One edge Tencent has over Ant is WeChat, the virtual forum for over a billion Chinese and the millions of consumer and gaming apps they use on a daily basis. Its WeChat Pay is the lubricant for a walled-off software and payments ecosystem that connects shoppers with both big names like Walmart and Didi Chuxing as well as mum-and-dad merchants across the country.
It took just five years for Tencent to carve out a slice of the country’s $US36 trillion online payment market, thanks to its bread-and-butter video games and social networks. Once accounting for three quarters of China’s mobile payments landscape, Alipay processed 55 per cent of mobile transactions in the first quarter, with Tencent growing its share to 39 per cent.
“Tencent and Ant are in a brutal battle for traffic and users. They are not only building up their defensive lines but also attacking each other’s territory,” said Ke Yan, a Singapore-based analyst with DZT Research. “If you lose in one arena, you’ll have to catch up in another.”
Now Tencent’s looking to lure merchants and brands away from Alibaba’s online marketplaces by building an e-commerce service on its ubiquitous app WeChat. And it’s stepping up the fight in the payments business, luring traffic especially from companies that are in competition with the wider Alibaba ecosystem.
Tencent’s biggest investees have rallied to its cause. Last month, food delivery giant Meituan Dianping stopped accepting Alipay as a payment option for some users and No. 2 Chinese online retailer JD.com Inc. has long scrapped Alipay in favour of its in-house system and WeChat. “Some of Alibaba’s competitors have cut Alipay off from their platforms because they want to guard their own data and business information, that’s giving Tencent an edge,” said Cao Lei, director of the China E-Commerce Research Centre in Hangzhou.
It’s easier to move around and shop in China’s big cities today with an Alipay or WeChat mobile wallet than it is bearing a pocketbook filled with bank notes. But back in 2004, Alipay was created out of necessity to address trust issues in the early days of online shopping, as a sort of escrow service not unlike PayPal, before it boomed alongside e-commerce.
The rise of WeChat is another story. Tencent’s messaging app launched its payment function as late as 2013 and played catch-up by digitalising the centuries-old Chinese tradition of giving away red envelopes filled with money during the Lunar New Year. The marketing gimmick quickly spurred users to link their bank accounts to WeChat, who then began to send money to their friends and make purchases through WeChat’s platform. In the ensuing years, Alipay has had to engage in costly red-envelope giveaway campaigns to win back users.
Ant now envisions growing beyond just fintech — an ambition marked by the change of its registered name from Ant Financial Services Group to Ant Group Co. in May this year. That’s because it faces stiff competition in the battle to provide everyday consumer services from food delivery to hotel and travel booking, an arena where Tencent holds a first-mover advantage by embedding lite apps or mini programs within WeChat’s platform.
The all-in-one app concept has been emulated by Ant. Alipay today hosts over two million mini programs discoverable by users through the in-app search or customised home page, according to its prospectus, and the company said in June that it has 600 million monthly active users. Tencent said in May the daily active users of WeChat’s mini programs has surpassed 400 million.
Despite Tencent’s dominance of the media and daily consumer sphere, the most lucrative business for both companies still comes from financial services built on top of the payments backbone. That’s where Ant is more adept.
As disrupters to the country’s old-guard banks, Alipay and WeChat leveraged their ubiquitous apps to provide users with short-term loans, insurance, wealth management products and other financial services with much easier access and enticing rates.
The growth of non-traditional finance however has caught regulators’ attention. Beijing approved new rules this week to tighten oversight of the sector, mandating that non-financial firms or individuals with businesses that straddle at least two financial sectors and meet certain asset thresholds will be classified as “financial holding companies” and must apply for licenses.
The move came as online lending to consumers and small businesses overtook mobile payments as Ant’s largest revenue source, accounting for 39 per cent of the $US10.5 billion (72 billion yuan) business in the first half, according to its prospectus.
“One of the most important traffic generators for Tencent is WeChat, the product is too intertwined with the wider Tencent ecosystem and was never spun off like Alipay,” said Xu Yinghao, chief executive officer of Hangzhou-based researcher Civedata. “In that sense, Ant has consolidated its financial related services much better.”