Jan 24, 2019 02:33 PM

Tencent Poised to Disrupt Australian Banking Sector

WeBank's headquarters in Shenzhen, Guangdong province. Photo: VCG
WeBank's headquarters in Shenzhen, Guangdong province. Photo: VCG

(AFR) — Australian banks have a new reason to look over their shoulders as Chinese digital-only bank WeBank moves ahead with plans to establish a foothold Down Under.

WeBank, which is valued at $21 billion and has written more than 100 million loans in its first five years in business, quietly began laying the foundations for its Australian digital-only banking venture with a flurry of trademark applications on Dec. 5 last year.

With the aid of Adelaide-based legal firm KHQ Lawyers, WeBank is seeking to trademark the phrase "WeBank" and a series of Chinese characters that can be translated into English as "microloan". The application lists the Chinese company's Shenzhen headquarters as the owner of the trademark.

WeBank was launched in China in December 2014 and provides digital banking services, including payments, on the popular WeChat social media platform, personal loans and savings accounts.

Last year WeBank's microloans ranged between $150 and $30,000 with an average loan size of $3000.

WeBank swung from breaking even in calendar 2017 to reporting a first-half net profit of $160 million in October. The company boasts a hefty net interest margin of 7%.

WeBank is 30% owned by Chinese internet giant Tencent Holdings Ltd., which has a market capitalization of $394 billion, about double the size of Australia’s big four banks combined. Tencent's messaging app WeChat, which is optimized for WeBank users, has more than 1 billion monthly users.

The trademark applications followed a lightning visit from Tencent executives during a roadshow last month organized by Macquarie. Tencent executives met fund managers with global mandates in Melbourne and Sydney to update them on its forecasts and plans for the year.

Tencent and WeBank did not respond to questions from The Australian Financial Review before deadline.

However, Tencent and WeBank's attempts to shake up the market in Australia may be thwarted, at least in the short term, by the Australian Prudential Regulation Authority (APRA).

Companies are prevented from promoting themselves using the word “bank” under sections 66 and 66A of the Banking Act of 1959 unless they are an authorized deposit taking institution or have permission from APRA.

It has been speculated that Tencent and WeBank are looking to ramp up operations in Australia quickly to offset the progress made by rival payments company Alipay.

Alipay was spun out of online retailer and commerce company Alibaba Group Holding Ltd., which is the same size as Tencent. Alipay is now held by private company Ant Financial, which has been valued at up to $150 billion. Both WeBank and Alipay are expected to list in 2019.

Late last year, the National Australia Bank allowed Australian merchants to offer Chinese customers the ability to use Alipay on its terminals. The deal was aimed at capturing more of the A$11 billion ($7.8 billion) spent in Australia by 1.4 million Chinese tourists each year.

The news of a new competitor follows Tuesday's announcement that digital bank Volt would be awarded an unrestricted banking license in Australia.

In May last year, Volt was the first digital Australian bank to be granted a restricted license. Xinja was the second bank to do so, its license granted last month. Rivals 86400 and Judo Capital are expected to follow soon, adding to the competition in a concentrated market.

News that a well-resourced and nimble foreign player has its eyes on the Australian market has arrived at an unwelcome time for the incumbent banks, which are keenly awaiting the final report and recommendations from the ongoing Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which are expected on Feb. 1.

The cozy oligopoly enjoyed by the big four has been a longstanding feature of the Australian banking market, a situation that has both contributed to its financial stability and reduced competition, according to APRA and the Australian Competition and Consumer Commission (ACCC) respectively.

The ACCC has called out the major players for "synchronized pricing behavior" on several occasions, with chairman Rod Sims saying more needed to be done to encourage smaller banks and to potentially review regulation which gave larger banks a competitive advantage.

This article was originally published in The Australian Financial Review.

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