Samsung Electronics (SSNLF, Financial) will join hands with Alibaba (BABA, Financial), the world's biggest ecommerce giant, in the mobile payment business. The move is a part of Samsung Electronics' strategy to strengthen its competitiveness in China's mobile payment market while Alibaba seeks to boost international expansion by tapping into Samsung's global presence.
Alibaba is not your ordinary online retailer. The company provides a variety of services including business-to-consumer, business-to-business and consumer-to-consumer sales through web portals. Alibaba is the world’s second-largest ecommerce company behind Amazon (AMZN, Financial) and has been growing internationally over the last few years to augment its dominant position in China.
Samsung Electronics, on the other hand, is the world's second-biggest information technology company by revenue, second only to Apple (AAPL, Financial). Samsung Electronics has assembled plants and sales networks in 80 countries, which means the company could hold the key to Alibaba’s push for a worldwide presence.
Shares of Alibaba rallied 0.73% to $78.89 on Friday morning following the official announcement that it had agreed to partner with Samsung on mobile payments in China.
"The technology integration facilitated by this partnership with Samsung Electronics will make the payment process faster and more convenient when users make payments at stores where Alipay is accepted," Fan Zhiming, president of Ant Financial’s payment business unit, an affiliate of Alibaba, said in a statement.
The world of online shopping is transitioning toward mobile payments. Therefore, the deal between Alibaba and Samsung means that two companies with a massive presence in their respective markets are coming together to facilitate the most efficient mode of payment in China. This news comes at the back end of what appears to be a perfect month for Alibaba so far.
The company delivered a stellar performance on the mobile platform in the most recent quarter with the share of mobile in the overall GMV increasing to 51% as compared to 27% a year ago.
In addition, the mobile monthly active users (MAUs) rallied 77% annually to 289 million, and this accounted for more than 80% of the annual active buyer base. Analysts are optimistic that the share of mobile in the overall GMV of Alibaba’s Chinese retail marketplaces will continue to increase over the coming quarters. Current projections put the expected GMV by year end at about 70%.
However, the overall monetization rate of the company’s mobile platforms has been stalling. While the company reported some significant improvement in the fourth quarter for fiscal 2015, that rate dropped to 2.42 in the most recent quarter (first quarter of the fiscal year 2016) from 2.88. Overall, the rate remains below 2.5%, which is not good enough. However, with Samsung’s deal, things could change.
Last year, Samsung launched its own online payment platform Samsung Pay in Korea and the U.S. The service debuted in China in March, just a month after Apple Pay launched in the country. Samsung sees China as a huge potential market, currently dominated by homegrown giants Alipay, Tenpay and Huawei Pay.
The company’s deal with Alibaba allows customers to seamlessly make payments in department stores where Alipay is accepted. This could have a dual effect on the two companies’ mobile payments systems. At the time of the China launch, Samsung Pay supported debit and credit cards from nine banks with another six banks planned.
Ideally, Samsung faces an uphill battle to capture a significant share of the mobile payments market. There is stiff competition from Apple’s Apple Pay and Google’s Android Pay, which are already present. In addition, there is also the challenge of geo-limitation, which the industry players have put on each other.
Furthermore, Samsung’s fortunes in China have taken a slide in recent years. After years as the dominant No. 1 smartphone player in the country, the company has lost its position and now ranks No. 6 behind domestic handset makers Huawei Technologies and Xiaomi among others.
Samsung is hoping to gain traction in the growing Asian market with this deal with Alibaba. And for Alibaba, working with the world’s largest smartphone maker could help it in boosting its mobile conversion rates.
Conclusion
These two technology giants are coming together for a common course of ensuring efficient mobile payments across all stores where Alipay is accepted.
In return, Samsung Electronics could end gaining a good chunk of the mobile payments market especially given the exposure it gets by signing this deal with Alibaba.
On the other hand, Alibaba’s stalling mobile conversion rates could be boosted significantly thereby increasing the company’s top line. At the moment, it appears as though Samsung stands to benefit the most.
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