New Retail and Mobile Payment

Steven Zheng
General manager
Hangzhou Kefan Import & Export
Chinese consumers are highly digitalized

PWC：The growth of daily online shoppers far exceeds

global peers. It is expected the trend in China will spread
across the world in the future.
The number of people
Aliresearch：Omni-channel is embraced in China. The online shopping every day
penetration rates of online shopping are as high as 50%
in certain categories.
Chinses consumers are more closely connected with
internet than global peers. Multiple online touch points
exist in a typical shopping journey.
82% of GMV on 2016’s single’s day shopping festival was
done by mobile devices, compared with 36% on Black
China Global
Friday in US

Source: PWC

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Chinese consumers’ upgrading behavior drives
global consumption growth NBS: China’s final consumption accounted for
66.4% of GDP growth rate in 2016.

McKinsey: China will contribute to 30% of global

consumption growth over next 15 years. The share
of wallet is shifting toward consumers in developed
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economies. Household spending on food will
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continue to drop. On the other hand, discretionary
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and semi-necessity spending will rise significantly.
2
AliResearch: Spending patterns of affluent
35 consumers in China are approaching those in Japan
and Korea. Quality, technology, customization and
“exquisite life” are some of the most important
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consumption upgrade directions. According to Ali
3 new consumption index, there are clear trading-up
2014 pattern in categories of outdoor equipment and
furniture.
U.S.

Source: McKinsey、Aliresearch

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History of retail
1870s 1930s 1950s 1990s 2010s
Department store Supermarket CVS, specialty store, Ecommerce Mobile shopping
shopping mall
Early stage

All sell
Emergence of ▪ Economic crisis ▪ POS ▪ Internet ▪ Smart phone
▪ Big cities ▪ Auto industry ▪ Logistics and information ▪ GPS
▪ Mass production system technology ▪ New infrastructure
▪ Big wholesalers ▪ Fast life pace
▪ Higher demand for life quality

Traditional retail: Technology leads production revolution; New retail: consumption

production leads retail & consumption transformation drives production revolution

1st industrial revolution (1760s - 1870s) 2nd industrial revolution (1870s - 1940s) 1st information revolution (1940s - 2010s) 2nd information revolution (2010s - )

1814
1765 1831 1876 1940 1980 2000 2010 2017
Steam
Spinning microcomputer Internet Mobile technology
engine train Power telephone Vacuum tube, Computer AI IoT
Jenny generator 1879 1920 1960 1980
1950
Mechanical Bar code Automatic ECR RFID
cashier vending machine Source: Aliresearch
Three reasons for the emergence of new retail
▪ New business infrastructure has established, including big data, cloud
Technology

computing, mobile internet, mobile device; smart logistics, internet finance,

platform (national marketplace)
▪ Internet gradually realizes economic and social value, advancing
1
globalization 3.0

▪ Consumers are of good digital literacy. Omni channel is well accepted.

Consumer
▪ Consumers have the new generation of value proposition and lead global
2 consumption growth

▪ Global brick and mortar retail sector is stagnant and looks for new growth engine
Industry

▪ China’s brick and mortar retail is still at the early stage. Operation efficiency is
low. Lack top retail brands 3
▪ Diversified retail formats emerge

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Three characters of new retail
1 Demand-oriented
▪ DT creates 360 degree of
consumer profile, discovers
hidden needs, and creates 2 Combination of physical and
products and services with the
best experience New retail digital retail
▪ According to consumers’
▪ New retail philosophy: All exists in
needs, re-design customers-
the real and digital world
goods-touch points
▪ Operational loss will approach to
zero. Value chain will be re-shaped
3 Highly diversified retail formats
▪ Retail touch points wide spread in logistics, culture & recreation, restaurants, etc. More
and more retail formats will emerge
▪ All can sell

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New Retail From now on New Retail Future
2017 - 2020 2020 - -2046年

▪ Digitalize goods, member info, service Mass adoption of ▪ Any time

▪ Re-design people-goods-touch points ▪ AI ▪ Anywhere
▪ New retail formats ▪ IoT ▪ Anyone
▪ C2B ▪ New manufacturing ▪ Any content
…… ……

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New Retail

FRONT OFFICE Touch point | Consumer | Goods

MIDDLE OFFICE Marketing | Digital marketplace | New business services | C2B

Cloud computing, Network, 3D/4D printing, AR/VR, …

Infra- Tech-
BACK OFFICE Smart terminal/App,
structure Domain, Operating system nology
Digitalization, AI, IoT, …

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Touch consumers anywhere 24/7

New Retail ∙ FRONT OFFICE : Touch point

Department Store Shopping mall Mobile devices

Streaming
Smart
端
terminal/App

Supermarket CVS Smart devices

Ecommerce Cultural & recreational activities VR

Customer Profile & Pain Points
BRANDS / DISTRIBUTORS STORES CONSUMERS
Profile

OVER STAFFED LARGEST RETAILS GROUP ELDERLY & CHILDREN

GROWTH SLOWING DOWN
• Brands with varied distribution channel depths
• Mainly FMCG products including Beverage,
Packaged Food, Staple Food, Alcohol, and
Personal Care categories
• Tends of thousands Brands, nearly 10M
LARGEST FMCG CHANNEL
UBIQUITOUS PRESENCE
• 30-100M2，~3000RMB, ~200 Transactions per day
• ~2000 SKUs，Cigarrets/Beverage/Snacks account
for over 80% of revenue
• Store owners mostly 30-50, daily shift over 12 hours
• Over 6M Stores, 70% in Tier 3~6 towns, reaching
TIER 3~5 TOWNS
LIMITED OR NO INTERNET
• Consumers often neighbors familiar with the
store owners
• High loyalty, 2 purchases/week on average
• Payment method: cash, Alipay, WeChat, roughly

小店 消费者
employees employed by 600K+ distributors
品牌商 / 经销商
over 1B consumers 30% each
HARD BALANCE BETWEEN NO ECONOMY OF SCALE LIMITED CHOICE, HIGH PRICES,
在3C之间权衡取舍 单店规模小，在5P间均有较大缺失
COST & CONTROL HIGHLY INEFFICIENT POOR EXPERIENCES
Lack of visibility & control over Over 30 suppliers on average Limited product choices, mostly on the low
the stores 90% of fake products sold by this channel
Pain Points

end; Lack of promotions, prices 10% higher

COGS 10% higher than CVS chains than CVS or e-Comm
Lack of retail data Retail price 5% higher than CVS chains

Over 50% of inventory slow moving Very limited services

Escalating distribution cost
Little or no promotions
Limited channel penetration Poor shopping experience, risk of
SPSF roughly 1/10 of CVS chains fake products
Lack of tools and professional training
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Mobile payment

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2009
Alipay launched its mobile app in 2009, which started
mobile payment era in China.

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 2010

Alipay introduced Express Payment in 2010 that revolutionized user

experience and became the foundation of mobile payment in China.
Payment Success Rate

Before After

~70% 95%
Alipay launched QR Code payment 2011in 2011 that became the key
pillar of today’s mobile payment in China.

Traditional POS QR Code

Merchant Coverage 26 million (by 2017) >40 million (by 2017)

Hardware cost RMB 300-1000 / Unit ~0 (as low as a piece of paper)

Payment Charge ~1% 0%-0.5% (free for debit payment)

How does Alipay Escrow Account work?

1. Place order

Buyer Seller
3. Deliver merchandises

2. Pay to
Alipay Escrow
Account 5. Pay to Seller

4. Confirm receiving
merchandises or past
due dispute claim
Today, mobile payment
brings great convenience
for small merchants, even
those located in Everest
Mountain.
 2013

Alipay and Tianhong Asset

Management launched Yu’ebao 400 million+
that re-defined cash management Yu’ebao users
by Money Market Fund and
connecting

payment function in 2013.

Today, mobile payment is almost everywhere
in China
…

Healthcare Restaurants

Hotels 600+ million Public

Alipay active users Transportation

Shopping
Public Services
Oversea merchants are also accepting Alipay for
Chinese travelers

>10 million >200K

Chinese users made payment in oversea Oversea offline merchants are
offline merchants in 2017 accepting Alipay
Today, QR Code payment also helps small offline
merchants to access to comprehensive financial services
Our micro loan program has been provided to >2
million small offline merchants since its launch in 2017.
The average loan size is under USD 1,600.

Ouyang Zhiyong Su Weilian

Small restaurant owner Baker shop owner

Xu Lei
Garment Shop Owner
AI enables risk management to handle mass transactions

Perception Detection
7X24 real-time monitoring 8 detection parameters
and detection identifying risks in 1 mili-second

Evolution
Autopilot
Machine-learning
mechanism for upgrading AlphaRisk Automatic switch risk models
risk management on a daily
basis
Alipay fraud loss rate is less than 0.01 BPS
The account insurance is RMB 1.6 on average,
guaranteeing funds of up to RMB 1 million
99% of insurance policies are processed through AI.
We launched pilot run of Face Pay in offline merchants

KFC Hippo Supermarket

Paytm became the third
largest e-wallet in the
world after joining hands
with Ant Financial.

30 Million 200+ Million

users users
(by Jan 2015) (by 2017)
Face Pay: globally recognized financial-grade technology

>300mn Multi-level Liveness for Anti-spoofing

Face Authentication Users

<3 seconds
Interaction Time

<0.1bp
1 As of May 31, 2017
False Match Rate Real Face Photo Video 3D face
(Financial-grade) simulator
Steven, Zheng
Alibaba.com GET certified lecturer

General manager,
Hangzhou Kefan Import&Export

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Thank you!

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