MasterCard, Alibaba enter online payment agreement

MasterCard Inc has teamed up with Chinese e-commerce giant Alibaba Group to enhance online payments, making the card issuer the latest US company trying to get a jump on growth in China, the world's biggest Internet market.

MasterCard and Alibaba said on Thursday that they had signed a memorandum of understanding to cooperate on cross-border payments, acceptance, security and risk management.

The companies also agreed to use MasterCard's MasterPass digital service to let consumers pay for goods online using existing cards on various gadgets.

"This MOU is another significant step in the joint effort to drive the innovation and development of e-commerce in China," said Ling Hai, president of MasterCard Greater China, in a statement.

Lucy Peng, CEO of Alibaba Small and Micro Financial Services Group, said her company and Alipay, another Alibaba Group affiliate, intend to improve online shopping for consumers and the online business environment for small companies in and outside China.

The move follows an announcement in September that MasterCard subsidiary DataCash would work with Alipay to enable Chinese consumers to make online payments to international retailers.

MasterCard has been considering the potential of China's online-commerce market and the demand from small and medium-size companies.

Ajay Banga, MasterCard president and CEO, said at a forum in Beijing on March 24 that China needs to stimulate innovation among SMEs because of their potential contribution to sustained growth in the world's second-biggest economy.

Development of e-commerce platforms and online shopping in China has helped payment processors such as MasterCard.

A study issued in March by global consulting firm McKinsey & Co estimated that the Chinese online retail market had 1.2 trillion yuan ($190 billion) in sales last year

Amid the growth, Alipay, which is similar to eBay Inc's PayPal service, has entered into partnerships with financial giants such as Industrial & Commercial Bank of China Ltd to challenge card issuer China UnionPay and MasterCard.

Of 3.8 trillion yuan worth of third-party transactions in China in 2012, Alipay handled 46 percent. The service is the preferred means of many Chinese SMEs in settling accounts.

FedEx Corp last week also expressed strong interest in tapping the potential of e-commerce in China.

Rajesh Subramaniam, executive vice-president of FedEx Services, which handles sales, marketing, information technology and other support for the US-based delivery giant, said China will become the world's biggest e-commerce market. Online transactions in the Asia-Pacific region will account for one-third of the global total this year, he added.

Subramaniam told the Guangzhou Evening News, however, that FedEx's strength is mainly in connecting China with the world, although the company is licensed for express-delivery services in eight Chinese cities.

China Post, the main domestic competitor to the international logistics giants, said its express-delivery service increased 40 percent last year, to 8 billion pieces, generating revenue of 140 billion yuan.