Are the Chinese payment systems front runners ?

Are the Chinese payment systems front runners ?

by Pininvest Analysis

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"Mobile payment has spread rapidly, from online to offline, supermarkets to restaurants, taxis to high-speed railways, and even snack stands and vegetable markets, being applied everywhere. Mobile payment transactions approximated RMB294.97 trillion in China in 2017, an upsurge of 41.4% from RMB208.6 trillion in 2016, and are expected to hit RMB793 trillion in 2021" - source PR Newswire Jan. '18

As a case in point, Ant Financial Services Group, with the 520 million users of its mobile payment platform Alipay, is a model of the reach and ambition of financial technology worldwide, riding the wave of e-commerce and mobile payments. TenPay is equally ambitious for Tencent products and services

Enabling payments on the Alibaba and Tencent websites and others such as riding app Didi, they drive a profound transformation of consumer finance in its Chinese homemarket and although the Economist 'Ants in your pants' Aug. 19, '17 (paywall) quotes distinctly lower estimates than PR Newswire for Chinese Internet payments ($11trn in 2016 vs  $33trn according to PR Newswire),  the numbers remain mind boggling 

The Economist, quoting a Goldman Sachs study, estimates that Chinese mobile payments are more than twice the size of the US credit card industry; Ant Financial has commmanded over 50% of Internet payments in 2016 which is 16 times the size of Paypal

Relying on nearly ubiquitous digital wallets, payments by phone and direct access to client bank accounts,  disrupted the country's payment network, with faster service and better rates on deposits and with subsidiaries dedicated to fund management, consumer lending, property and casualty insurance, credit scoring and crowdfunding and other areas, these companies may already qualify as global banks and insurance companies

With rising concern about the stability of the Chinese banking system, regulatory authorities are reaching similar conclusions with a slew of measures announced in January '18

  • raising the reserve ratio on customer deposits from 20 to 50% from April, with a probable stepwise raise to 100%
  • capping mobile payments by scanning QR codes 
  • capping abuse rates on micro loans, from lenders using the financial platforms
  • and, coming probably soon, regulations on the management, compilation and use of client data (spending habits and Internet tracking)

While not unexpected, the profitability of the platforms will be impacted as Ant and Tencent currently reinvest an estimated $75bn of client deposits in financial institutions and money market funds