Investment News Analysis

Cashing in on cashless

Alibaba Chairman Jack Ma with Philippine President Rodrigo Duterte

Yesterday afternoon, China’s second richest man – and with US$28.3 billion, the world’s 23rd wealthiest according to Forbes magazine’s current Billionaires List – paid Philippine President Rodrigo Duterte a visit. He was already in Manila so he dropped by where they tried out each other’s signature hand gestures. (Photo: Ma, left, with Duterte)

But there was more to it than that. A courtesy call? Well, that’s how it was described but these are two extremely busy men; neither of them is known for putting casual appointments in their diaries. So could there have been something more that the founder and chairman of the Alibaba e-commerce leviathan, Jack Ma, had on his mind? Something, perhaps, that he personally wanted to run by the president?

Certainly, his trip to the Philippines wasn’t without its low notes – Ma, whose businesses depends on fast and reliable connectivity to the Internet had a problem getting online when he arrived in Manila on Tuesday night.

Yesterday, he delivered a talk at De La Salle University (DLSU) in the Malate district of the city – just six minutes away from the presidential palace of Malacañang – and gave his verdict on the quality of the country’s Internet service. He’d gone there to receive an honorary doctorate in technopreneurship (a technopreneur is a tech-savvy entrepreneur).

“It’s no good,” said China’s second-wealthiest citizen – not exactly news to the students and others assembled to hear him for sure, but they appreciated his frank appraisal and applauded him for it. Then, in his customary positive manner he said that the Philippines has great potential – meaning, specifically, great potential for e-commerce; the life blood of Alibaba – and encouraged the government, entrepreneurs and society as a whole to work to improve the speed and coverage of the Internet.

Hopefully those words from the newly conferred Doctor of Technopreneurship can achieve what so many other pleas have failed to in the past – not least those from the country’s 60 million Internet users who struggle constantly to get online and stay there.

The Philippines has one of the lowest average connection speeds – 4.5 megabits per second (Mbps) – in the entire Asia-Pacific region. In the immediate area of the Association of Southeast Asian Nations it’s near the bottom. Singapore’s speed is 20.2; Vietnam’s 8.3 Mbps; Malaysia’s 8.2 Mbps; Indonesia’s 6.7 Mbps; Brunei’s 5.8 Mbps; Cambodia’s 4.7 Mbps. Only Laos and Myanmar are slower.

We’re sure, however, that Jack Ma didn’t just learn about the paucity of the country’s Internet connection when he flipped on his phone after arriving. The Philippines’ grim reputation will have preceded it. Indeed, Ma will have known about that for some time. And given the other purpose for his being in the Philippines he might well have wanted to take the opportunity of offering his considerable voice to the ear of the president to urge movement on bringing local Internet services up to speed.

That other purpose for being in the Philippines was to attend the roll out of a new e-cash consumer app; a joint venture between Ma’s Ant Financial Services – an affiliate of Alibaba Group – and Philippine telecoms provider, Globe Telecom, owned by Ayala Corporation, the country’s oldest and largest conglomerate.

The product being launched was GCash, a digital-payment mobile-phone app that can be used to purchase goods and services by means of cashless ‘scan to pay’ technology. GCash is the property of Globe Fintech Innovations Inc – a subsidiary of Globe Capital Venture Holdings – 45% owned each by Globe and Ant Financial Services and 10% by Ayala Corp.

It’s believed this system ultimately will be made available to retailers and their customers across Ayala’s portfolio of shopping malls. Currently Ayala Corp’s real-estate subsidiary, Ayala Land, owns and operates around 48 malls in the archipelago. A further eight are scheduled to open before the end of next year.

At DLSU Dr Ma talked about his latest vision – turning the Philippines into a cashless society – something, sadly, which it already is for some 12 million Filipinos who have no way of feeding themselves, and a further 14 million who see the cashless society just around the corner.

Jack Ma, however, had in mind two very different demographics – consumers and traders. What he was outlining was a two-way e-street along which Chinese products could be brought to the Philippine market and Philippine products brought to the Chinese market with all purchases performed via a mobile and online payment platform – something like the Alibaba Group’s very own Alipay, or in this case, Globe’s GCash

The quintessential entrepreneur, Ma’s already worked out how to promote such a venture in the Philippines – the Filipino-Chinese, or Chinoys, should invest in it. And not just that, they should be hands-on in developing it. In other words they’d have equity capital and sweat equity in the Philippine cashless society.

Here’s what he said at a press conference following his DLSU gig. “The Filipino-Chinese here – I think there’s a big community here – they can understand Chinese, English and also Philippine culture. So I think they should be the investors of the cashless society, because a lot of people have heard of Alibaba, Alipay, but they don’t know how to use it because of the language problems”.

Well, perhaps not a detailed explanation, but we see where he’s coming from. Chinoys are certainly a sizeable group – they account for around a quarter of the entire Philippine population; something of the order of 26 million people. Furthermore, a disproportionate high number of them are involved in the appropriate business sectors of trade and financial services.

What he was proposing is that the country’s Filipino-Chinese should be “ambassadors” of the Philippines’ small-businesses sector – but also angel investors in small and micro enterprises. Their job would be to introduce Philippine products – “mangoes and all the great stuff” – to China while brining services and technology into the archipelago from the Mainland. They would be, in his words, “the investors and bridges” of this scheme.

So all that makes sense. And it may well have been the thing which Ma wanted to discuss with Duterte. That scheme has possibilities over and beyond cashless transactions in shops. What he was suggesting is building an investor army to seed and foster entrepreneurs in start-ups and small business entities – and specifically engaging them in China-Philippine trade. If that’s the case we’d certainly like to hear his ideas. One of many sectors that have never been short of neglect in the Philippines is the entrepreneurial sector.

The other part of his pitch to DLSU students was this: “In my city, mobile phones can almost get you anything … There’re no pickpockets in the buses because there’s no money in the people’s pocket, no wallet; only mobile phones. Cashless society; no corruption. Life is easier”.

It may give pickpockets a thinner time of it, but we’re not entirely convinced that a cashless society necessarily equates to “no corruption”. After all, it seems, crooks have to live also and they’ve become increasingly innovative.

Philippine consumers picked up a credit-card-fraud bill of PHP506,850,866.97 last year. And let’s not forget the 2016 electronic hack which relieved a US account at the Bangladesh central bank of US$81 million. That found its way into a series of accounts at a local Philippine bank without making contact with a single human hand and around US$60 million of it still remains untraceable.

Certainly, though, buying and selling the Alipay or GCash way is convenient. In many markets the Alipay app can be used to pay a taxi fare, book a hotel, buy movie tickets, pay bills – even purchase wealth-management products.

More to the point, possibly, the Philippines would be a welcome addition to Ant Finance Services’ portfolio. Alipay is accepted by 110,000 shops in 70 overseas markets – among them a number of chain stores, including Selfridges and Body Shop, in London. In March, the ‘AlipayHK’ app was rolled out in Hong Kong where it’s recognised in more than 4,000 retail outlets. Globally, transactions via Alipay are conducted in 18 different currencies.

So for Jack Ma the overseas market seems to be the way to go. And one reason for that is that, although his company is doing extremely well in China where Alipay has 450 million active users, it recently suffered a hiccup. In 2013, it overtook PayPal as the world’s largest mobile-payment platform, but in the last quarter of last year, its share of the massive US$5.5 trillion Mainland e-consumer market dropped from 71% to 54%.

There was a new kid on the block – WeChatPay from Tencent Holdings – who was putting in a challenge for turf. In the same period that Alipay’s share of the market fell, Tencent’s rose from 16% to 37%. Contributing to that will have been the 2,600 Starbucks outlets it picked up right across China. It managed to get them all – well, apart from one; the one in Hangzhou where the Alibaba Group is headquartered.

So, although Alipay remains the dominant digital wallet in China, Tencent – which gathers 963 million monthly users to its multi-function, gaming and social-media, “App for Everything” WeChat platforms – is not going away. Nor is the China market. Last year, goods and services purchased through mobile phones in China were 50 times more those purchased that way in the United States.

For Dr Ma, pastures new then – international diversification – seems a good strategy for Ant Financial Services to continue; and in fact one that he’s been pursuing across the whole of the Alibaba group. In the next 10 years he anticipates that 40% of the group total business will come from outside China; by 2038 he expects to have gathered a worldwide consumer base of around 2 billion.

Part of that equation now includes the Philippines which – if those charged with providing Internet services to the archipelago finally start doing their job in providing best architecture and an expansive infrastructure – could become one of the busiest markets on Ma’s map. Then, scan-to-pay could be coming to a store near you.

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