Does the Chinese government want to curb the market share of WeChat Pay?

Written by Kapronasia || June 11 2024

China’s fintech crackdown has been going on in some form or another since 2017. First, the cryptocurrency industry was hobbled. Then peer-to-peer (P2P) lending was reined in and effectively eliminated. The third act in this play has been the forced restructuring of China’s fintech giants, who have been accused of monopolistic practices – which is not untrue – but whose greater offense has been getting a little too large for their own good. Thus far, Alipay has fared much worse than Tencent’s fintech business, but one wonders if the omnipresence of the WeChat app might be a growing risk for the Shenzhen-based company. According to a recent Nikkei Asia report, it already is. 

On May 31, Nikkei Asia reported that Chinese regulators had asked Tencent to lower the market share of its WeChat Pay app. The Japanese publication cited three anonymous sources in its report, who said that the directive is more focused on the market share for in-person payments made by scanning QR codes than for online shopping. As for whether Tencent was asked to hit specific targets, one source said, “WeChat is not targeting user expansion, and it is very cautious about the potential risks of growing too big.”

We believe it is a little late to focus on not growing too large. WeChat’s core business strategy has been to become the indispensable Chinese consumer app, more so than Alipay, which lacks the ubiquitous messaging function. It has been helped along by Beijing’s tendency to seal off the Chinese market from foreign tech competition. According to Statista, WeChat has a 37% market share in China’s massive payments market. While that is below Alipay’s 55%, it is nonetheless significant.

However, the Nikkei report offers a different perspective. One source told Nikkei that WeChat’s market share exceeds Alipay’s by a ratio of about 3:2. Because WeChat processes many small-value transactions, its overall transaction number might be larger too.

For its part, Tencent denies it has been asked by Chinese regulators to reduce WeChat’s market share and disputes the accuracy of the Nikkei report. The company says the report contains “rumors” that are untrue.

It is difficult to say who is telling the truth here. On the one hand, rumors like this do not usually appear out of thin air. If regulators have not yet asked Tencent to curb the market share of its payments app, they might be preparing to do so in the near future.

On the other, enforcement of such a directive could prove difficult. In fact, the Reserve Bank of India (RBI) keeps delaying the passage of its rule requiring that no third-party payments app has more than a 30% market share of the UPI payments rail in part because it has not figured out how the rule would be enforced. There is also the matter of disrupting consumer payments – which would happen in WeChat’s case too.

Nikkei notes that in 2021, the People’s Bank of China proposed draft rules that said any non-bank service provider with half of the mobile payment market share, or two entities with a combined two-thirds share, could be subject to antitrust investigations. But those detailed provisions were removed from the final version of the rule when it went into effect in May. Instead, it now says that any non-bank payment institution engaging in monopolistic practices will be subject to punishment, without defining what those practices are.

Ultimately, WeChat may be fined again, and/or subject to additional restructuring that could reduce its profitability. However, Beijing will also weigh the impact on the broader Chinese economy before taking any action. The most likely penalty would impose costs on WeChat without giving consumers and investors an additional reason to tread cautiously.