A report from JPMorgan states that online payments will emerge as the biggest fintech development in China, and the direct beneficiaries will be Alibaba and Tencent. Online payment companies could see a rise of about 42% in their revenue to 202 billion yuan in 2020. By 2020, the fintech industry is expected to grow 44% annually to reach 460 billion yuan ($67 billion) in revenue, according to Barron’s.
Huge potential in fintech industry
JPMorgan analyst Katherine Lei and team estimate that Alibaba and Tencent will take over 50%-60% of the total market share together, increasing their market cap by another $326 billion to $391 billion. The analysts feel that if investors see growth potential in the fintech space, both companies will have another 65% to 78% upside potential from their current levels.
Online consumer lending is the second largest segment in fintech. According to JPMorgan, the online consumer loan market has the potential to grow to 658 billion yuan in 2020, through which originators can generate 78 billion yuan in total sales. Alibaba can easily expand into the consumer loans business from its existing e-commerce business. The Chinese e-commerce giant has an active user base of 439 million buyers and their transaction data.
Talk of inflation has been swirling for some time amid all the stimulus that's been pouring into the market and the soaring debt levels in the U.S. The Federal Reserve has said that any inflation that does occur will be temporary, but one hedge fund macro trader says there are plenty of reasons not to Read More
“These two elements have laid a good foundation for the development of consumer lending,” the analysts say. JPMorgan notes that risk assessment and loan pricing underline the analysis of user behavior data, and therefore, e-commerce players are set to gain, fueled by their transaction data.
Further, the report stated that major e-commerce companies in China such as Alibaba, Vipshop and JD are “actively incubating their consumer loan initiatives.” Also Tencent through its joint venture WeBank is tapping the market. According to JPMorgan, loans to small- to medium-sized enterprises could garner about 64 billion yuan in revenue by 2020.
Alibaba well-poised to capitalize
Alibaba is looking to expand beyond China, and only recently, the company was bidding for U.S.-based MoneyGram. However, the deal could not be sealed, as the U.S.-based electronic payments company Euronet Worldwide Inc. offered $1 billion for MoneyGram. Alibaba’s Ant Financial services, however, says it is committed to the deal.
Only a few weeks ago, Ant Financial acquired a stake in Mynt, the Indonesian mobile payment and credit service company owned by Globe Telecom. Ant Financial and Ayala Group invested in Mynt.
On Tuesday, Alibaba shares closed down 0.88% at $104.25. Year to date, the stock is up almost 19%, while in the last year, it is up almost 41%.