The rise of third-party mobile payments in China at the expense of credit and debit cards is threatening commercial banks’ access to the customer data viewed as crucial to newly emerging financial and consumer business models.
The president of Ant Financial, Alibaba Group’s finance affiliate, told the Financial Times earlier this month that payments through its Alipay unit bypass China UnionPay, the state-owned settlement network with close ties to the central bank.
The result is that UnionPay, along with issuing banks and acquiring banks, is haemorrhaging income from merchant fees. The trend is fuelled not only by the rise of ecommerce but also by the dramatic increase of mobile payments to offline merchants such as supermarkets and restaurants.
The move by more Chinese consumers to switch from swiping plastic cards to scanning QR codes with mobile wallet apps knocked $20bn from banks’ fee income in 2015, according to Kapronasia, a Shanghai-based fintech consultancy.
Settlement fees are only part of banks’ overall revenue mix, which is dominated by interest income from loans. The bigger challenge to Chinese lenders, analysts say, comes from the way in which third-party payment providers are interposing themselves between banks and customers, depriving lenders of valuable data on consumption patterns.
“Data are increasingly the new currency of choice in China as third-party payment providers move beyond payments to selling a wider range of products and services such as taxi-booking, movie tickets, and wealth management products,” said Zennon Kapron, founder of Kapronasia. “Banks are starved of the critical transaction data that would help them to provide competitive products and services.”
Most users of Alipay, and rival WeChat Pay owned by
Tencent, fund their payments by linking their traditional bank accounts to mobile wallet apps. That means traditional bank deposits are still the ultimate source of funds. But when a consumer uses Alipay or WeChat for payment, banks do not receive data on the merchant’s name and location. Instead, the bank record simply shows the recipient as Alipay or WeChat.
The loss of data poses a challenge to Chinese banks at a time when their traditional lending business is under pressure from interest-rate deregulation, rising defaults, and the need to curb loan growth following the credit binge. Big data are seen as vital to lenders’ ability to expand into new business lines.
“In the past, commercial banks focused on servicing large enterprises and didn’t care much about consumers. But with the macroeconomy suffering, the corporate business is facing pressure on margins on growth,” said Wang Xiaoyan, senior fintech analyst at 86 Research in Shanghai. “Banks definitely want to capture the opportunity in retail banking, but if they don't have payment and consumption data, it’s difficult to gain consumer mindshare.”
In a sign that banks recognise the importance of data, China’s big four state-owned commercial lenders have each launched their own ecommerce platforms in recent years. Rong E-Gou, the platform run by
Industrial & Commercial Bank of China, the country’s largest lender by assets, has 30m users and reported turnover of Rmb870bn last year.