Tencent's push into fintech continues apace with two new investments announced on Tuesday.
The internet giant led a $20 million Series A fundraising in UK-based blockchain company Everledger and announced a $70 million joint venture with China International Capital Corp (CICC) to develop fintech for wealth management.
Perhaps better known for its gaming prowess, Tencent has been diversifying into fintech and business tech services with some success, as its last quarterly results show. But it is some way behind Alibaba and its affiliate Ant Financial, with its constantly-improving payment ecosystem. And with the development of fintech now seen as a national priority, it wants to close the gap on its arch-rival.
Tencent's fintech ambitions began in 2017 when it invested HK$2.8 billion ($357 million) to become the third-largest shareholder of CICC. The founding of the joint venture continues to benefit both sides, with CICC accessing Tencent’s traffic volume to develop more clients and Tencent hoping to tap into the wealth management business with CICC’s help.
“We are pleased to collaborate with Tencent to explore the huge growth potential of the digital future,” said Bi Mingjian, chief executive of CICC.
CICC didn't elaborate on the kind of fintech it will provide together with Tencent but said it would be focused on wealth management and aim to provide more customised and differentiated services to users.
Tencent last year integrated its payment, wealth management and credit rating business into an independent business group, which posted 37% year-on-year revenue gains in the second quarter.
As the regulation of online banking has been tightened in China, so it's become smarter for internet companies to partner with licensed financial institutions and provide the technology and data. With hundreds of peer-to-peer lending companies shut down and multiple restrictions on account deposit pool management, internet companies are preferring to provide the technology and earn the service fees, rather than take a bigger risk by doing financial services themselves.
This helps to explain why Tencent has got itself a board seat in blockchain technology company Everledger. The UK startup uses blockchain and intelligent-labelling technologies to cover asset information, providing greater transparency in marketplaces. Through its investment in Everledger, Tencent hopes to co-develop such fintech for its own transactions.
“Everledger’s application of blockchain technology enhances value to consumers and reduce risks for businesses across the industry,” said James Mitchell, chief strategy officer at Tencent.
On the face of it, the first half of 2019 was poor for fintech fundraising with fintech investments down 40% year-on-year in the first half, driven primarily by the lack of mega-deals like Ant Financial’s blockbuster last year, according to a KPMG report.
China's big three, though, remain very much in the market.
“Internet conglomerates such as Tencent, Alibaba and Baidu almost monopolise the market,” Zhang Hao, managing partner of KPMG said. “They want to cover the market with more acquisitions.”
For Tencent, the aim appears quite clear. Given the growing opportunities it sees with fintech, it wants to make sure it is part of the story.
As Martin Lau, president of Tencent Holdings, put it in a press release: “Digitalization of financial services provides a secular opportunity for the industry.”
