The People’s Bank of China has released a new set of draft rules for the digital payments industry, suggesting the duopoly of Ant Group and Tencent could be getting a shakeup, TechCrunch reports.
- “Any non-bank payments processor with over one-third of the non-bank payments market or two companies with a combined half of the market could be subject to regulatory warnings from the anti-monopoly authority under the State Council.”
- “Meanwhile, a single non-bank payments provider with over one half of the digital payments market or two companies with a combined two-thirds of the market could be investigated for whether they constitute a monopoly.”
Why It Matters: It’s simple. Alipay processed more than half of China’s third-party payments in Q1. Tencent handled almost 40%. Curb their ability to run payments and their businesses take a significant hit.
But as China tightens its grip on the payments industry, it opens up the market to international entrants.
- Goldman Sachs took full ownership of its joint-Chinese venture, while PayPal took 100% control of a Chinese payments business.
- “Industry experts told TechCrunch that PayPal won’t likely go after the domestic payments giants but may instead explore opportunities in cross-border payments.”
Looking Ahead: Competition is getting tougher for Ant Group and Tencent. Meituan, Pinduoduo, JD.com and TikTok parent ByteDance have all introduced e-wallets. It’s not an immediate threat, but if Ant and Tencent can’t compete as normal, they could give up significant ground.
This is really interesting. It seems like the Chinese Communist Party (CCP) is keen on keeping power in the hands of the banking system and curbing the power of intermediary payment processors like Alipay. This puts a shadow over how much bigger Alipay (and to a lesser extent Alibaba and Tencent) can get and signals that they have similar antitrust headwinds to the U.S. tech giants.
We are taking a cautious stance on investing in the Chinese tech giants for the ROIC Big Board.