China’s digital payments industry is potentially facing its next major shakeup.
ByteDance, the Beijing-based tech giant which owns social media apps like TikTok and its Chinese equivalent Douyin, has been developing a financial service and online payment platform modeled after Alibaba’s Ant Group, with preparations nearing an advanced stage, local news outlet Tech Planet recently reported.
A former ByteDance employee with knowledge of the firm’s plans told Tech Planet, on condition of anonymity, that development of the three core components of the platform, including payment processing, insurance selling, and securities trading, has been completed.
If the service is successfully launched, it is likely to pose a challenge to the duopoly held on the mobile payment market by Alibaba via its affiliate Ant Group and Tencent’s WeChat Pay, even as their market power faces growing scrutiny from regulators.
A continuous pursuit
ByteDance’s foray into financial services could trace back to six years ago, in 2015, when a team was carved out of its finance department to work on a stock market tracking app that was billed as a complement to its news aggregator and sharing platform Toutiao.
Recruitment notices posted that year by Toutiao touted open positions for interested financial analysts and experts in areas such as risk and consumer finance.
The app was eventually launched in 2017 under the name Ximei Gupiao, meaning rare magnesium stocks in Chinese. It claimed to be a stock analysis tool that uses machine learning and big data to capture and alert traders about price signals and market-moving news.
But the app attracted few users, outshined by more professional financial information services like iFind and a rival stock quotes and news app developed by Tencent.
In early 2018, ByteDance turned to Gu Wendong, the former vice president of the big data innovation center at Chinese fintech giant CreditEase, to rejig its efforts.
Gu was chosen for two reasons. First, his expertise in the so-called “recommendation systems” that have been implemented by many services—including ByteDance in its news aggregator app—from Amazon, Netflix to YouTube, to use an algorithm to recommend anything from something to read, to watch, or to buy to their customers. Gu has been leading an online discussion group dubbed “ResysChina” that dedicates to sharing updates and promoting the use of recommendation technologies in China.
Second, he was then the VP at a leading local fintech startup leading its big data innovation initiative, giving him the relevant background in the fintech sector.
Gu came with a vision to tap the existing machine learning recommendation technology used in Toutiao, which he has described as one of the world’s best, to promote and power the finance service he’s championing. And ByteDance did throw its full financial weight and manpower behind him, according to a former employee who worked under Gu. The team was formalized as a branch of ByteDance, with nearly 300 workers being allocated to work on financial-related business in a new office at the heart of Beijing’s busy commercial district, Wangfujing.
Under his reign, ByteDance’s Ximei Gupiao app managed to pick up steam with growing downloads and becoming the first choice for many users, according to app download and usage data provided by app intelligence platform Qimai.
After Gu’s initial success with the stock app in mid-2018, ByteDance, striking while the iron is hot, expanded into two new areas, online lending, and insurance, with mixed results.
In July 2018, it launched an online lending service called Fangxin Jie, meaning Borrow in Peace, which modeled after Ant Group’s widely successful loan business Jiebei, which offers consumers short-term unsecured loans of over RMB 1,000 (USD 153). Fangxin Jie similarly uses a creditworthiness score to instantly advise users about their loan eligibility.
But unlike Ant’s Jiebei, which lends directly to users after securing credit lines from financial institutions, Toutiao’s service did not have the required licenses to do so. It ended up becoming a referral service between users and banks, with complaints being raised about misleading promises about loan interest rates that were higher than advertised.
Mixed fortunes again befell ByteDance’s attempts to launch insurance services.
His efforts to incorporate insurance service into Toutiao led to the introduction of a platform dubbed Touhao Insurance, meaning top quality insurance, in September 2019. But the platform only offered a single term life insurance policy of the same name, provided by a relatively unknown insurance provider, Hainan-based Haibao Life Insurance, set up barely a year ago. Despite being promoted on Toutiao and Douyin, it found few takers.
Growing setbacks for ByteDance were further compounded in 2019 when the visionary Gu left the firm, citing personal reasons.
But ByteDance’s financial ambitions found a new cheerleader in ByteDance vice president James Tian, the former global co-head of technology, media, and telecommunications and head of financial sponsors coverage at CICC, one of China’s largest investment banks.
Tian, who succeeded Gu, accelerated plans for the development of financial services, with a focus on expanding consumer offerings.
This began with the acquisition of a microfinance startup called Zhongrong Microloan in July last year. The acquisition gave ByteDance a much-needed micro-financing license that paved the way for the launch of a new scaled-down loan service called Beiyong Jin, or roughly translates to petty cash. Users requiring small emergency loans can borrow up to RMB 500, which must be repaid within a week. Unlike its previous lending initiative, no third-party borrowers were involved.
In September, Toutiao acquired Ulpay (Hezhong Yibao Technology), a small online payment company founded in Wuhan that finally gave ByteDance a license to enter the mobile payments market. Ulpay and a related product, Douyin Pay (Zhifu), made their debut on the Douyin app soon after.
For a long time, Douyin users have had to use Alipay or WeChat Pay to make payments for purchases made on the platform or third-party products that influencers recommended. But Douyin Pay now allows users to make internal payments while Ulpay can be used to purchase goods sold outside the platform. Up till this moment, ByteDance’s financial empire that modeled after the Ant Group has finally emerged and is ready to punch.
It remains to be seen if ByteDance can succeed where others have failed in breaking Tencent and Ant Group’s chokehold on China’s lucrative market for third-party mobile payments, which handled RMB 72 trillion (USD 11 trillion) worth of transactions in the last quarter of last year, according to data from Beijing-based internet data firm Analysys International.
Before ByteDance, other Chinese internet behemoths, Didi, JD, and Meituan, just to name a few, have launched assaults at the country’s mobile payments duo. However, none has managed to seriously dent the popularity of the two ubiquitous payment apps. Nearly 80 to 90% of all mobile transactions today are still made on either WeChat Pay or Alipay.
Not taking chances by placing all its eggs in just one basket, ByteDance instead also sought to build up its financial service ambitions abroad. It joined 20 other applicants for a license to operate a digital bank in the city-state of Singapore last year but ultimately fell short. Singapore’s financial regulatory authority favored other Chinese firms, including Ant Group and a consortium comprised of Shanghai-based real estate group Greenland Financial Holdings, Tencent-backed fintech firm Linklogis, and Beijing Co-operative Equity Investment Fund Management.
Hong Kong’s booming financial industry has become another target. ByteDance registered a local subsidiary, Squirrel Securities (Songshu Zhengquan), in December 2019 that has since applied for five financial services licenses, including permission to provide securities and futures transaction services, as well as asset management advice.
But a rise in U.S.-China tensions has put a dent in ByteDance’s efforts to capitalize on the popularity of its TikTok app as a launchpad for a new in-house global online payment service. A pilot livestream collaboration between Walmart and TikTok in December last year relied on online payment provider PayPal to process orders of featured fashion items.
While pressure from the previous Trump administration has eased, with a previous forced deal for ByteDance to sell its U.S. operations to Oracle being dropped, it remains unclear if TikTok will be able to get approval from western regulators to set up a global third-party payment system that analysts say is essential for its financial service ambitions to succeed.
Closer to home, Ant Group’s increasing troubles with regulators, which fined Alibaba over unfair market practices, were forced to shelve its IPO plans last year. However, this has provided a rare opportunity for Bytedance. The government has asked Ant to give consumers more payment options beyond Alipay and disconnect Jiebei from its main payment channel, removing barriers that have stifled ByteDance’s financial initiatives in the past.
ByteDance is gearing up to seize the opportunity. It has been aggressively recruiting new staff on university campuses to work on its new integrated financial platform. Its launch of a securities brokerage called Stellar (Hengxing) Securities in April this year attracted speculation that it was planning to allow real trading on its Dolphin Stocks app, but that later turned out to be false, an indication that it was part of a larger project.
Opportunities have also created new risks. ByteDance was one of 34 firms warned by Chinese regulators to correct their anti-competition practices after Alibaba was fined a record RMB 18.2 billion for violating such rules this month. Another all-in-one financial services app may yet attract the ire of Chinese authorities.
After six years of false starts, ByteDance’s financial services ambitions are facing their biggest tests yet.
This article was adapted from an article written by Chen Qiao Hui, and was originally published by 36Kr, KrASIA’s parent company.