WeChat shows messaging is the future of financial services ‘platforms’

WeChat could be the next big broker-dealer among high-net-worth Chinese investors. Its parent company, Tencent, now has a license that allows it to sell mutual funds on WeChat and give the popular messaging app’s 980 million users more options to help boost funds sold on the platform. It also gives Tencent more sway in deciding which financial products third-party companies can sell on its different platforms. WeChat is showing that messaging channels, at least in China, are where people like making financial transactions. Meanwhile, financial incumbents in Europe and North America are still wrapping their heads around an “open,” platform-based approach to financial services -- with the bank as the platform, instead of any existing messaging platform. In the U.S. Apple Pay introduced payments in iMessage for iPhone users and PayPal and Facebook Messenger partnered on peer-to-peer payments just last year. “It really shows incumbents that they’ll need yet again to pivot to a new platform; that it’s not the bank that’s the platform anymore,” said April Rudin, chief executive of wealth management marketing firm The Rudin Group. And because of technological infrastructure and application programming interfaces, offering mutual funds products through WeChat is just another thing to simply plug in, Rudin added. The growth of companies like Venmo show how much people like conversational channels and contextual commerce — and it’s no surprise given how much dominant text- and messenger-based interfaces have become. “The idea several years ago of being to chat with a company — there were chat based customer support systems but they were all just very jenky,” David Barrett, CEO of expense management startup Expensify, recently told Tearsheet. “Over time people moved toward the chat interface — they text their friends, Slack with their co-workers — text is disrupting the telephone and becoming the primary way to communicate not just socially but also in a business context.” The license also comes at a time when companies in financial technology are under intense scrutiny by regulators. In the last couple months, the Chinese government has been homing in on the country’s online lending industry, which has grown exponentially in the last year and may be getting out of hand. In October the People’s Bank of China mandated online payment companies connect to a centralized clearing house and route all payments through it, which could force companies like Tencent to begin sharing user transaction data with competing companies. Before last week, when the messaging giant received the license, it merely acted as a platform through which other fund houses could operate. With the new license, Tencent can build its own mutual funds products into the same platform, Rudin said. “Messenger-based platforms and wealth management naturally go together,” Rudin said. “The messenger platform offers wealth management products and services and the ability to reach more people and extend the relationship from being a messenger.” Tencent already has licenses to operate mobile payments, insurance and micro financing on the WeChat messenger platform. Any transaction between two people is fundamentally a conversation, Barrett said. It makes sense to use conversation as a platform on which to build other “conversational style features” rather than asking for a payment on one application, using a second application to actually send the payment and a third application to take a picture to send. WeChat knows all about messenger-based payments. With Alipay, it dominates the Chinese mobile payments market. WeChat payments rose to $1.2 trillion in 2016 from less than $11.6 billion in 2012. That’s an 85-fold increase in four years. Combined, Alipay and WeChat payments rose to about $2.9 trillion in 2016 from less than $81 billion in 2012. And WeChat payments are growing faster than its original messaging service, which launched in 2011 and introduced its payments functionality in 2013. WeChat grew its active daily user base 43 percent to 806 million in 2016 from 195 million in 2012. But payments aren’t as sticky as mutual funds. Payments are transactional, and wealth management is about long-term relationships, Rudin said. “It’s a force multiplier, being able to access so many users that have embedded relationships with their messenger and probably already using them for payments,” Rudin said. “It’s a product extension.” Wealth management is exploding with younger users in China, who want to have a digital interface and a brand they trust. The population of China’s high-net-worth individuals grew 9.1 percent in 2016 to reach 1.1 million last year; their wealth grew 9.8 percent to $5.8 trillion. Last year BNP Paribas began testing message-based financial advice through the bank’s mobile app, based on clients’ portfolio and risk preferences, financial recommendations as frequently as the client allows and a chat-based trading platform. Just as the mobile device truly disrupted the client experience in basic banking and gave customers “the mobile banking experience,” wealth management services should be following that path, Rudin said at the time of the rollout. “Most wealth managers are just making it to social media now,” Rudin said. There are definitely compliance tools that allow you to monitor and record texting conversations and more business being transacted on text or messaging platforms.”