Walmart Inc. (WMT) dealt Alibaba Group Holding Limited (BABA) and its Alipay digital payment app a blow on Tuesday, March 27, when it decided to ink a digital payments deal with rival Tencent Holdings Limited (TCEHY) for all of its stores in western China.
Citing Walmart, Reuters reported that the U.S.-based retailer will use WeChat Pay, the popular payment app, in its stores in the region, which includes Sichuan, Yunnan and Gansu. Western China is larger than the the country's eastern region but is less populated. A spokeswoman for Walmart told Reuters that choosing to drop Alipay and ink a deal with WeChat Pay was a pure business decision aimed at improving customers' experiences when shopping in the stores. "In the future, Walmart will cooperate with more partners to provide payment solutions with more convenience and benefits," the spokeswoman said in an email to Reuters. She said Walmart accepts different payment methods including cash, payment cards and mobile payments. (See also: Why Amazon Is Losing to JD.com and Walmart.)
For Alibaba, losing Walmart in any part of China is seen as a blow given it us pushing back against second-place Tencent, which is seeing good successes with its payment service. Earlier in March, Pony Ma, the chief executive of Tencent, said WeChat was able to reach more than 1 billion customers, with the new accounts coming during the Chinese New Year celebrations in February. The Chinese payment market is dividing into two camps, with Alibaba and Alipay on one side and Tencent and WeChat Pay on the other side. Both companies have been investing billions of dollars in growing their retail market share as well as their digital payments dominance. While Tencent is in second place, it is closing in on Alipay's lead. Reuters noted that consumers in China usually have both apps installed on their mobile devices. With backing from Walmart, Tencent may be able to close that gap even further. (For more, see: China: Mobile Payment Volume Hits $5T in 2016.)
Walmart's move comes shortly after Tencent weighed in with results for the fourth quarter and warned that it will give up short-term margins to go after growth initiatives. In reporting quarterly results, Tencent said it plans to increase its investments in video, payments and artificial intelligence. The Chinese company has a market capitalization of around $500 billion.
Net income for the last quarter of 2017 jumped 98% to $3.29 billion, while the 51% increase in revenue was weaker than what analysts were looking for. Tencent blamed that on mobile gaming revenue growth that slowed on a sequential basis, reported CNBC. "The year of 2017 was really a stellar year for Tencent. Many of the achievements are the result of investment we made years ago," the company's president, Martin Lau, said at a media briefing in Hong Kong covered by CNBC at the time. "This demonstrates the importance of forward-looking investment. Therefore, for the year 2018, we are planning to step up our investment in a number of key areas." (For more, see: What Is Tencent?)