China's silent tentacles in the global financial market
Bruno Diniz
Financial Innovation Expert, Best-selling Author, Speaker and Professor | LinkedIn Top Voice | Fostering Financial Services Innovation in LATAM
Eastern bigtechs expansionist strategy is transforming the digital world
* The portuguese version of this article can be found at FEBRABAN's Noomis platform in the link: https://bit.ly/bdnoomis3
In September 2018, during a closed Silicon Valley investment fund event, former Google CEO Eric Schmidt said that by 2028 we will have “two internets” in the world: one led by the US and one led by China. The statement was justified by the fact that China is currently using an ambitious global influence plan, which has the digital world and foreign investment in infrastructure, logistics and telecommunications as its main weapons.
Named “Belt and Road”, this initiative aims to connect China, Europe, Asia and Africa through major infrastructure projects, including data transmission routes (via submarine communication cable and satellite) that underpins its "own Internet" managed by the country. While initially including the countries that made up the historic continental “Silk Road” (which was an important trading route for merchants of ancient times), the project also aims to include other regions, such as Latin America (where countries such as Chile have already expressed interest in participating), further expanding Chinese influence around the world.
This big governmental plan ends up including the main technology companies in the country as participants, which are also gradually expanding their relevance outside China in various sectors of the digital economy. One example is Bytedance, the company that owns the popular social app TikTok, which has turned a fever among young people around the world.
In the financial world, it is not news that Tencent (owner of WeChat) and Ant Financial (Alibaba group company that has Alipay as its main product) have become the main payment solutions there, moving the equivalent of hundreds of billions of dollars locally. Although not as popular in the rest of the world, these companies have systematically made investments in fintechs abroad, opening the door for Chinese influence in how payments are made, technology transfer and use of their own computer systems.
South and Southeast Asia, for geographical and cultural reasons, became one of the first terrains of this silent expansion of Chinese bigtechs, who also vie for dominance in these different battlefields. There, some fintechs from the digital payments segment received investments from Alibaba group, such as EasyPaisa from Pakistan; Paytm from India; Bkash from Bangladesh; Touch N 'Go from Malaysia (in which a joint venture was established with CIMB Group Holding, the parent company of this solution); Mynt from the Philippines (who owns the Gcash payment platform); KakaoPay from South Korea; Ascend Money from Thailand (which owns TrueMoney digital wallet); HelloPay, from Singapore (solution that belonged to the e-commerce group Lazada, which was purchased by Alibaba); and the companies Dana and Akulaku from Indonesia. Following its investments, Alibaba Group brings to the table all its expertise in the payments industry and initiates a technology transfer process that often leads its investee companies to use its cloud computing infrastructure (called Aliyun) to run these fintechs applications.
Also in Asia, Tencent made less aggressive moves than Alibaba (but very relevant in the fintech segment) as the investments in the worker-focused neobank NiYO, and Flipkart (an e-commerce company that had control acquired by Walmart and has developed a number of financial services), both from India; in the Voyager digital financial solutions platform from the Philippines; and the super app Gojek from Indonesia.
In Europe both companies have also been looking for expansion, with Ant Financial already actively working in partnership with local financial institutions and fintechs to enable payments by Alipay, which is in high demand from Chinese tourists arriving in the Old Continent. The company has made its main move in the region by discreetly acquiring British giant Worldfirst, focused on foreign exchange and international financial transfers. The takeover came some time after the US takeover attempt over MoneyGram, which was eventually barred by the US government, thwarting the Western expansion movement of Jack Ma's company. In the other hand, Tencent has acquired a stake in the German neobank N26, one of Europe's leading digital banks.
A new frontier that has been explored by Chinese bigtechs is Latin America, a region that has attracted the eyes of many international investors as the business potential for financial inclusion and the possibility of making financial products and services available to a portion of the population (that despite being unbanked has access to smartphones) becomes a great opportunity. In Mexico, Ant Financial formalized in 2018 an agreement with Openpay (BBVA group payments company), enabling more than 870 million active Alipay users to make purchases at Openpay's affiliated companies. In Argentina, despite the intense economic crisis, Tencent has invested in the neobank Ualá, the main fintech of its kind in the country.
Looking at Brazil, some movements of the Chinese giants are already noticed in the local fintech market. Tencent made its first investment here in October 2018, when it put about $ 180 million in Nubank. In the announcement of the investment, the CEO of the Brazilian fintech, David Vélez, even mentioned that he hoped to learn a lot from Tencent's experience in gaining scale in the Chinese market, indicating a possible technology sharing with its investor.
Possible partnership and integration scenarios (such as the one that happened between Ant Financial and Openpay in Mexico) are feasible in the case of Stone and Nubank, making them important outposts for these Chinese bigtechs here in Latin America, allowing for faster entry of these players in the region. Acquisitions of these investee companies would be more difficult to make, given the companies' market value (in both cases, over $ 10 billion - about R$ 40 billion). To give you an idea, the last major purchase of a Brazilian company by a Chinese players in the technology sector happened when Didi Chuxing, Asia's largest mobility player, bought 99 for $ 300 million – way below the values mentioned above. Clearly, acquisitions of smaller companies would not be discarded, especially in the case of Ant Financial, which has already started direct operations in the country.
While much is being said today about the entry of US bigtechs in the Brazilian financial sector, we must not lose sight of the Asian activity, which happens in a much quieter and more discreet way. China's plan of expansion and influence is underway and different sectors, including the financial one, are part of it. Marc Andreessen, a famous Silicon Valley investor, once said earlier this decade that "software is devouring the world." Almost 10 years later, we can certainly update that phrase and say that “Chinese software is devouring the world” - and by the way it is going we will see this movement intensifying even more over the next decade.
References:
https://www.cnbc.com/2018/09/20/eric-schmidt-ex-google-ceo-predicts-internet-split-china.html
https://www.emarketer.com/content/the-mobile-payments-series-the-us
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