A $41 billion threat

Now being sent digitally

Chinese telecom carriers used to ring in the Lunar New Year by announcing upbeat data on the numbers of celebratory text messages being sent across their networks. The figure peaked in 2012 at 32 billion texts. But the number looks set to decline for the second consecutive year. “Time to say goodbye to sending New Year blessings by short messages,” proclaimed Xinhua news agency this week.

Text messaging traffic is giving way to free alternatives like WeChat, a popular messaging app (and one that greatly irks the likes of China Mobile, as we pointed out in WiC177. It piggybacks on the telco’s bandwidth while simultaneously reducing its SMS revenues).

But WeChat is innovative too. According to its operator Tencent, more than 20 million “WeChat red packets” were sent during the first two days of the Year of the Horse. A novel addition to the Chinese New Year routine, the Tencent service delivers lai see money online rather than via the traditional practice of handing out red envelopes filled with fresh bank notes.

WeChat incorporates many of the social networking features of Facebook and WhatsApp. But another real coup, according to the Tech in Asia blog, is its development of banking services. “Once WeChat users clip their bank accounts to the app, they’ve opened their pocketbooks to Tencent,” the tech portal reported. “It’s quickly evolving into a catch-all solution for e-commerce, gaming and even consumer banking.”

Users of the app weren’t just sending digital lai see in the past week, they were also becoming increasingly aware of a wealth management scheme launched by Tencent in January. Known as Licaitong, the service was developed with four local fund houses including China Asset Management. According to the China Daily, WeChat users can buy into products offering better interest rates than typical bank deposits. Effectively Tencent is pooling tiny amounts of digital money into an online money market fund. Given its roughly 600 million user base, the potential could be huge.

Licaitong is Tencent’s answer to its archrival Alibaba’s Yu’E Bao. When WiC first reported on Alibaba’s wealth management product in July last year, Yu’E Bao had collected less than Rmb7 billion in deposits (see WiC202). But Alibaba announced last month that funds have now grown to more than Rmb250 billion (about $41 billion) from 49 million customers. That makes Yu’E Bao the country’s largest mutual fund, the China Daily calculates.

Tencent’s New Year foray has put Alibaba on full alert. “This year’s Pearl Harbor attack was indeed beautifully planned and executed,” Alibaba’s chairman Jack Ma said of Tencent’s Licaitong and its red packet scheme. “Thankfully Chinese New Year is almost over, and the days are long ahead.”

Alibaba has more than Tencent to worry about. Encouraged by Yu’E Bao’s success, internet giants such as Baidu and NetEase, as well as retailer Suning, have all launched their own wealth management schemes. At this stage Licaitong and Yu’E Bao are the only ones directly linked to the money market (with business partners investing customer funds into corporate debt and government bonds). But the new offerings are shaking up the market. According to the China Securities Journal, the state banks are now planning more attractive money market funds of their own, to prevent the likes of Licaitong from luring away more of their deposit base. It’s a defensive strategy but one that comes with a cost. “The higher interest income earned by retail investors implies less profit for state banks,” the newspaper reasons.

Telecom carriers are joining the game too. Citing insiders, the Beijing News reported this week that China Mobile and China Telecom are both in talks with financial firms to launch similar products. The initial plans are to pool subscriber cash into various money market funds.

“Internet finance is now reliving the Three Kingdoms period,” Technology Daily proclaimed, referring to a bloody era in the third century when three states battled for dominance. It was arguably the most fascinating epoch in China’s long history, so the comparison is telling…

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