AliPay posed an official announcement on Sina Weibo today to shut down offline POS-based business, because China UnionPay released stringent regulations on third-party bank card payment services (report in Chinese).
AliPay launched this business in March last year with an ambitious plan to invest 500 million yuan ($81.15 million) in 3 years and to equip third- and fourth-tier cities with overall 60,000 POS terminals.
Most of the online payment companies swarmed into offline payment sector, as 50% to 70% of the deals processed by B2C retailers are paid with cash on delivery (COD), according to research institute iResearch. Given the huge market potential, AliPay rolled out this service to solve the difficulties in syncing the delivery and payments data caused by COD. POS machine can update the real-time transaction data, saving the costs generated by order confirmation delays and improving the transaction efficiencies.
The turnover of online payments is expected to reach 8 trillion yuan in 2014, with an overall handling change of tens of billion yuan. Major banks lost over 3 billion yuan of commission fees in online UnionPay card Payment, according to the China UnionPay Regulatory Commission.
UnionPay is impelled to launch new policies, which stipulated that all the offline UnionPay card transactions conducted by non-financial institutions should be through the UnionPay system. This move means that UnionPay will encroach upon the commission charges generated by the transactions.
AliPay claimed in the announcement this decision will not influence the operation of its partner merchants. AliPay’s offline POS business provides service to Taobao and Tmall retailers, as well as the book retailer Dangdang.com. The suspension of this service means that consumers have to pay cash on delivery.
Industry insiders disclosed this March that AliPay was in talks with a few well-known domestic POS manufacturers to produce devices embedded with Alipay payments solution — no bank cards is needed.