China’s tech platforms want to help users invest money, too, in addition to spending it.
Over the last few years, China’s giant e-commerce, messaging and social media platforms have gotten even bigger, in part by adding entertainment, gaming, payments, loans and other services.
Now they’re swooping in on another sector that’s poised to boom: investment advice for the masses.
Tencent Holding began offering fund advisory services in August via its fund distribution platform Teng An Fund and will extend the service to the more than one billion users of its WeChat messaging service after a trial period.
This comes after Ant Group—which has one billion users of its Alipay mobile payment app—began offering customized investing advice in a joint venture with US-based Vanguard back in December. Ant is the fintech affiliate of Tencent rival Alibaba and is gearing up for an initial public offering later this year. Meanwhile, ByteDance, which owns TikTok, has plans to expand into the online stock brokerage and wealth management business in Hong Kong.
The moves are in line with the tech giants’ relentless search for ways to monetize their huge user traffic, says Vey-Sern Ling, a senior analyst with Bloomberg Intelligence who covers Asian internet businesses.
“The most traditional ways are to get users to play games, or show them ads, or get them to shop,” Ling tells Wunderman Thompson Intelligence. “Traffic redirection, or referrals, are another way to make money off them. I think all the finance-related businesses for these Internet companies can be classified into this bucket, whether its fund advisory, money market funds, wealth management products, brokerage, even online banks.”
The world’s biggest savers
Since local regulators began opening up China’s asset management industry a decade ago, its scale has grown ten-fold to about $16 trillion in assets under management by end 2019, according to a report by the World Economic Forum, “China’s Asset Management at an Inflection Point.” At the same time, Chinese are the biggest savers in the world, with $28 trillion sitting in bank deposits, ripe for investing opportunities.
The stock market is currently dominated by retail investors, which can lend a casino-like feel to trading. Last year, the government issued fund advisory licenses for the first time, as part of efforts to develop the sector.
Traditional banks and financial institutions both Chinese and foreign are jumping in. So are tech companies, who are likely to introduce innovations not seen elsewhere, or at least not at this scale.
This is in part because of the mass adoption in China of mobile wallets, which act as a gateway to financial services. For example, Ant’s Yu’e Bao money market fund, launched in 2013, became the world’s largest at one point by investing idle cash sitting in users’ Alipay account balances, and offering better interest rates than banks.
The tech companies also have the data and analytics capabilities to target investors.
“There is a lot more user profiling done on, for example, their online shopping behavior and using that to determine their credit worthiness,” says Ling of Bloomberg Intelligence. “Such profiling cannot be done in the West due to user privacy issues.”
What’s more, the pandemic has given a boost to digital and social media marketing in general by fund managers, according to a recent report by Cerulli Associates, a research and consultancy firm for the industry.
In China in the last few months, there’s been a surge in livestreamed investment seminars, Ken Yap, Cerulli’s managing director for Asia tells Wunderman Thompson Intelligence.
“We are not talking about the marketing team,” Yap says. “We are talking about the Chief Investment Officer or Chief Executive coming online, giving a presentation to hundreds of thousands of people and responding live to questions. Investors get to interact directly with portfolio managers.”
The new Ant–Vanguard joint venture has had a flying start. In China, until recently, such customized advice used to be available only to wealthy individuals.
“Combining our technology with Vanguard’s investment advisory expertise will make high-quality wealth management services simpler, smarter and more inclusive,” Ant Group CEO Eric Jing said in a statement announcing the venture in December.
Via Alipay, the venture advises investors based on their investment goals, such as retirement, their timeline and their appetite for risk. Investments start as low as $115. The service costs about 50 basis points a year, and users can invest in more than 6,000 funds distributed by Ant.
The venture signed up 200,000 clients in the first 100 days, the Financial Times reported. About half were young people born after 1990, who invested on average $1,575—far above the minimum required—with total commitments at $315 million.
China may be playing catch up for now when it comes to investing. But if its track record in digital commerce is anything to go by, it won’t be for long. “The Chinese tech giants are very influential in shaping investment trends going forward,” says Yap of Cerulli. “This is probably still the tip of the iceberg in terms of what they can potentially do.”
Main image by Tim Jamieson, courtesy of Unsplash.