The_Future_of_Global_Retail_Preview

FOUR P I LL ARS OF NEW RE TA I L

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Alipay – a key to trust Today, people take the Alipay model for granted. Before Alipay, however, there was no such solution for e-commerce payments anywhere in the world. When Taobao came online in May 2003, user growth was slow. There was no shortage of e-commerce sceptics and people were gener- ally cautious about online transactions. Sellers were concerned that they wouldn’t receive payment after delivering the goods, whereas buyers were not sure if they would receive the merchandise after paying for it. Taobao’s founder, Jack Ma, quickly realised what was missing in the C2C system: the crucial element of trust between the participants. If Taobao was to develop further, he knew it must tackle this problem head on. The natural place to start was eBay’s payment system: PayPal. After all, eBay was the industry’s standard-bearer and by far the largest competitor. PayPal was a convenient online payment system, and yet it could not solve the issue of lack of trust facing Chinese online shoppers. Taobao’s team brainstormed for ideas, not only by testing out competitors’ solutions but also by visiting online forums to check out user feedback. Their proactive customer research and intense internal discussion gradually led them to the idea of a custodian model. From the perspective of product design, Alipay’s payment solution was not a major innovation. PayPal had been processing online payments for years. And from as early as the 17th century, the United Kingdom had been operating a custodian service, which over the years had developed into an independent banking business (trust accounts). In a trust account, banks keep the client’s entrusted funds, and make payment in accordance with what is agreed. Alipay’s model is a combination of PayPal’s online payment function and a bank’s custodian service. The advantages of Alipay were obvious immediately. If different sellers offer similar products, customers will naturally choose to buy from the seller that provides a no-pay guarantee if the goods are not received. As a result, more and more sellers began to adopt Alipay. The new transac- tion service alleviated the anxiety of shoppers, many of whom were new to e-commerce. Sellers and buyers might not trust each other, but they could all trust Alipay. Once the issue of trust had been resolved, Taobao and the whole e-commerce sector in China entered a completely new stage of development.