Analysys Finds Tencent Closing in on Alibaba's AliPay (BABA)

Alibaba (BABA) the Chinese ecommerce giant, is seeing increased competition from rival Tencent, long a second place player in the Chinese digital payments market.

Alibaba and its Alipay have been enabling digital payments for years now but according to research from Analysys, the Chinese consultancy firm, Tencent is closing in on Alibaba and is chipping away at its market share lead. Analysys found that as of the end of 2016, Alibaba's market share has declined by close to half at the same time that Tencent's share of the market increased by more than a third. Alibaba's market share stood at 54% in the fourth quarter of last year, according to Analysys while Tencent's market share increased to 37%.

Apple Inc.'s (AAPL) Apple Pay which rolled out in China last year didn't even make it into the top ten. The research firm found that in the fourth quarter of 2016, mobile payment transactions increased 41.72% year over year. Digital payments may be taking off slowly in the U.S. but in China it's a widely accepted way to pay for all sorts of purchases. (For more, see more: China's Alipay Takes on US Rivals.)

While Tencent is gaining ground on Alipay, Alibaba's digital payment service is still the dominate one in China with around 450 million registered users. In December, Alibaba's chairman Jack Ma coined the phrase "TechFin" as a way to set Alipay apart from its competitors. Ma wants Alibaba, already the world's largest e-commerce platform, to also be the go-to financier for emerging markets. And the company's Alipay e-wallet service is going to serve as the backbone for Ma's payment platform expansion efforts. (For more, see also: Alipay Continues Global Expansion.)

It's not just Analysys that sees Alibaba and Tencent dominating in the digital payments market in China. In March JPMorgan forecasted the fintech market in China could grow 44% a year, reaching $67 billion in revenue by 2020. Of that, JPMorgan analyst Katherine Lei says Alibaba and Tencent combined could control 50% to 60% of the market, which means they get $326 billion to $391 million added to their current market capitalizations.

According to JPMorgan, what will drive a large part of the fintech market in China is online payments, with the Wall Street firm saying online payment companies in China may see their revenues increase 42% each year to 2020. Alibaba is already a player in digital payments with its AliPay app. Tencent has its TenPay app. Combined the two have 90% of the market.