Could Alipay, which became China's largest mobile payments platform after it was spun off from e-commerce giant Alibaba Group Holding Ltd., lose its dominance to rival WeChat Pay, which is embedded in the nation's most popular messaging app?

That billion-dollar question still divides analysts as Alipay's parent, Ant Group Co. Ltd., prepares for what could be the world's biggest IPO, which will be launched in Hong Kong and Shanghai simultaneously.

WeChat Pay, launched by Tencent Holdings Ltd. in 2013, nine years after Alipay was created, surpassed Alibaba's offshoot in terms of monthly active users about five years ago. Alipay's share of China's mobile third-party payments market dropped to 55.4% in the first quarter of 2020 from 82.6% in the fourth quarter of 2014, while that of WeChat Pay rose to 38.8% from 10.0% during the same period, according to iResearch.

Alibaba's repeated attempts to create a social messaging app that can rival WeChat led some analysts to believe the company is aware of the need to be more embedded in users' digital habits.

"The biggest challenge to Alipay in recent years is the fact that mobile payments have become very social," Zennon Kapron, director of Kapron Asia, a Singapore-based consultancy, told S&P Global Market Intelligence. "Alipay has its work cut out for it ... although I wouldn't go so far as to say WeChat Pay will replace Alipay's dominance."

"[Peer-to-peer] payments are easier on WeChat. You chat with friends, look at 'moments' [the news feed in the app], and it becomes more natural to pay on WeChat," Kapron said. Social-based e-commerce also defines how people buy, such as group buying, discount purchases and the influence of key opinion leaders, he said.

However, Sampath Sharma, a fintech analyst at S&P Global Market Intelligence, argued that Alipay's strong ties with its e-commerce parent and the platform's diversification into higher-margin mobile financial services in recent years matter more in staying dominant.

"While the social media platform has worked to Tencent's advantage, you could perhaps say that it's not a necessity. Ant has perhaps demonstrated that it could build a payments behemoth without a strong social media presence," Sharma said. Ant, 33%-owned by Alibaba, said in its preliminary IPO prospectus that its first-half net profit rose more than 10x to 21.92 billion yuan year over year, after its 2019 full-year earnings increased more than seven times from 2018.

Tried, failed, trying again

Although Alipay does not have a WeChat-like in-app feature that connects users with their friends and family, it does have a variety of "social" features including interfaces that allow users to purchase items in bulk with discounts, share photos and send messages. It also has more than 2 million so-called mini programs that allow third-party vendors to directly offer services such as food delivery and vacation bookings, which helps keep users on the platform for longer.

And within the broader universe of Alibaba, the e-commerce giant has a Slack-like workplace messaging app, DingTalk, which targets corporate users. Launched in 2015, it had 300 million registered users as of March 31, according to local media. That compared with 1.20 billion monthly active users of WeChat in the same period.

Alibaba has also reportedly been testing a campus social networking app called Real since November 2019, following a failed attempt with Laiwang, which was launched in 2013.

Monthly active users on Alipay stood at 711 million at June-end, from 659 million at 2019-end and 499 million at 2017-end, according to the preliminary prospectus. WeChat Pay said earlier its monthly active users reached 800 million as of end-2019, up from 600 million three years prior.

Years of diversification

Alibaba created Alipay in 2004 primarily to process payments for its own e-commerce platforms. Since then, the platform has expanded into processing third-party online and offline payments among merchants and individuals. In 2019, Alipay processed 111.057 trillion yuan of payments, up from 90.762 trillion yuan in 2018 and 68.518 trillion in 2017, according to the preliminary prospectus.

In 2010, Alipay launched its first nonpayments product: Shipping return insurance on Taobao, one of Alibaba's e-commerce platforms. Since then, the company has developed three lines of nonpayments businesses on the app: Connecting traditional banks with consumers and small businesses seeking microloans, and offering wealth management and insurance products offered by hundreds of third-party fund houses and insurers.

Most notably, in 2013, Alipay launched a money market fund on its app called Yu'ebao that has a minimum investment threshold of 1.00 yuan, which, according to the Financial Times, helped the fund once surpass JP Morgan Chase & Co. as the world's largest money market fund by AUM in 2017.

"Although mobile payment is ubiquitous in China, there is still opportunity to develop," Kapron said. "The average Chinese retail investors are still very new to the stock market, and the idea of portfolio management is not as widespread as in other markets such as the U.S."

In the six months ended June 30, Ant's largest revenue source was online microlending, totaling 28.59 billion yuan, or 39.4% of its total revenue. Mobile payments came in second, totaling 26.01 billion yuan or 35.9% of its total.

Ant plans to keep expanding. The prospectus lists 15 investment proposals made or proposed, totaling at least 9.45 billion yuan since June 30, including buying a 50% stake of an unnamed consumer finance company for 4 billion yuan.

Apart from consumer finance, other target companies include fintech, technology services, lending, insurance, merchant and local services providers. It did not say where the targets are based.

Ties with strong parent

Despite yearslong efforts to diversify, Ant still counts Alibaba as both its largest customer and supplier. In the six months ended June 30, Alibaba contributed 6.2% of Ant's total revenue, and 8.2% of Ant's "purchases," which were mostly transaction fees.

"Alibaba will continue to have considerable influence of Ant Group by being able to nominate members [to the board]. That said, Ant is evidently seeking its growth outside of Alibaba ecosystem," Sharma said.

Alipay is also the designated third-party payments platform for all of Alibaba's e-commerce sites, which had a combined transaction value of 7.053 trillion yuan in the year ended March 31. That is nearly double the combined transaction value of 4.153 trillion yuan of four other major e-commerce sites — JD.com Inc., Pinduoduo Inc., Meituan Dianping and Suning.com Co. Ltd. — in 2019, two of which do not accept Alipay as a payment method.

"The relationship helps Ant to expand. Customers come through Alibaba's e-commerce platforms, as they register with Alipay to pay. It's a fairly tight relationship,” Kapron said.

Billy Leung, director of equity research at Haitong International Securities, said: "The competitive landscape in the next five to 10 years should be how Ant Financial penetrates offline and WeChat Pay penetrates online. For the latter, we are already seeing increasing focus by Tencent to attract more merchants on its ecosystem."

As of Sept. 15, US$1 was equivalent to 6.78 Chinese yuan.