China Face-Off America – Battle of Global Payments between Tech Titans

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Earlier this year Daily Fintech did a China week, and there were several interesting topics and key insights discussed. We analysed how the three Chinese Tech giants (Baidu, Alibaba and Tencent) have led the Fintech boom in China and what the favourable factors that helped were. However, over the past few weeks, we have had some developments with WeChat expanding into Europe, and almost as a reaction (perhaps not), Facebook ramping up group payments on messenger, Android pay collaborating with Paypal and more. We have Ant Financial’s bid for Moneygram and there is also a rumour that Whatsapp was ramping up to launch payments in India. That feels like a heated battle between Tech giants of the east and the west (really Chinese vs Americans, such a cliche) for Global Payments Glory. 

While we immerse ourselves in Fin and tech in the west, we often tend to forget that there is a whole new world out there in Asia that completely dwarfs what we have achieved in the west with regards to Fintech. FinTech financing in Asia-Pacific was almost US$10 billion in the first half of 2016, eclipsing the aggregate of North America’s (US$4.6b billion) and Europe’s (US$1.85 billion). WeChat sent 32 billion digital red envelopes over Chinese New Year in 2016 and 46 Billion in 2017. Paypal did 4.9 billion transactions in the whole of 2015 and 6.1 billion in 2016. This list could go on, but you get the point. The dragon really dwarfs the west!!

China Fintech

Stats aside, Chinese tech giants have had tremendous success in their local Fintech market. In comparison, Apple, Facebook, Google and Amazon (the Fantastic Four) have had mixed results in the west.

I am fascinated by what Alipay(from Alibaba) and Wechat (from Tencent) have managed to achieve in China. A good story about the growth of these firms is how WeChat created a highly localised product to compete with Alipay. WeChat had been lagging Alipay upto the launch of “Lucky Money” during the Chinese New Year of 2014. It combined the Chinese tradition of “Red Pocket” with conventional peer-to-peer transaction, and achieved huge success by adding a fun flavor of luck into its payment function. During the New Year holiday of 2014, approximately 10 million users engaged and bundled their bank cards, and 40 million red pockets were dispatched. In 2016 these numbers on WeChat further increased to 420 million, and reached a massive 8 billion that same year. Jack Ma called this strategy by WeChat the “Pearl Harbour Attack” on Alipay.

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Now, lets take a look at what the Fantastic Four have achieved in Payments.

Facebook, apart from hiring David Marcus (from Paypal) haven’t really had much joy with its payments business. Its payments revenue (for 2016) of $753 Million is tiny when compared to ads revenue of about $28 Billion. And the payments revenues were down 11% from 2015.

Google’s Wallet project didn’t go anywhere at all, however it had a much better uptake with its Android Pay. By end of 2017, Android pay is projected to have about 27 Million users. Android Pay have just agreed to integrate Paypal to it, which would mean customers can use Paypal through Android Pay.

Amazon’s “Pay by Amazon” has been a good story from the time it was launched. It has now 33 Million users which is almost a 50% annual growth from 23 Million users last year. Amazon managed to get its Wallet License in India last week (watch this space).

Apple pay has been the leader of the pack in the payments world. With about 84 Million users projected by end of 2017, Apple have so far done well in this space, however still lags behind Paypal.

All these numbers from the Fantastic Four are tiny when compared to the numbers achieved by WeChat and AliPay.

Alibaba have been quite active in expanding through acquisitions. Investment into PayTM in India, provides them a hold into PayTM’s 200 Million user base in India. However the most recent news on Moneygram is an ambitious step into the remittance market, and if the deal did happen (post all the drama), it would provide Alibaba a 5% share of the 600 Billion pound remittance market.

'The Americans aren't objecting in principal to a merger down the line as long as we build a Chinese wall to keep a couple of things secret from the Chinese.'

WeChat have more recently started global expansion into South Africa, set up its European offices in Italy and planning a London launch soon. While they are behind Alipay with their global expansion, their customer acquisition strategy has worked better (than Alipay’s) so far.

When I talk to innovators in India, I often tell them to create a simple solution to an existing problem without overengineering it. That’s generally true for most developing nations. There are ample problems to solve and a half decent solution can see massive growth if executed well.  In the case of China a few hundred million users went from Cash to Mobile Payments and it was a classic leapfrog moment. Most likely Alipay and WeChat wouldn’t see this again in their Global expansion adventures.

I believe they would have better success through acquisitions, investments and partnerships with key payment players in their target markets, rather than trying to lift and shift their business model in China elsewhere. I also think that the winner of the East vs West payments war would be decided by key battlegrounds in India, LATAM and Africa. If Alipay and WeChat could expand into these regions quickly, then the Fantastic Four would struggle to gain ground. However, you don’t write off the likes of Apple, Amazon, Google and Facebook that easily. Watch this space!!

Arunkumar Krishnakumar is a Fintech thought-leader and an investor. 

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Google’s ambitions in Fintech

The big tech dogs are circling the Fintech opportunity. Apple, and Alibaba have all made big moves in Fintech. More is to come. Fintech gives these firms the potential for billion dollar lines of business that move the needle for them. Financial Services is 16% of the S&P 500.

So, I wanted to see what Google was up to in Fintech. TL;DR, quietly plugging away with massive ambition. This is the story of the dog that did not bark (yet).

Google is best known for its Wallet and the ability to send money as an attachment in Gmail.

Compared to the big waves being made by Apple Pay, Google looks like it is either “asleep at the switch” or, taking a more positive interpretation, “taking the long view, slow fuse” approach.

The latter is in Google’s normal style. For example, they have taken many years to get Google Apps to the stage where it is a serious contender in the market. Or think of how long they have been working publicly on driverless cars. Apple works in secret to get a strategy perfectly worked out and then they launch. Google launches and then keeps iterating for years unless the data shows them that there is no market.

In the recent quarterly conference call with investors, Omid Kordestani (Chief Business Officer) , had this to say about Google Wallet:

“I think our goal here is really achieving mass merchant adoption and the availability of NFC devices. It’s also making it easier for consumers to replace their wallets with their smartphones hopefully over time. Reducing friction in everyday shopping experiences is how we approach it and focusing on the user. We’re developing a fully functional payment system. As you may know users can send money today to friends to Gmail using the wallet app where we have loyalty and gift cards that can be stored in the wallet app. Buy with Google button makes it possible to make purchases very quickly with two clicks. The focus is on merchant adoption and removing the friction for users.”

Google “Google Fintech” and the biggest news is a senior person, Dan Cobley, leaving Google in order to start a Fintech Investment Fund. Clearly one Googler wanted to step up the pace.

Google is helping startups with tools, limited cash and mentoring; but so is everybody else, so this does not tell us much about where Google’s ambitions lie in Fintech.

I looked at Google Ventures Portfolio Fintech to see if this offers some clues. They don’t show Finance as a sector. The categories are Consumer, Mobile, Health and Enterprise. Fintech is in the Other. There are a couple of Fintech names such as:

Angel List

CircleUp

OnDeck

Ripple Labs

I see no great themes or intent in that list nor in anything said publicly by Google.

So, there is not a lot of noise, but I suspect that Google will keep plugging away at this until they crack it, like they have done in other markets. One statement from Omid Kordestani stands out:

“We’re developing a fully functional payment system.”

 

 

When will Google make their big Bitcoin move?

The biggest clash of the titans in TechLand is Apple vs Android.

Apple has made their payment move. Apple Pay is smart and plays nicely with the current payment gorillas – Visa, MasterCard and Amex.

Google now needs to make their payment play. It cannot be me-too and follow Apple. It will probably have a disruptive and open source angle, because that is how the Google guys like to think and how they differentiate Android from Apple.

So they will probably do something with Bitcoin. The questions remain – when and what?