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Watch out, Silicon Valley: Mobile wallets are becoming a $75T market

While Apple Pay and Android Pay are failing, Alibaba draws over $210 billion to Alipay.

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I have a confession, dear reader. I hate YouTube ads.

One minute I’m watching ESPN, the next I’m staring at an advertisement for “Android Pay.” The ads aren’t even good. They often make me hate the product being advertised.

I mention this because the god-awful Android Pay commercials got me thinking about mobile wallets.

Mobile wallets are supposedly the next big thing in banking. They represent a $75-trillion payments market that Silicon Valley thinks is ripe for disruption.

Companies like Alphabet Inc (NASDAQ:GOOGL), Apple Inc. (NASDAQ:AAPL), and Samsung Corporation believe smartphones can (and should) replace our wallets. They think we’ll walk around tapping our phones against checkout counters to load up on groceries, clothes, or fast food.

Their sales pitch doesn’t seem to be working, though, because Android Pay is failing.

In a survey of mobile subscribers, only 1.8% have made a transaction using Android Pay. That’s a bite-size portion of the public.

At the same time, nearly one-third of the public have security concerns about the app, while another 16% have no idea how it works. Oh, and 41% are already satisfied with their current payments system, which makes this a case of, “If it ain’t broke…”

This gloominess extends across (nearly) the entire industry.

“Apple Pay” is a flop, “Samsung Pay” is non-existent, and while Mastercard Inc (NYSE:MA) and Visa Inc (NYSE:V) can conceivably bridge the gap, I haven’t seen enough data to convince me it will happen.

But there is one outlier…

Alibaba succeeds where Apple and Google failed

Alibaba Group Holding Ltd (NYSE:BABA) is the exception to the rule. It is succeeding with mobile wallets on a massive scale, drawing in more than $210.0-billion to “Alipay.”

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How did it pull off this miracle?

Before I answer that, let me emphasize that this trend opens BABA stock to triple-digit upside potential. We could see Alibaba, one of the best e-commerce stocks hit a trillion-dollar market cap in less than 24 months.

After all, the share price already advanced 61.6% this year, showing that size isn’t a crippling factor. And Alipay would allow Alibaba to skim a fee off every retail purchase made on its e-commerce web site, potentially doubling its source of revenues.

(Chart courtesy of StockCharts.com)

Consider that for a moment. Alibaba would essentially become China’s bank in addition to being its shopping mall.

Rather than having a checking account, someone could theoretically store their funds in an Alipay account, then use those funds in their ordinary life. That is the future of finance, which means it’s also where you’ll find the future profits of finance.

Obviously, this raises the upside potential for the Alibaba stock price.

How did Alibaba pull this off?

The answer is called “Yu’E Bao.” It is a money market fund—the world’s biggest money market fund, in fact—and it’s only accessible through Alipay. Talk about a genius move.

It all started when Alibaba noticed that consumers had spare cash in their Alipay accounts. Why leave that money sitting there, collecting dust, when you can invest it? So Alibaba put that money to work by creating Yu’E Bao. Translated, it means “leftover treasure.”

Fitting name, right?

In any case, the fund’s four-percent yield is easy bait for investors who have grown weary of negative interest rates. They are looking for some juicy returns, and here’s the equivalent of a checking account with four-percent returns. Needless to say, it’s become a popular place to put cash.

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Analyst take

In the last few years, it’s become obvious that Chinese tech companies are posing a threat to Silicon Valley. Alibaba made that clear when it held the biggest IPO in the history of the New York Stock Exchange, but few people believed it would continue growing this fast.

We believe that the sky’s the limit for the Alibaba stock price. It’s a no-brainer when you consider the growth of Internet access, Alibaba’s market share, and its inventive use of mobile wallets.

So watch out for both this company and other Chinese tech startups that are cross-listed on U.S. exchanges. They are some of the best investment opportunities you’ll ever find.

(Featured image by Vodafone Medien via Flickr. CC BY-ND 2.0)

DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.

Finding the next great tech company is our main goal at Profit Confidential. Since 1986, our firm has been dedicated to helping investors earn superior returns through unbiased financial research. We scour the public markets for the next game-changing drug or technology. Our search takes us to the most promising firms out there...ones you'd likely never hear about (until they get acquired).

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