Alibaba’s online payment service granted Chinese license

BEIJING (05/27/2011) – The online payment service at the center of a dispute between Yahoo and Chinese e-commerce giant Alibaba Group has been granted a license by Chinese authorities to operate its services.

Alipay is China’s largest Internet payment service, with a 51 percent market share, according to Beijing-based research firm Analysys International.

Alibaba said on Thursday that it’s online payment service Alipay had been granted the license by the People’s Bank of China. It said in a statement that the license was a “significant milestone for the company,”

Yahoo, which owns a 43 percent stake in Alibaba, has been unhappy with how the Chinese company went about obtaining the license.

Alipay was originally under the ownership of Alibaba Group. New regulatory measures, however, require all online payment services from nonfinanical institutions to be Chinese owned. To meet this requirement, control of Alipay was transferred to a separate Chinese company owned by Alibaba Group CEO Jack Ma.

The transfer of Alipay, however, removed a key property from Alibaba’s business, and has threatened to devalue Yahoo’s investment in the company. To make matters worse, Yahoo claims the transfer of Alipay occurred without the company’s knowledge.

Alibaba however denies that it kept Yahoo in the dark about the Alipay transfer, and stated that its actions were necessary to continue the operation of the online payment service.

On Wednesday, Yahoo’s CEO Carol Bartz said the two companies are in talks to ensure Yahoo is “properly compensated” for the loss of Alipay.

Yahoo bought its stake in Alibaba back in 2005, paying US$1 billion. That stake is now worth $2.32 billion, according to a regulatory filing made earlier this month.

The two companies, however, have had a tense relationship, with this recent dispute over Alipay illustrating the disconnect between Yahoo and Alibaba. The companies have talked about Yahoo selling its stake back to Alibaba, but so far no deal has been struck.