on overseas holidays last year. The boom "has gotten the attention of a lot of travel, tourism, and hotel companies," Wu said. Because many Chinese tend not to use credit cards, Alipay is a logical payment option for travel companies wanting to use the Internet to reach the mainland tourism market, she said.
Alipay declined to disclose its transaction volumes related to overseas travel or how fast transactions are growing. During an Alipay-sponsored conference on cross-border e-payment held Oct. 17 in Shanghai, Bob Cao, chief analyst for Beijing-based market consultancy iResearch, estimated Chinese nationals will complete a total of RMB 265 billion ($42 billion) in travel-related online transactions this year (including domestic travel). Alipay captured about 40 percent of that market in the second and third quarters, Cao said.
"In the next few years we will see an acceleration in Chinese purchasing power, which will guarantee more (tourism) development," he said. "It is a blue-sea market."
Diving into the sea is KLM, which currently flies directly to seven airports in China, offering mainland citizens 40 weekly flights to 152 destinations worldwide. KLM implemented Alipay in January on several of its Chinese-language websites as an e-payments option for booking flights.
Currently Alipay transactions account for just 12% of payments by mainlanders to KLM—most pay with credit cards or with cash at KLM's airport ticket counters, said Bert Zwanepol, KLM manager of e-payments. Speaking at the Shanghai conference, Zwanepol said his company was satisfied with the results so far. "Every time I check the figures, (Alipay payments) are growing," he said. "Twelve percent in six months is huge."
Zwanepol added that 70 percent of its mainland customers are Chinese tourists. The airline is considering adding Alipay to its websites in Hong Kong and the U.K., he said.
Participants at the Shanghai conference agreed that Chinese tourism had only just begun its ascent and that there was still plenty of room for growth.
Herbert Chia, Alipay business intelligence officer, says the e-payments company has signed up all major China airlines and travel agents, and Alipay is a top payment option on key domestic travel websites Ctrip and Taobao Travel. "By the end of the year we can cover most of Asia," Chia said. "The plan is to then go to Europe and U.S. airlines."
Alipay in September established a six-member, in-house team "to look into the industry and see what else we can offer," said Alipay's Wu, the team leader. Among initiatives are efforts to allow tourists to use the Internet to rent cars, book spa sessions and cooking lessons for their vacations, and even purchase duty-free items online that will be delivered to travelers as they board their flights home. Travelzoo Asia Pacific, which operates websites offering discounts on travel and entertainment in the region, announced last week it was using Alipay on its daily deals website in China.
"It's a huge market," said Wu," but we have to do it step-by-step."