The new financial story hidden in Tencent's financial report|Titanium Media Finance

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The progress of specific financial businesses has disappeared from Tencent's financial report for a long time, but in the just-released quarterly report and 2023 annual report, finance-related businesses have occasionally appeared, which is worth paying attention to.

The first quarterly report pointed out that "wealth management service revenue growth is strong":

Wealth management services revenue grew strongly, benefiting from the distribution of low-risk money market funds, and the number of users and per capita investment scale of wealth management business achieved rapid growth. Based on the contribution of financial services with high gross profit margin and technical service fees from Channels merchants, the gross profit margin of financial technology and enterprise services increased year-on-year.

The annual report mentions the consumer loan business for the first time, "the growth of high-margin products with financial technology services, and the growth of consumer loan services":

Gross profit for the year ended December 31, 2023 increased by 38% year-on-year to RMB80.6 billion, and gross profit margin improved to 40% from 33% last year. The increase in gross profit margin was mainly attributable to the increase in gross profit margin after the restructuring of the cloud business, the increase in the revenue from the technical service fee of video account delivery with a high gross margin, the increase in the commercialization of other business services, and the increase in the revenue of high-margin products of financial technology services.

In the fourth quarter of 2023, fintech and corporate services revenue increased by 15% year-on-year to RMB54.4 billion. Fintech services revenue maintained double-digit growth, mainly due to higher commercial payment activity and growth in wealth management and consumer loan services. Enterprise service revenue increased by approximately 20% year-on-year, mainly due to the increase in service fees for Channels delivery technology and the steady growth of cloud service revenue.

Charting: Titanium Media, source: Tencent financial report

For a long time, Tencent has grouped the two businesses that are not very related to finance and enterprise services in its financial reports, and the specific financial business performance can be invisible, but through the comparison of historical performance and the statements of senior executives, several signals can be sorted out:

In Q1, the growth of payment business slowed down, and offline consumption decreased

According to the first quarter report, the revenue of financial technology and enterprise services business was 52.3 billion yuan, a year-on-year increase of 7%. Revenue grew by a single-digit percentage year-over-year, mainly due to slower growth in offline consumer spending and lower cash withdrawal revenue.

Tencent President Martin Lau said at the earnings conference that the slowdown in fintech business growth is mainly caused by the reduction in offline consumption, which is a common phenomenon, and the government is implementing a number of stimulus measures to revive the economy and consumer confidence. This trend is expected to reverse as government stimulus measures are implemented.

Similar to other third-party payment institutions, Tencent's payment business income can be mainly divided into several large parts, from the central bank to pay reserve interest and commercial payment fee income, in addition to the change withdrawal fee needs to be delivered to the bank, there is income but it is difficult to form profits. The central bank's latest monetary authority balance sheet shows that the size of "non-financial institution deposits", which reflects reserve deposits, changed little in the first quarter, and the market for paying interest on reserves was basically stable. According to a rough estimate of market share, Tencent's interest on the reserve fund is about two or three billion yuan.

Commercial payment revenue accounts for the absolute majority - the rate of third-party payment platforms such as WeChat and Alipay for merchants usually fluctuates between 3.8‰-6‰, but the scale is unknown.

Considering that WeChat Pay and Alipay have taken a dominant position, the GMV of mobile payment is also basically saturated. In these contexts, on the one hand, the changes in WeChat Pay revenue can intuitively reflect the development level of mass consumption; On the other hand, if WeChat Pay wants to increase revenue, it also depends on the increase in rates.

In addition, in order to encourage foreign card payment, Alipay and WeChat Pay both stated that they would bear part of the handling fees in the first quarter: for foreign bank card transactions with a single transaction amount of 200 yuan or less, the user transaction fee will be waived and borne by their respective platforms; When the amount of a single transaction is greater than 200 yuan, the user shall bear 3% of the handling fee, which will be collected by the platform. The move would also sacrifice some of the revenue performance of the payment business, but Tencent's financial report did not mention it.

Wealth management service revenue growth is strong, but services need to be improved

The first quarterly report mentioned that the growth of wealth management service revenue was strong. Benefiting from the distribution of low-risk money market funds, the number of users and the per capita investment scale of wealth management business have achieved rapid growth. The annual report also mentioned that the double-digit growth in fintech service revenue was due to the growth of wealth management services.

Although it is a "wealth management service", due to regulatory requirements, Internet platforms such as Tencent cannot directly sell bank wealth management products, and the products they sell mainly include funds (money market funds, bond funds, equity funds) and insurance products.

However, because the distribution fee rate of money market funds is extremely low, or even often zero, compared with other financial products, the growth of its scale will not help income.

Regarding the amount of assets held by Wealth Management Connect, Tencent's financial report has not been mentioned for a long time. According to the 2018 annual report, the customer assets managed by Wealth Management Connect exceeded 600 billion yuan, and the number of users exceeded 100 million. According to the 2019 annual report, the asset holdings of wealth management platform Wealth Management Connect increased by more than 50% year-on-year, while the number of customers more than doubled year-on-year. Since then, no specific growth rate or ownership data has been disclosed.

According to data from the Asset Management Association of China, as of the fourth quarter of 2023, Teng'an Fund Sales (Shenzhen) Co., Ltd., a subsidiary of Tencent, has a holding scale of 75.2 billion yuan in equity + mixed public funds and 220.2 billion yuan in non-money market public funds. For reference, the data of Ant (Hangzhou) Fund Sales Co., Ltd. are 459.2 billion yuan and 1,272.3 billion yuan respectively.

On the call, Martin Lau also answered questions about wealth management services. He mentioned that money market funds will be provided mainly through cooperation with fund management companies, and more fund management companies will be cooperated to provide high-quality wealth management products and services. He also mentioned that although the decrease in payment withdrawals has reduced payment revenue, the trend of customers depositing money in the base is increasing, which is good for the development of the wealth management business.

An executive of an insurance company told Titanium Media App, "Wealth management and insurance are both in-depth service-oriented products, and investors are very concerned about falling and rising a little, and they need to pay great attention to back-end services." At this point, Tencent needs to improve. ”

The scale of consumer loans is a mystery

In its 2023 annual report, Tencent mentioned the consumer loan business for the first time, stating that "the revenue of fintech services maintained double-digit growth, mainly due to the increase in commercial payment activities and the growth of wealth management services and consumer loan services." ”

Tencent's consumer loan products mainly include split payments and installments, but they are very restrained and cautious.

As early as the beginning of 2020, the "split payment" function appeared on WeChat for some users. This function is located in the WeChat wallet, and users can use split payment to pay first and then pay in installments when using WeChat Pay.

According to the customer service information, split payment is a payment method used on WeChat to consume first and then pay, just like other similar personal consumption loan products. In the process of opening WeChat split payment and consumption, users do not need to apply for installments in advance, and can directly choose installments when paying. According to the screenshot provided by a netizen at the time, the daily interest rate of the split payment was 0.04%, and the annualized interest rate of the split was estimated to be about 14%.

However, after four years of development, the distribution has still not been rolled out on a large scale, and there is almost no public information. In September 2023, Tencent launched a grayscale test of the "installment" of consumer financial products. The "Installment" entrance is also set up in the WeChat wallet, which is provided by WeChat and related parties for customer acquisition and risk control screening, and the funds come from Tenpay small loans and cooperative financial institutions, which is a typical loan type product.

As of now, the size of lending to both is unknown. For reference, similar to Douyin, Tencent does not have a consumer gold license, and only has a Tenpay small loan. In January 2023, Tenpay Microfinance completed its fifth capital increase in three years, increasing to RMB10.526 billion. The current registered capital of Zhongrong Small Loan, a subsidiary of Douyin, is 19 billion yuan. Tenpay Small Loan is second only to Zhongrong Small Loan.

In January this year, the National Association of Financial Market Institutional Investors (NAFMII) disclosed that it had accepted the registration of ABNs with a limit of 5 billion yuan each for Tenpay and Meituan. Tenpay Small Loan also appears in the list of ABN initiators, and there is already a "2024 Phase I Cozy Directional Asset-backed Notes" in existence, with an issuance scale of 1 billion yuan.

In addition, Tencent's credit-related business not only installments and installments, but also reap shareholder profit sharing and fee income with the help of WeBank's "WeLoan", in which Tencent is a shareholder. WeBank's financial report mentions,

"Micro Loan" provides one-time credit and recycled pure online microcredit loans through Tencent Ecosystem's WeChat, mobile QQ and other apps. As of the end of 2023, Micro Loan has served more than 63 million borrowers, with an average of more than 950,000 loans issued per day during the year. The average loan amount of "micro loan" is 7,400 yuan.

Martin Lau said on the annual report call, "We can launch value-added financial information services, such as wealth management, loan services, and installment services, which are all high-profit and high-value-added services that we can provide in cooperation with licensed financial institutions." ”

He summed up the development philosophy of Tencent's fintech business as follows: "The first is to be fully compliant, and the second is to ensure that risks are managed in an absolutely high-quality manner. (This article was first published in Titanium Media APP, author | Cai Pengcheng, editor - Liu Yangxue)

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