While digital wallets stand out as the dominant mode of payment for a fast growing e-commerce market, platform providers – especially Chinese ones – are evolving to become full-stack financial services companies. Through easy to use applications, they even became strong actors in money market funds. They are now starting to conquer the asset and wealth management space not only in Asia but also in Europe and US, with increasing success, especially with the Millennials generation. Some incumbents have seized the threat and are trying to partner with these new entrants.
Digital Wallet use on the rise
A Digital Wallet, or e-Wallet, is a storage place in which digital cash may be stored for use in paying for transactions on Internet [1]. Consumers can also take funds from another payment method, like a credit card, linked to their e-Wallet. Easy and secure to use, e-Wallet is a quickly growing payment method, becoming increasingly popular across all sectors.
The amount of global transactional of e-wallet payments in 2012 was $295 billion, representing 17 percent of the payments market. By 2017, the volume jumped to $1,656 billion and the share rose to 41% [2].
The global e-Wallet market is expected to reach a size of $2,100 billion by 2023, becoming the first payment method for e-commerce [3].
China is a leader. US and Europe are fast-growing markets
China is the world’s largest e-commerce market and most consumers prefer to pay with e-Wallets. They now account for 62% market share in China, representing $5.5 trillion in 2016, nearly 50 times that of the US. And they are expected to grow at a 68% growth rate in the next 2 years [4].
The story of China transitioning to a cashless society is about Ant Financial’s Alipay versus Tencent’s WeChat Pay. Collectively, these two Chinese technology giants hold more than 90% of the digital payment market. With their overseas mobile payment partners, they claim a total of 800 million and 600 million users respectively. Combined, they account for over 66% of the third party payments market in China [5].
The move in one year from the third to the second rank of most popular payment methods in the US marks a significant change in consumer preferences [6]. Americans are increasingly relying on digital wallets as a payment form for purchasing or sending money. Overall, more than 60 million Americans – and especially Millennials (64%) – use a digital wallet more than any other means of transferring money.
In Europe, e-Wallet is gradually coming closer to other payment methods in e-commerce and should become the first one in the next three years. In this area, UK takes the lead with a strong forecast growth of value of transactions (putting the country just behind China and USA by 2021), powered by e-Wallets which take 34% of the market.
Chinese e-Wallets are rapidly expanding abroad…
Beyond their expansion in Asia – India, Malaysia or Thailand – Alipay and WeChat Pay have started to expand into European and, more recently, US markets. The move is specifically aimed at the 135 million Chinese tourists, who spent a record $261 billion abroad in 2016 [7].
Alipay was launched in Europe on December 2015, followed by Tencent’s e-Wallet on November 2017. On October 2016, Alipay announced its official entry into the US market, starting cooperation with 10 international airports, and more than 80,000 retailers. For, its part, WeChat Pay introduced its international payments solution in South Africa, where users can now send and receive money using the e-Wallet as well as withdraw cash from ATM machines.
To multiply the effects, these two competitors are able to develop common partnerships: thus, they both partnered with German payments firm Wirecard to allow European retailers to accept e-Wallet as a payment option. A similar agreement has been signed with BNP Paribas to make the two e-Wallets available in two department stores in Paris popular with tourists. They also both cooperated with Adyen (a major global payments technology company) to help businesses worldwide access customers in foreign countries, like Lancel which propose e-Wallet payments in its Parisian shops since the end of 2017.
PayPal, for its part, has partnered with the Chinese search engine Baidu to bring Chinese online shoppers to PayPal's 17 million international e-commerce sites. The payoff is big for PayPal's global merchants, who will tap the lucrative Chinese market and the 100 million users registered on Baidu Wallet (compared to PayPal's 210 million active accounts). US startup Stripe has also collaborated with Alipay and WeChat Pay to enable the same service.
… and are attacking wealth and asset management market
Unlike many of the apps developed in the West, these “super apps” are multifunctional. Apart from making payments and orders, Asian companies are transforming their app from a pure payment service into a comprehensive financial services platform including credit reference, personal revolving loans, finance planning and online fund investing.
Particularly, they propose to users to easily make transfers to and from money market funds (MMFs) with no minimum investment threshold (but rather cap!), no increased costs, no time delay and higher yields than bank deposits.
Launched in 2013, Yu’e Bao –Alipay’s MMF – is described by Institutional Investor as the “fastest-growing mutual fund of all time”. At the end of last year, its assets stood at $233 billion, confirming its ranking as the world’s largest MMF, numbering 370 million account holders. Yu’e Bao concentrates almost ¼ of the Chinese MMF market! Thanks to Yu’e Bao, Tianhong Asset Management (Alibaba’s AM controlled by its affiliate Ant Financial) is the China’s largest fund manager with $270 billion of AuM at the end of 2017 [8]. And Alibaba is trying to replicate Yu’e Bao’s success in India with Paytm, in which it increased its holdings in last March (see article in DigiBook #9).
“We are fast evolving from being a pioneer in digital payments to becoming a full-stack financial services company, which offers banking, lending, insurance, and payments. With Paytm Money, we will cover the entire spectrum of wealth management and plan to add more investment offerings going forward.” Pravin Jadhav - Director of Paytm Money
Tencent did the same in 2014, with its MMF Li Cai Tong, which have been less successful because it didn’t reward interests from the balance. However, more than 100 million users held $16 billion of assets at the end of 2016. To catch up with Yu’e Bao, WeChat Pay added in September 2017 a flexible money-market mutual fund with daily interest: Lingqiantong.
PayPal has tried to imitate the model by adding, at the end of 2017, the ability to put money in Acorns’ low-cost, automatic investing portfolios. After leading a $30 million investment round in the startup last year, PayPal lets its app users link their accounts to Acorns to use the investment firm’s rounding up savings feature.
However, a door is – still – half-opened to asset managers
Beyond the menace, e-Wallet has become a new distribution channel opportunity in Asia for incumbent fund managers to tap, especially for their MMF or short-term fixed-income funds… provided that the giant new entrants won’t develop first their own fund range. In Asian market, partnerships have been already established or are in progress:
- Largest fund houses (Efund, China Universal Asset Management, China Southern Fund Management and China Asset Management) now distribute their products to Tencent’s 980 million users in China (through its subsidiary Caitong) for a total size of $35 billion. Tencent has also teamed up with Howbuy – an online distributor of mutual funds – and a number of fund houses to line up nearly 100 mutual funds products via WeChat.
- In Indonesia, BNP Paribas AM has concluded a partnership with Indosat Ooredoo, (Indonesia’s second-largest telecommunications operator) to sell its mutual funds through the company’s e-wallet, Dompetku, making it the first asset manager in the country to offer products via mobile application.
- In the Philippines, Sun Life Asset Management plans to offer its money market fund on Takatack, an online marketplace similar to eBay and Amazon, that uses an e-Wallet app that gives users a “virtual prepaid card”. In addition, First Metro Asset Management is developing an independent, in-house platform that will allow investors to transfer money into the company’s funds through credit loaded onto electronic wallets.
“If I were an asset manager, I would be going to all of these guys, from Google to SnapChat to Faceboo to Alibaba, and saying it’s not your job to create financial products but you can sell the products on your platform and we want to be the product provider.” Ned Phillips - Founder and CEO of Bambu [9]
Chinese electronic payments volume are expected to quadruple to $47 trillion by 2021 [10]. In the same time, online wealth management products' AuM should triple to $1 trillion. And Asset management is not the only industry which have to adapt to the development of e-Wallet companies. With PSD2, third parties – like Alipay, Google or Amazon – will have an easier access to their customers' bank-account data. A challenge for the whole bank and financial industry to keep revenues and continue to develop new value-added financial services.
Author: Pascal Buisson - February 2018
[1] Collins English Dictionary - [2] Worldpay 2017 Global Payments Report - [3] National Merchants Association, 2017 - [4] iResearch,2017 - [5] Analysis International - [6] Global Payments Report - [7] World Tourism Organization (UNWTO), 2017 - [8] in Niu - Xinhua News Agency, 2018 - [9] a company which builds robo-advisory platforms for financial institutions and which secured financial backing from Franklin Templeton - [10] Elinor Leung, head of Asia Telecom and Internet Research, CLSA, 2017
