Although the amount of nonbank third-party payment skyrocketed 480% from 2014-2017, mobile payments by banks rose by 798% over the same period.
Chinese banks are positioning to wrestle market share away from the country’s internet tech titans Ant Financial and Tencent as traditional lenders double down to turn the tides in their favour.
After Alipay and WeChat Pay launched, mobile phone payments have skyrocketed from less than $7.21t (RMB50t) to $46.22t (RMB320.4t) which represents a breakneck pace of growth at 7.5x in the first two years of operations alone, data from S&P Global Market Intelligence show.
Chinese tech giants steadily tapped on their distribution and approval speed for small ticket loans that could be in the few hundred renminbi as well as access to a larger pool of behavioural and consumption data to chip away at the dominance of old-guard lenders before they knew it. It also helps that the internet microcredit segment in the country is relatively less regulated than banks as they only need to answer to the local China Banking and Insurance Regulatory Commission.
It comes as no surprise that the explosive growth of digital payments conducted through nonbank providers have long overcome bank transactions in 2016 with the volume of nonbank digital payments nearly doubling that of banks in 2017.
Laggard lenders have also witnessed declining settlement fees as a share of total fee income from 2014 to 2017 as customers channeled small ticket transactions towards non bank players.
However, banks are steadily overturning this narrative as they make a concerted effort to wrestle their lost market share away from fintech upstarts. Although the amount of nonbank third-party payment skyrocketed 480% from 2014-2017, mobile payments by banks correspondingly rose by 798% over the same period.
“We believe the falling growth in payment and settlement fee income will likely stabilize. This is because the nonbank digital payment service providers have already saturated the small ticket transactions, further explosive growth in this area is unlikely, and businesses and the general public continue to trust banks with large transaction settlement,” S&P said in a report.
Only a small portion of the lending clientele of traditional banks also fall in direct competition against Chinese tech titans as retail and SMEs still represent less than a third of commercial banks loan book.
This gives banks room to forge closer ties with the very disruptors as they link bank cards to the WeChat Pay and Alipay platforms.
Although banks have the larger bargaining power when collaborating with smaller internet microfinance companies, banks still lose out to larger tech titans as deals fall largely in the latter’s favour. For instance, a partnering bank underwrites most of the loan or up to 90% and the large tech players would charge a distribution fee of around 30% of total interest to be received.
“In the fintech world, those that do not adapt fast enough to operate in a regulated environment will face a destabilised business position. Among banks, those that do not innovate fast enough will be marginalised, by either shrinking market share or decreasing profitability,” the firm concluded.
Photo from Wechselberger CC BY-SA 3.0
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