There are two main players behind the fintech revolution in china who are pushing the limits of the technology to offer more and more services to the citizens of China. They are Tencent and Alibaba. I’m sure you have heard of Alibaba, a multinational tech conglomerate founded by Jack Ma. You know. The guy who got rejected at Harvard 10 times. Ring a bell? The guy who was rejected at a job interview at KFC. You might not have heard of Tencent though. It’s the company behind the popular Chinese social media app WeChat. But it is more than a social media app now. They have got multiple integrations that connect to the everyday lives of its users. They are also the company behind PUBG. The famous mobile game.
So now you know that Tencent is also a multinational tech conglomerate. Coming back to the topic, these two companies are competing with each other in providing financial products and services to all of China and the rest of the world. They’ve made billions of dollars in investments to strengthen their banking arms in order to be the banking leader in the country.
What do they do now?
Let’s talk about Alibaba now. As you know, Alibaba is a large company, they have a separate company that deals with financial and banking products. It’s called Ant Financial Services Group (蚂蚁金服), formerly knows as Alipay. The current valuation of the company is $150 billion. On June 2018, the company raised around $14 billion. It’s the biggest ever single fundraising globally by a private company. They have a list of subsidiaries and joint ventures that operates within multiple sectors of the financial services industry.
- Alipay — a mobile wallet and payments app
- Huabei (Ant Credit Pay) — a virtual credit card type of product that facilitates credit payments
- MYbank — a private online bank that lives entirely on the cloud
- Jiebei (Ant Cash Now) — a consumer loan service
- Ant Fortune — a comprehensive wealth management app
- Ant Insurance Services
- Zhima Credit — an independent credit filling and scoring service for individuals
- Ant Financial Cloud — a cloud service for financial institutions
- ZOLOZ — a global biometric-based identity verification platform
Just stole these from Wikipedia to give you an idea about their hold on the industry.
One of their most important products is MYbank. It’s an online bank without any physical branches. It lives in the cloud and you can access your bank account through mobile apps. Getting a loan from this bank takes less than three minutes, and no bankers are involved in this. It works just like any other digital lending applications, they collect alternative data from you to determine your creditworthiness and if you meet their criteria, they disburse the amount in your bank account.
Also read: Alternative data points in financial services
As you can see above, they own a credit assessment company. Just like TransUnion CIBIL. Experian, and others in India. So they have a lot of data to assess the creditworthiness of an individual. So since the emergence of MYbank. They have lent more than 2 trillion yuan (roughly $290 billion) to more than 16 millions small businesses in China. And the incredible thing here is that the default rate is so for 1%. Traditional banks would kill for that kind of default rates.
Let’s talk about Tencent now. They developed an instant messaging application called Weixin, later rebranded as WeChat. It was launched in 2011. It was pretty much another instant messaging apps like WhatsApp or the initial version of Messenger by Facebook. Later they have developed a variety of features which allowed them to be integrated into the daily lives of its users. ‘Moments’ was a very successful feature that let people post stuff. It is a newsfeed like feature on Facebook. WeChat’s active user base exceeds 1 billion in January of 2019. Considering that Facebook was launched in 2004 and has 2.2 billion users. But WeChat acquired more than 1 billion users in roughly 8 years. Now that is big growth.
WeChat integrated more and more features into their app and made itself an essential part of the daily life in China. For example, you can make payments, schedule a doctor’s appointment, pay for traffic violations, manage credit cards, booking transportation, VR, search and much more. Just imagine being able to seamlessly access the services of WhatsApp, Facebook, Uber, Trip Advisor, Venmo, Deliveroo and Tinder all in the same app and you are still only just beginning to get the picture. Just check out this video to get a better picture: https://youtu.be/VAesMQ6VtK8.
So nobody pays cash for stuff anymore in China. They just send the money through WeChat. There is a fascinating phenomenon behind all of these WeChat money transfers. Banks aren’t involved in these transactions. All of these are happening from a WeChat wallet to another. Now, in India. If I want to give you some money. You’d give me your bank account number and IFSC. Or you’ll give me your UPI address. Or I’ll go to your website to find the payment link and pay using cards or net banking. Even if you give me your PayTM QR code, that money will be transferred to your bank account in the next settlement. But in WeChat, it stays in the wallet and transaction happens between the wallets. There is no need for a bank or a payment gateway, or a processor like Visa or Mastercard because almost everyone in the country accepts money through WeChat. Banks are worried sick about this phenomenon.
I discussed two different products from two different companies. So it might have been confusing for some of you. This is no way a comparison between these two companies. Both of these companies are providing similar financial services in other verticals but I’m just talking about these two services as I’m more fascinated by these. Payments and lending are two of the primary services among others like insurance and wealth management which are integrated into both of these companies products.
- I seriously doubt the privacy of the people in China. MYbank making credit assessment within 3 minutes is not a big deal. Because Indian companies like CreditVidya look at more data points than MYbank. The 1% default rate is so impressive, that makes me question the privacy of the people.
- I certainly don’t think they’ll be able to replicate this model of lending in other parts of the world. Especially in the United States of America where privacy regulations are very strict. They will have some trouble getting into the US.
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Thanks for the insight.