September 27, 2013, 3:52 PM

China’s answer to PayPal expands into the U.S.

More Chinese shoppers buy at iHerb.com now that it accepts Alipay.

Lead Photo

Jingming Li of Alipay

Three hundred million Chinese consumers shop online, and most of them have accounts with Alipay, the PayPal-like online payment service owned by Alibaba Group Ltd., operator of China’s top online marketplaces. In a move that could make it easier for Chinese shoppers to buy on U.S. e-commerce sites, Alipay is now promoting itself as a payment option for U.S. e-retailers.

Among the U.S. online retailers that’s begun accepting Alipay this year is iHerb Inc., No. 204 in the Internet Retailer Top 500. In the first six months of accepting the Chinese payment method, iHerb’s sales on the cn.iHerb.com subdomain of its web site aimed at Chinese consumers increased 244.52% compared with the prior six-month period and 684.15% compared with the same period a year earlier, says John McCarthy, director of marketing at iHerb.

“We’ve just been thrilled with the results, to the point that we’re looking at implementing other payment options, not just within China, but also in other countries,” McCarthy says. While not disclosing dollar sales, he says China, which previously was not one of its top 10 markets, now is in the top 10 “and moving up quickly.”

Leading Alipay’s international expansion is Jingming Li, whose title is chief architect and acting president of the newly formed Alibaba International Financial Service Unit. Based at Alibaba’s U.S. headquarters in Santa Clara, CA, Li sees a big opportunity in enabling Chinese shoppers to pay with a method that they use widely in China, not only to shop online but also to pay utility and other bills offline in China.

Li notes that China’s increasingly affluent middle- and upper-class consumers made 83 million trips abroad last year and spent $100 billion while traveling. In addition, he says, they spent 20 billion yuan ($3.3 billion) buying directly from e-commerce sites outside of China. They’re especially interested in buying baby products, apparel and luxury goods.

They would buy more, Alibaba reasons, if they could pay with the Alipay accounts they use in China. “That’s where our international focus will be, helping our members continue to use their Alipay accounts outside of China,” he says.

In all, there are more than 550 million registered users of Alipay, which Chinese consumers use inside China for such offline transactions as paying utility bills as well as for buying at e-commerce sites, Alibaba says. Alibaba, operator of the Taobao and Tmall marketplaces that account for well over half of online retail sales in China, is No. 1 in the Internet Retailer Asia 500 guide.

Without disclosing the total number of U.S. sites accepting Alipay, Li says there are about 10 web sites in the U.S. that already are generating more than 100 Alipay transactions per day. They include the e-commerce sites of retailers Gap Inc. Direct, No. 19 in the 2013 Top 500, and Forever 21, No. 353; travel site Travelzoo; web domain registrar GoDaddy and peerTransfer, which handles tuition payments for international students.

International web sites can boost sales by accepting Alipay because many Chinese consumers don’t have credit cards from Western brands like Visa and MasterCard, Li says. Plus, he says, “They are in the habit of using Alipay. If a merchant is willing to use Alipay as a form of payment it gives a lot more trust and confidence to the consumer who may be purchasing an airline ticket from a foreign carrier for the first time.”

Li would not disclose Alipay’s fees, but says they are lower than the fees charged by major credit card brands like MasterCard and Visa. Chinese consumers typically fund their Alipay accounts from their bank accounts, which eliminates much of the risk that credit card issuers take on when they extend credit to cardholders. McCarthy of iHerb says the fees he pays are comparable to what he pays for other payment methods, and that he views the fees as “attractive.”

For iHerb, adding Alipay is the latest step in a campaign to boost sales to Chinese consumers that began in 2010 when the e-retailer began accepting orders from China. In late 2012, iHerb introduced versions of its e-commerce site tailored to consumers coming from nine countries in addition to the U.S. If a shopper chooses China, for example, she is directed to the cn.iHerb.com subdomain, where the navigation guides and checkout prompts are in Chinese, along with some product information. (With 35,000 SKUs, iHerb has not yet been able to translate all its products into Chinese, McCarthy says.) At checkout, Alipay is one of the payment options.

The e-retailer also operates an informational site in China, iHerb.cn, which is completely in Chinese. The site informs visitors what they can find on the iHerb e-commerce site, including screen shots that show how they can place an order. There is also a blog in Chinese, and visitors can text questions that native Chinese speakers respond to.

IHerb is also promoting itself in China via social networks. It has posted videos to Youku, China’s equivalent of YouTube, and seen Chinese fans post 27 videos to the site about iHerb.

The e-retailer also alerted Chinese consumers to its new Chinese-language e-commerce site earlier this year by posting to Weibo, China’s equivalent of Twitter. “That had a terrific impact,” McCarthy says. “Within 24 hours we saw a spike in traffic.”

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