With Ant Group garnering global focus due to its unprecedented initial public offering being halted by authorities in Beijing, attention is now turning to the financial technology ventures of Tencent, Ant’s primary competitor within China.

Evaluating these endeavors presents a challenge, primarily because they are distributed across various Tencent platforms and, in contrast to Ant, lack a unified brand or organizational framework – or at least, one readily apparent to external observers.

Nevertheless, a comprehensive assessment of Tencent’s fintech involvement, encompassing its direct businesses such as WeChat Pay, substantial strategic investments, and collaborations with third-party marketplaces, reveals a scale comparable to Ant Group, and in certain areas, even exceeding it.

Hidden business

Ant Group dismissed suggestions of similarity to Tencent or any other company. In a response to Chinese securities authorities in September, the Jack Ma-led, Alibaba-supported financial technology firm stated that it is “not equivalent” to WeChat Pay, the financial tool within WeChat, Tencent’s primary messaging application.

“Within the realm of digital payments and merchant services, numerous companies operate globally, including Tencent’s WeChat Pay. However, the payment services provided by these companies differ from our digital payment and merchant services and are therefore not comparable. Regarding digital finance, our approach to collaborating with and assisting financial institutions, along with our income structure, is unique and has no parallel,” the company explained in a response that some considered overly confident.

It is undeniable that Ant Group has been instrumental in broadening financial access in China, where a significant portion of the population remains unserved by traditional banking institutions. Nevertheless, Tencent has been rapidly developing its presence in digital finance and has achieved substantial progress, particularly in the area of electronic payments.

Both organizations initially entered the fintech sector by offering consumers a method for digital payments, although the brands “Alipay” and “WeChat Pay” do not fully represent the extensive range of services now offered by these platforms. Alipay, Ant Group’s main application, has evolved into a comprehensive marketplace offering both Ant Group’s own products and a wide variety of third-party services, such as small loans and insurance. Similar to WeChat Pay, the app also streamlines access to an increasing number of public services, allowing users to view their tax information, pay utility bills, schedule medical appointments, and more.

Tencent, conversely, integrates its financial services into the payment functionalities of WeChat (WeChat Pay) and its other widely used chat application, QQ. Consequently, it has historically been challenging to determine the extent of Tencent’s earnings from fintech, a detail the company does not reveal in its financial reports. This reflects Tencent’s internal “horse racing” competition, where departments and teams frequently compete intensely with one another instead of actively cooperating.

Therefore, we have compiled our own estimations of Tencent’s fintech businesses by combining quarterly reports and external research – highlighting the lack of clarity in this area – which raises some intriguing questions. Will Tencent, at some point, emulate Alibaba by consolidating its fintech operations under a single entity?

User number

When it comes to the number of users, these two companies are closely matched in competition.

During June, the Alipay application registered 711 million monthly active users and 80 million monthly merchants. Out of its 1 billion annual users, 729 million had completed at least one transaction for a “financial service” utilizing the platform. Similar to the connection between PayPal and eBay, Alipay significantly advantages from functioning as the primary payment processor for Alibaba’s online marketplaces, such as Taobao.

By 2019, WeChat had surpassed 800 million users and 50 million merchants making monthly payments, representing a substantial portion of the messenger’s 1.2 billion active user base. The extent of adoption for Tencent’s other financial technology offerings remains uncertain, although the company reported approximately 200 million users engaging with its wealth management service in 2019.

Revenue

Ant recorded a total revenue of 121 billion yuan, equivalent to $17 billion, during the previous year. This figure represents almost a doubling of its revenue from 2017 and positions the company alongside PayPal, which reported $17.8 billion in revenue.

Tencent’s “fintech and business services” division brought in 101 billion yuan in revenue in 2019. Experts analyzing the data for TechCrunch indicated this segment primarily encompassed fintech and cloud-based offerings. Considering its cloud division concluded the year with 17 billion yuan in revenue, it’s reasonable to approximate that Tencent’s fintech products generated approximately, or no more than, 84 billion yuan ($12 billion) during that time. While this is less than Ant’s revenue, it’s a significant achievement for a company that entered the market relatively recently.

The substantial scale of these fintech companies has naturally drawn increased regulatory attention. Ant is increasingly emphasizing its “technology” capabilities and presenting itself as a supportive partner to established financial institutions, rather than a disruptive competitor. Currently, Alipay focuses less on directly marketing its own financial products and instead functions as a platform connecting state-owned banks, asset management firms, and insurance providers with customers. Ant receives administrative fees for processing transactions on this platform as compensation.

We will now examine the four primary areas of focus for these competing businesses: payments, small-scale lending, wealth management, and insurance.

Digital payments

During the fiscal year concluding in June, Alipay facilitated an impressive 118 trillion yuan in payment transactions within China. This figure translates to approximately $17 trillion, significantly exceeding the $172 billion processed by PayPal in 2019.

While Tencent does not publicly reveal its payment transaction volumes, estimates from independent research companies provide insight into its substantial reach. Industry analysts generally agree that Alipay and Tencent together manage more than 90% of China’s multi-trillion-dollar electronic payments sector, with Alipay currently holding a marginal advantage.

According to data from iResearch, a market research company, Alipay accounted for 55.4% of China’s third-party payment transactions in the first quarter of 2020. Analysys, another research firm, reported Alipay’s market share as 48.44% for the same period. In contrast, Tenpay – the overarching infrastructure supporting both WeChat Pay and the less prominent QQ Wallet – registered a 38.8% share (iResearch) and 34% (Analysys).

Ultimately, these two payment services cater to different user needs. WeChat Pay, being integrated within a messaging application, is frequently used for social and smaller transactions, such as dividing expenses and gifting money, a common practice in China. Alipay, conversely, is primarily linked to online retail purchases.

However, this distinction is evolving as Tencent seeks to increase the average transaction value through strategic partnerships. WeChat Pay has been integrated with prominent e-commerce businesses like JD.com, Pinduoduo, and Meituan – all of which are competitors to Alibaba.

Third-party payment processing was formerly a highly profitable venture. Platforms previously benefited from holding customer funds in reserve and earning interest on those balances. This practice ended when Chinese regulatory bodies mandated that non-bank payment providers deposit 100% of customer funds into a centralized account that does not accrue interest. Currently, payment processors primarily generate revenue through fees charged to merchants.

Payments continue to represent the largest portion of Ant’s income – contributing 43%, or 51.9 billion yuan ($7.6 billion) in 2019. However, this percentage has decreased from 55% in 2017, indicating the company’s expanding business interests.

Microlending

Ant Group has established itself as a primary financial resource for both individual consumers and small enterprises within a nation where a significant portion of the population lacks eligibility for traditional credit cards from banks. Over the course of the preceding year, concluding in June, the company collaborated with approximately 100 financial institutions to distribute 1.7 trillion yuan (equivalent to $250 billion) in loans to consumers and 400 billion yuan ($58 billion) to small businesses. This lending activity generated 41.9 billion yuan, representing 34.7% of Ant Group’s total annual revenue.

Determining the exact scale of Tencent’s lending operations presents a greater challenge. However, available data indicates that Weilidai, its microloan offering accessible through the WeChat platform, had collectively disbursed 3.7 trillion yuan ($540 billion) to 28 million customers from its inception in 2015 through 2019. This information is based on a report originating from WeBank, the private banking institution supported by Tencent that facilitates the WeChat-based loan service.

Wealth management

By June of the reporting period, Ant Group oversaw 4.1 trillion yuan, equivalent to $600 billion, in assets under management, establishing it as a leading global money-market fund. Collaborating with a network of 170 partner asset managers, this division generated approximately 17 billion yuan, representing 14% of the company’s overall revenue for the year 2019.

Tencent reported that its wealth management platform had amassed more than 600 billion yuan in assets by 2018, and experienced a 50% increase in growth during 2019. This growth trajectory suggests its assets under management reached roughly 900 billion yuan, or $131 billion, in 2019.

Insurance

Finally, both of these major companies have significantly expanded into the consumer insurance market. In addition to offering plans from third-party providers, Alipay launched a novel approach to customer insurance: a mutual aid program. This unique system, which currently isn't classified as a traditional insurance product within China, offers free enrollment and requires no initial payments or premiums. Participants contribute small monthly amounts that are combined to cover claims related to serious illnesses.

The total value of insurance premiums and mutual aid contributions processed through Ant’s platform reached 52 billion yuan, equivalent to $7.6 billion, during the fiscal year ending in June. Through collaborations with approximately 90 insurance companies operating in China, this segment generated nearly 9 billion yuan, or 7.4%, of the company’s total annual revenue. Over 570 million Alipay users engaged with at least one insurance offering during the same period.

Tencent, conversely, utilizes partnerships to navigate this relatively new area of business. Its insurance strategy encompasses the in-house WeSure platform, which functions as an intermediary connecting insurers and customers, and Waterdrop, a Tencent-supported company that provides both conventional insurance products and a competing service to Ant’s Xianghubao mutual aid program.

During the first six months of 2020, WeSure, Tencent’s primary insurance operation accessible through WeChat, disbursed a total of 290 million yuan ($42.4 million), as the company reported. While the unit doesn’t publicly reveal its premium or revenue figures, some insights can be gleaned from other data. In 2019, 25 million individuals utilized WeShare services, with an average premium of over 1,000 yuan ($151) per user. Consequently, WeShare’s premium revenue for that year was no more than 25 billion yuan, or $3.78 billion, recognizing that the user count also includes individuals who did not pay premiums.

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Looking ahead, it is uncertain whether Tencent will reorganize its financial technology operations to foster greater synergy and cooperation. As these businesses grow, will stakeholders, including investors and regulators, require such a restructuring? Furthermore, what possibilities exist for other companies to compete in a market largely controlled by these two dominant forces?

One aspect is certain: Tencent will need to proceed with increased caution regarding regulatory matters. Ant’s success represents a victory for entrepreneurs aiming to “transform” China’s financial landscape; however, its postponed IPO, linked to regulatory concerns and reportedly the actions of Jack Ma, serves as a warning to competitors that policy decisions in China can be unpredictable.