Bank to the Future – Innovation in WeBank’s FinTech Ecosystem

April 18, 2019

MONTHLY ANALYSIS

Have you been to China recently? If you have, you will have noticed an interesting aspect of life in the country: almost everything can be done right from a mobile app. Want to call a cab? There’s an app for that, of course. Need to order your lunch before you go to a restaurant? You can use the same app. Need to transfer some money back home to your family or a friend? The same app again! Thanks to the proliferation of a close-knit ecosystem of highly inter-connected apps, today, China is among the leaders when it comes to mobile-based ecosystems, from ride-sharing to food delivery to FinTech. Consider, for instance, the powerful ‘We’ ecosystem developed by the giant called Tencent.

Tencent divides its total revenue into three segments:

  1. Value-Added Services (social networks & online gaming)

  2. Online Advertising

  3. Others

The Others segment primarily consists of Payment & FinTech, Cloud, and other services. As you might have read in a MEDICI story from earlier in April, Tencent’s Payment & FinTech business is an important driver of revenue growth for the company. The Payment & FinTech services of Tencent include:

  1. Weixin/WeChat Pay: An integrated feature in Weixin/WeChat (instant messaging and social entertainment mobile app), Weixin/WeChat Pay is a mobile payment solution.

  2. QQ Wallet: QQ Wallet is integrated into QQ’s instant messaging platform for PC and mobile. QQ Wallet is a mobile payment product that incorporates multiple payment methods such as bank card payments, QR code payments, and NFC payments.

  3. LiCaiTong: LiCaiTong is WeChat’s wealth management platform.

  4. WeSure (Subsidiary): WeSure is an insurance agency platform which is accessible on WeChat and QQ.

  5. WeBank & WeiLiDai: WeBank is China’s first digital bank and is backed by Tencent. WeiLiDai is WeBank’s first online consumer loan product and has been launched on QQ and WeChat.

Developed by Tencent in 2011, WeChat was introduced in China as an instant messaging app. It soon grew beyond its original purpose, and as of 2018, has garnered 1.08 billion monthly active users, with 1 billion daily active users. Today, WeChat provides chat, wallet, and third-party services.

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Consider WeChat: its turnaround story began in 2014 when it launched the red envelope feature, allowing allows users to send digital cash to their family members, friends, and users. This feature permitted WeChat Pay to gain rapid user adoption. Within one month of its launch, WeChat Pay’s user base expanded from 30 million to 100 million users, and 20 million red envelopes were distributed during the New Year holiday period. In 2017, the transaction value of red envelopes touched $14 billion.

The Rise of WeBank

In the same year, another exciting new development took place: the birth of Tencent’s WeBank, which was China’s very first digital bank. The timing of WeBank’s launch in 2014 was almost impeccable – according to a report on China’s FinTech sector, it was right in sync with the wave of the fast-growing middle class (>300 million), high smartphone penetration (>700 million), and over 50% of GDP in the service sector which is R&D-focused, along with the huge population in China (58% in urban centers). And this is the best part: WeBank had unfettered access to WeChat’s massive database of users, solving for one of the most basic teething problems an all-digital bank would tend to face. There are over 1.2 billion users registered on these platforms, the data of which is available for WeBank as well – this lets the company appraise its customers’ credit risk more efficiently, allowing it, in turn, to offer more personalized products.

What has also helped is that by 2017, according to the World Bank Group, 80.2% of adults in China had at least one bank account and 67.9% of the population made or received digital payments. On the other hand, by the same year, only 22.7% had obtained funding from financial institutions or used a credit card, making a mobile alternative attractive.

Then, there are the security features that made it such an attractive proposition for users. The registration process to open a WeBank account includes presenting personal information, a phone number, and an active debit card issued by a traditional bank. In addition, the platform asks the user to provide a voice sample and register their facial features.

Timeline-wise, WeBank found the right kind of opportunities and secured its banking license in December 2014, setting up its online banking services in 2015. It then launched micro-loan products, scaled up through capital raising, and achieved profitability in 2016. The very next year, in 2017, it started providing SME loans and cross-industry partnerships.

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Flagship products developed by WeBank include WeiLiDai and the WeBank App. Weilidai provides revolving credit with flexible repayment plans and daily interest rates (DIR) charged at 0.02–0.05%, while the WeBank App provides wealth management products which have higher returns and better liquidity. Weilidai is focused on the under-banked population. At present, WeBank also offers the Weichedai Auto Loan as a product, enabling users to get automobile loans easily.

Among the core technologies that drive WeBank’s products are artificial intelligence (AI), blockchain, cloud computing, and Big Data. When it comes to FinTech, the focus is on five core value factors, namely, efficiency, user experience (UX), scale, cost, and risk to derive optimization. Contrary to banks that begin as multichannel (Banking 1.0), WeBank is presently at the stage of banking without a bank (Banking 3.0) and is now focusing on the next stage, which is Banking-as-an-Experience (Banking 4.0).

WeBank’s Products & Services Innovation

Simply put, WeBank seeks to serve as a connecting platform in a B2B2C business model. According to WeBank’s Vice President & Chief Information Officer Ma Zhitao, At the one end, we have the unbanked and underbanked individuals like small micro-enterprises. On the other hand, (there are) bigger customers like internet platforms. We think by working with them, we can leverage the capabilities we have such as risk management, not just the platform but also product design.

There is a reason WeBank is growing at such a tremendous pace, and it isn’t just access to the WeChat user database. It has a product suite that includes some highly innovative products and includes service offerings that are ideally positioned to connect and serve a whole range of customers, from the urban techno-savvy elite to the rural and semi-urban underserved population, to other banks and service providers themselves.

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Here is a closer look at some of the interesting and innovative products and services offered by WeBank:

1. Offering the Platform-as-a-Service

WeBank’s clients are based in China’s city commercial and agricultural hotspots, mainly the tier 3 and 4 segments. These clients want to grow their markets and have a large, loyal, and stable customer base but don’t necessarily have the needed technical expertise and human resources. Accordingly, WeBank has increasingly exported its platform and technologies as a service to other banks in the Chinese market. Its platform ‘WePower’ is packaged as a suite of software development tools, allowing partner banks to embed capabilities in their apps. It enables partners to access AR, AI, and internet analytics by integrating WeBank’s SDK to their own app, leading to a reduction in overall costs.

2. Providing AI-Enabled Customer Service

WeBank seeks to use AI in customer service to automate processes and improve services. According to a WeBank executive, users talk to Siri or Google Assistant on their mobile devices frequently. With over a million requests coming in every day, he said, almost all of them – 98% – were handled by robots. The executive noted that customers are very satisfied with the use of robots to meet their banking needs, and WeBank intends to bring this experience to its users as well.

3. Leveraging Blockchain Technology for Micro-Loans

Traditionally, banks had to each keep their own records of every transaction and check each other’s books. However, as we know, with blockchain technology, information is encrypted on one network and updated simultaneously on all sides in just a few seconds. WeBank has been running real-life blockchain applications on top of its underlying platform called Blockchain Open Source (BCOS), which is developed in house. One of WeBank’s major applications of blockchain technology is its interbank reconciliation platform for its micro-loan product Weilidai, which is inserted into the WeChat app.

Simplifying background checks (remember, it already has WeChat’s users’ database), consumers can get a quick loan in just minutes, of up to $31,000 (USD) without any credit checks.

Towards Open Banking & Financial Inclusion

With all these innovations, what’s next for WeBank? Recently, it teamed up with Tencent’s cloud platform to launch a new FinTech research lab. The establishment of the ‘Tencent Cloud – WeBank FinTech Innovation Lab’ was announced at a press conference in Beijing on March 29 this year.

The lab is based on the concept of open banking and will engage in research and technological innovation in the areas of basic frameworks, financial applications, and experiential service offerings. As Ma Zhitao puts it, WeBank’s approach to open banking entails the deployment of a ‘3O’ system of open platforms, open innovation, and open collaboration.

By engaging in cooperative research, connecting individuals & enterprises, and pushing towards the development of FinTech applications directed at open banking scenarios, WeBank’s goal, going forward, is to help financial institutions create the right kinds of FinTech services, driving the development of financial inclusion.

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