Is Libra really a threat to WeChat Pay and Alipay?

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It can be hard to cut through the hype surrounding Facebook's cryptocurrency project and evaluate it objectively. Facebook champions the Libra stablecoin as a powerful vehicle for financial inclusion which would be easily accessible to its many users in developing countries without a bank account. To advance the Libra project, Facebook chief executive Mark Zuckerberg has been playing up its nationalist credentials. If U.S. regulators fail to greenlight Libra, then Washington will cede digital currency ground to Beijing, he says.

"China is moving quickly to launch a similar idea in the coming months," Zuckerberg told the House Financial Services Committee in October. "If America doesn't innovate, our financial leadership is not guaranteed."

Meanwhile, some in China see Libra as a threat to Beijing's digital currency ambitions. In a recent white paper focusing on blockchain, Chinese internet giant Tencent said that a successful Libra launch could "undermine internet firms, including Tencent and Alibaba, which have their own relatively mature payment systems, hindering their global expansion."

Tencent reckons that Libra could become a preferred one-stop digital currency shop for Facebook's 2.7 billion users. Digital payment firms not in the Libra ecosystem would lose out. Starting in developing countries with large underbanked populations, Libra would gradually expand into rich countries, the white paper says.

To be sure, Libra would theoretically compete with any Chinese stablecoins used by Tencent or Alibaba - but only internationally. Beijing would block Libra from being used in the Chinese domestic market, just like it does Facebook. Further, given China's closed financial system, it is not clear how Beijing would develop digital currency that would be widely adopted outside of the PRC.

China has been developing a digital fiat currency since 2014, but reportedly accelerated research efforts after Facebook announced Libra. China's central bank plans to allow to allow the use of digital fiat currency by its big four state-owned banks, payments giant China UnionPay and internet finance giants.

Meanwhile, the as yet unlaunched Libra is only a theoretical challenge to Alipay and WeChat Pay at this point. Both companies have had tremendous success in their home market where they have benefited from market barriers erected to keep out any serious competition. They have built formidable digital banking ecosystems for China, but it is unclear whether the platforms can be successful globally. Chinese fintechs know that they will struggle to penetrate the banking systems of rich countries, so they have pinned their hopes on emerging markets.

Tencent may fear that the Libra ecosystem could ultimately supplant its own, or Alibaba's, in places like South Asia and Africa, where there are lots of Facebook users but underdeveloped financial systems. Facebook has much greater reach in those countries than WeChat.

This problem is not confined to Libra. When WhatsApp Pay launches in India later this year, it will have to access to WhatsApp's 400 million Indian users. In contrast, no Chinese social media platform has a strong presence in India. There's no easy way in for Chinese fintechs.

Ultimately, Chinese fintechs will need to better innovate - and adapt their platforms for international markets - if they hope to compete with companies that have had a global strategy from the beginning.