Tencent is one of the leading players in digital payment / mobile wallet solutions. Its payment / wallets in WeChat and QQ are benefiting from high-frequency transfers of "red pockets" among Chinese internet users, creating a fast growing base of sticky users. The introduction of a 10bps fee on transfers of over Rmb1,000 out of its digital wallets had an unintended (but positive) consequence of users' keeping more money in Tencent's digital wallets. This increase means more money could be used for purchases of its and partners' services.
Notably, commercial volume transactions have tripled yoy. Tencent charges merchants (e.g., Vipshop) on average 60bps and pays the banks 10bps -- a scalable cash flow-generative business among its fintech offerings. The company believes user acquisition cost is the key challenge for any fintech business, and here Tencent has a natural advantage. However, company is likely to focus on scaling its payment business while focusing on managing risks of businesses with greater balance sheet requirements (i.e., SME loans via WeBank).
