It is fun to model payment volumes in China because revenue will soon measure in trillions of Chinese Yuan Renminbi (CN¥) units. Revenue for Tencent stands at CN¥312.7 billion. Add in Alibaba to the model, and that is another CN¥376.844 billion, and with Baidu and NetEase in the mix at CN¥102.3 plus CN¥54.1 billion, the number exceeds CN¥1trillion.
That is enough to make an analyst expand columns in their Excel spreadsheets. Even if you convert to U.S. dollars, revenue is north of $150 billion.
Here is an exciting development in China. Alibaba, the dominant player, has a lending and payments processing arm known as Ant Financial or Alipay. Alipay is not only a wallet but also provides direct lending to consumers and accelerated funding to merchants.
Competitor Tencent has 800 million users on WeChatPay, but there is no direct lending facility. You can add in a bank card or a prepaid card, but WeChatPay does not lend directly.
That is about to change. MobileWorldLive reports that Tencent is in the process:
- WeChat Pay parent Tencent was rumored to be preparing to launch a credit service compatible with its popular mobile payment platform, South China Morning Post
- The service, tentatively called Fenfu, is going to offer essential credit services and small loans to WeChat Pay’s huge user base in its home market of China. It will target those unable to access traditional credit card facilities from mainstream banks.
- Expanding into credit and loans has become a popular way for mobile payment providers to offer additional financial services, both in developed and developing markets.
FenFu will run head-to-head with Alipay’s Huabei brand. It is a natural step, which will undoubtedly get lift from its massive account base. Adding the lending model is a natural, albeit slow startup. Similar models exist in India with Paytm, Line in Japan, Mercado Libre in LAC, and Safaricom in Kenya.
Abacus News, a news agency of South China Morning Post, owned by Alibaba, points to low-cost funding.
- The new Fenfu tool will allow users who cannot get a credit card from a bank to have a virtual one via WeChat.
- In addition, it will grant loans which can be interest-free for about one month, plus other micro-credits options and long-term financial services. The new payment platform could bring Tencent additional revenues by charging users service installment and late payment fees.
Another industry shift: Merchant becomes banker.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group