China’s Consumer Fintech Leading Innovation
Among WeChat’s many features is an unexpected function for a social media and messaging app - a bank. This product is leading the world in “social fintech”, a trend that is slowly catching on outside of China as Facebook and other companies add payment capabilities to their messaging and social platforms.
The Numbers Behind the Bank
WeChat’s parent company, Tencent, recently became the most valuable company in Asia with a market cap of US$255 billion. Yet despite owning one of the most successful messaging and social networks in the world, less that 20% of the company’s revenue over 2015 was generated though advertising (compared with over 95% of Facebook’s revenue coming from advertising over the same period).
Much of Tencent’s revenue comes from what the company refers to as Value Added Services (VAS). This include games, music streaming subscriptions, VIP membership in online groups, subscriptions in social media channels, and personalisation of online avatars.
Tencent’s VAS also includes Tenpay, the online payment tool that is connected to WeChat and allows users to make online, online-to-offline, and peer-to-peer payments though their WeChat accounts. In 2015, Tencent launched Webank in a joint venture. Webank expanded the functions of Tenpay and allowed WeChat users access to all the features a bricks-and-mortar bank offers.
Webank
Webank was China’s first online-only bank, it was very shortly followed by Mybank, Alibaba’s online-only bank connected to its mobile payment platform, Alipay.
The banking features of WeChat first expanded Tenpay from being a straightforward mobile payment tool to an online savings account. Through WeChat’s wallet (钱包) feature, users can put funds into investment products that offer much higher rates of interest than banks.
As regulations were eased, both Webank and Mybank offered loans to small businesses usually underserved by China’s traditional banks, which prefer to loan to large State Owned Enterprises.
Webank and Mybank tapped into the big-data collected by Tencent and Alibaba to evaluate the risk of potential lenders. A “social credit rating” based on a borrower’s online activities has proven successful in China but controversial due to privacy and data collection. Facebook’s own attempt at a similar project failed due to regulatory blocks.
Social Fintech
Webank doesn’t have branches, it barely has a website, the page links users to QQ and WeChat apps through QR codes and provides information about the set up of the bank but doesn’t offer a way to access services. The only way to register and use Webank is through QQ’s and WeChat’s mobile apps. We don’t think that this is an accident. WeChat is rapidly becoming the app in China. The app’s functions already play a significant role throughout a user’s day, and WeChat is always seeking innovate ways to increase its screen time with users.
It’s unsurprising that the financial sector in China is being disrupted by China’s big tech companies. Tencent and Alibaba are incredibly innovative companies, and as each company is reaching total saturation in its core offering in the market, expanding into alternative sectors (as well as internationally) is the next logical step.
Chinese consumers have adopted mobile payments and online banking quicker than other markets. The market has mostly leap-frogged tech from cash straight to mobile and digital. Furthermore, the Chinese government is encouraging innovation by reducing regulation in the industry. China’s fintech consumer innovations are definitely worth watching.
Half A World is an Asia-Pacific specialised digital consultancy. Visit us at our site to keep up with what’s going on in digital, or contact us to find out how we can help your business.
