Alternative Finances

Alibaba Tells All About Alipay Ownership

In their latest filing with the Securities and Exchange Commission clarifying the Chinese e-retailers forthcoming U.S. IPO, chairman Jack Ma more fully explained the circumstances under which Alipay—the erstwhile payments arm of the company—was spun off from the core business.

According to the filing, the PBOC issued guidelines that required non-bank payment companies to obtain a license to operate in China in 2010, but the guidelines only applied to domestic business. There were no guidelines for foreign businesses.

Though conceived and largely used within China, Alibaba was incorporated in the Cayman Islands—a decision made early in the company’s life to attract investors who might otherwise be scared of by China’s restrictions on foreign ownership.  Due to its offshore incorporation, Alibaba (and ipso facto Alipay) is a foreign entity, and unable to oversee a payments business like Alipay after September 2011.

Hence, Alipay was spun off, reports The Wall Street Journal.

“In light of the uncertainties relating to the license qualification and application process for a foreign-invested payment company, our management determined that it was necessary to restructure Alipay,” noted Alibaba in its newest filing with the SEC.

The PBOC has yet to issue guideline for foreign payments services.

Though it may not be the case that the lack of such guidelines was a roadblock as portrayed in Alibaba’s SEC filing. Rival online company Tencent runs a payment service called TenPay.  Incorporated in Hong Kong with foreign investors, TenPay faced many of the same issues as Alibaba vis a vis foreign ownership, but was able to receive a license to operate none the less.  Then again, TenPay is a smaller payments service than Alipay.

Alibaba’s newest filing also revises up the firm’s internal valuation from $100M to $130M.

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The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.

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