Page 18 - Forbes - Asia (September 2018)

FORBES ASIA
ONLINE FUNDING

Where E-cash Is King

China’s ntech giants are consolidating their gains and using their capital heft.

BY SARA HSU

hina has experienced a intech explosion in recent Yirendai and Lufax have also been successful in illing a demand
years, with top companies dominating the industry. gap. Again, many consumers and small businesses have a hard time
It’s not an accident that Alibaba spinof Ant Financial obtaining loans from China’s formal inancial sector—namely, from
and Tencent rule digital payments, or that Yirendai banks. hey are oten forced to borrow on the curb market at very
C and Lufax are major players in the online lending high interest rates. With the advent of peer-to-peer (P2P) lending
sector. All of these companies have garnered large amounts of in- companies, smaller borrowers with little to no collateral have found
vestment, expanded into areas with high levels of demand and have themselves able to borrow for the irst time. he P2P lending sector
successfully diversiied out of their core business. is going through a regulatory shakedown, as riskier companies
Ant Financial is not yet publicly listed, but it received Series C with Ponzi-like business models are shut down. he larger irms,
funding of $14 billion in June. While Tencent’s WeChat Pay is not like Yirendai and Lufax, have shown their compliance with the new
part of a subsidiary, it continues to reap funding from Tencent inves- regulations, which require opening a custodial account for funds
tors. Tencent (see p. 45) is a juggernaut whose Hong Kong Stock and company registration. he crackdown is likely to drive of some
Exchange shares, even ater a recent dip, have risen 100-fold since lenders associated with the smaller irms, but it would be impossible
its IPO in 2004. Its market cap reached a high of $577 billion in to eliminate the high demand for funds among small borrowers.
January. Creditease’s peer-to-peer lending company Yirendai is also hese borrowers likely will turn to the likes of Yirendai and Lufax.
listed, on Nasdaq with a market cap of $1.2 billion. Ping An-ailiat- Finally, all of these irms have diversiied out of their core busi-
ed Lufax has reportedly postponed a possible listing in Hong Kong nesses into areas that successfully complement and add value to
but was said to be targeting another funding injection of $2 billion. their mainstream activities. Ant Financial has Alipay and also ofers
All of these companies have plenty of capital, even as funding for a wealth-management product called Yu’e Bao, which has become
smaller startups, by some accounts, has already slowed. his means the world’s largest money market fund, drawing customers seek-
that, despite China’s slowing economy, these irms have the means ing better returns than what savings accounts typically ofer. he
to continue growing. combination of Alipay and Yu’e Bao has helped Ant Financial attract
It’s not just about money, however. hese irms have hit the customers to its inancial services that help them both spend and
mark when it comes to meeting pent-up demand for their intech save. Tencent has added digital content and membership subscrip-
services. For Ant Financial’s Alipay and Tencent’s WeChat Pay, that tions sold through WeChat. Yirendai and Lufax both ofer wealth-
demand for digital payments has proved to be massive, as Chinese management products in addition to loans, giving Chinese investors
consumers require faster and safer transactions. Both applica- more alternatives for where they can park their money. F
tions have other beneicial features. With Alipay, users
can obtain consumer or seller loans, credit that is oten
unavailable via banks. Alipay can be used for oline or
online purchases, particularly on Alibaba’s e-commerce
websites. WeChat Pay ofers WeChat users the ability
to send money to one another even if they don’t have a
bank account. WeChat Pay can also be used oline and
online, such as to purchase goods pushed by WeChat.
Chinese regulators, increasingly concerned about
potential risks to the inancial system, imposed a series
of curbs that will crimp the companies’ revenue streams
and curtail their rapid pace of expansion. For example,
both Alipay and WeChat Pay are now required to process
payments through a central clearing account, and the
payments they receive have to be deposited at commer-
cial banks in accounts that pay no interest. Previously,
they had generated interest income from the payments
they were holding in their own escrow accounts. Demand for digital payments by Chinese consumers has been massive.

16 | FORBES ASIA SEPTEMBER 2018