Tencent’s Payment & FinTech Business, an Important Revenue Growth Driver

Tencent recently announced its FY 18 results and the total revenue for the company at USD 45.46 billion grew by 24.5% on a YoY basis and net profit to the shareholders at USD 11.44 billion increased by 4.22% on a YoY basis. Tencent divides its total revenue into three segments:

  1. Value-Added Services (comprises of social networks & online games)

  2. Online Advertising

  3. Others

The Others segment primarily consists of Payment & FinTech services, Cloud services, and other services. For this article, we will focus on Payment & FinTech services. The Payment & FinTech services of Tencent comprise the following:

  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 instant messaging platform for PC and mobile. QQ Wallet is a mobile payment product that incorporates multiple payment methods such as bank card payment, QR code payment, and NFC payment.

  3. LiCaiTong: WeChat’s wealth management platform.

  4. WeiLiDai (Affiliate: WeBank): 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.

  5. WeSure (Subsidiary): Insurance agency platform accessible on WeChat and QQ.

Tencent does not provide details of revenue through Payment & FinTech and Cloud services. However, the Others segment recorded USD 11.34 billion in revenue in FY18, which was a 70.45% YoY growth mainly due to revenue growth from FinTech and Cloud services. Tencent’s revenue for Cloud Services increased by over 100% to USD 1.32 billion in 2018. Since the total revenue from the Others segment was USD 11.34 billion, we estimate that revenue from Payment & FinTech-related services to be approximately USD 10.02 billion (1.32 Bn subtracted from 11.34 Bn) in 2018. In 2017, the Others segment’s revenue was at USD 6.65 billion, hence the revenue from Payment & FinTech-related services is estimated to be approximately USD 6 billion (50% of 1.32 Bn subtracted from 6.65 Bn).

Revenue from Payment & FinTech showed an estimated 67% increase on a YoY basis. Here are the highlights of the segment:

  1. Payment & FinTech revenue increased YoY as well as QoQ, which was driven by take-rate on commercial transactions collected from merchants, cash withdrawal fees & credit card repayment charges collected from users, and the service fees collected from financial institutions for the distribution of FinTech products, such as WeiLiDai and the wealth management products on LiCaiTong platform.

  2. In January 2019, Tencent completed the transition to the centralized clearing & settlement system and moved all custodian cash to the accounts of the People’s Bank of China.

  3. Weixin/WeChat Pay: Weixin Pay launched a new user interface enabling easy access to new features. E.g., virtual subsidiary cards for parents and children. Weixin Pay enhanced account management tools for merchants. E.g., cash register and revenue-share settlement. The total daily payments transaction volume exceeded 1 billion for 2018 driven by rapid growth in commercial payments. Commercial payments represented more than half of the number of transactions. The number of monthly active merchants increased by over 80% YoY in the fourth quarter of 2018. Tencent increased the penetration of payments in the food and retail industries with features such as Mini Programs and Scan-to-Pay. In Hong Kong, Tencent launched a special cross-border mobile payments service in October 2018. This service enables WeChat Pay’s Hong Kong-based users to conduct RMB-denominated transactions funded by Hong Kong dollars. Tencent launched WeChat Pay services in Malaysia in August 2018, offering online transactions such as mobile credit top-ups, flight & bus ticket purchases, and offline transactions at retail outlets such as supermarkets, fashion, and beauty stores.

  4. LiCaiTong: Assets under management for LiCaiTong increased by 100% from RMB 300 billion at the end of January 2018 to RMB 600 billion at the end of 2018. The total number of accumulated users reached 100 million by the end of the year.

  5. WeiLiDai: There was rapid growth in the outstanding loan balance of WeiLiDai, which is the microloan product of WeBank.

  6. WeiYeDai: WeBank extended its loan services to small and micro businesses through WeiYeDai.

  7. LingQuianTong: Tencent expanded its FinTech services by rolling out LingQianTong, which enables users to invest the unused cash balance in their WeChat Pay accounts in funds.

QQ Wallet and Weixin/WeChat Pay are both integrated into their respective social networking platforms. The number of monthly active users for Weixin/WeChat increased by approximately 23% (at a CAGR of 11%) between Q4 of 2016 and Q4 of 2018. The number of monthly active users for QQ IM declined approximately by 7% during the same period (negative CAGR of 3.6%).

As stated earlier, the overall revenue for Tencent grew by 24.5% on a YoY basis. However, the revenue from Payment & FinTech is estimated to have grown by 67% on a YoY basis. This is a positive indication for the Payment & FinTech segment. WeChat Pay’s penetration especially seems to have increased in the commercial segment with commercial payments representing more than half the number of transactions in 2018. WeChat’s commercial payments revenue more than doubled YoY in 2018, and the number of monthly active merchants increased by more than 80% YoY in Q4 of 2018. Initiatives such as enhancing account management tools for merchants have also been taken. China has relatively low credit card penetration, which is favorable for mobile payment options such as WeChat Pay. Wealth management platform LiCaiTong and microloan product WeLiDai have also grown rapidly. Going forward, Tencent will be able to leverage its 1 billion+ active users on WeChat to sell more wealth management, insurance, and microloan products, thereby driving its revenue from payment and FinTech services even higher.