Consumer Behaviour

Making money more mobile

By: Wang Fangqing

Chinese consumers can take advantage of phenomenally high interest rates — as long as they buy an Audi.

Specifically, the first 333 people who signed up to purchase an Audi A3 last month and had deposited Rmb10,000 (US$1,630) in the mobile mutual fund investment product, Li Cai Tong, received an interest rate of up to 158 per cent for two months — considerably higher than standard bank deposit rates. The fund was not a downpayment, nor could it be used as part of the purchase, but only those who bought the car could enjoy the high rate.

Shenzhen-based Tencent and Changchun-based FAW-Volkswagen Automotive, the producer of Audi vehicles in China, launched the campaign on 12 September in the first example of an auto brand cooperating with a mobile investment tool in China.

A similar collaboration is going on with Vanke, one of China’s largest real-estate developers, also based in Shenzhen. In this case, the Li Cai Tong deposit can be used as part of the downpayment if a customer decides to buy a property from one of Vanke’s selected three projects in Guangzhou. If not, the fund reverts back to the personal bank account along with interest, which is set 16 times higher than demand-deposits rates at most regular banks.

“We always look for innovative ways to collaborate with brands, hopefully in different industries,” a Tencent spokesman told Campaign Asia-Pacific.

The two promotions mark a new phase in financial service innovation in China, following the rapid rise of mobile-app-based financial products over the past year.

Since its launch in January, Li Cai Tong, which people buy into via Tencent’s popular WeChat app, has attracted 8 million users and has grown to command over Rmb100 billion. While most of Li Cai Tong’s products are funds, it has recently launched a one-month fixed-income product. Shenzhen-based Minsheng Royal Fund Management, a joint-venture between China Minsheng Banking and Royal Bank of Canada, manages the new bond fund for Tencent.

“We will continue to partner with different management companies to develop new products. The growing variety of smart devices also leaves us opportunities to develop innovative investment tools,” the Tencent spokesman explained.

Despite the billions involved, Tencent’s fund size pales in comparison to Yu’e Bao, a similar service set up by Alibaba Group, the ecommerce giant, which set records with its US$25 billion initial public offering on the New York Stock Exchange on 19 September.

Yu’e Bao was launched in June 2013. Tianjin-based Tianhong Asset Management, the lead firm involved, says it currently has over 124 million users and some Rmb574 billion under management.

Mobile is again the gateway and consumers can purchase Yu’e Bao through Alipay, the widely used online payment platform in China. But one thing making Yu’e Bao attractive beyond its interest rate, is it allows mutual transactions in between Alipay as well as user approved bankcards, whereas Li Cai Tong only allows bank cards.

“The mutual transaction enhances user stickiness to Alipay, which already is a major payment tool among the younger generation. That’s why even if Yu’e Bao’s interest rates are a little lower than its rivals, its users remain relatively stable. After all, it takes time-consuming registrations with a new tool,” says Wang Weidong, an analyst at iResearch.

But in general, Wang adds, users of these new investment tools are interest-rate-sensitive. Recent months have been less kind on Yu’e Bao and Li Cai Tong’s performance than the stellar returns they were able to offer when they first hit the market.

Yu’e Bao purchases dropped 23.6 per cent to Rmb710 billion in Q2 from Rmb930 billion in Q1 this year, with its seven-day interest rate losing more than two points from its peak of 7 per cent. At the time of going to press, the seven-day interest rate at Yu’e Bao had dropped to 4.14 per cent, compared with Li Cai Tong’s 4.72 per cent — both still well above standard bank rates available in China.

While Li Cai Tong prefers brand partnerships, Alipay likes to do business with retailers and service providers. In early September, it signed with Shenzhen-based Jieshun Science & Technology industry to offer an integrated service platform for car owners in China covering parking reservations, guidance and online payments.

In Shanghai, it has partnered with major convenient stores such as FamilyMart, G-Store and Alldays to promote barcode payments, which only requires consumers to open the app and show the cashier a barcode to scan.

“In general, Chinese third-party-payment platforms are more innovative than their Western counterparts, largely because payment processing is controlled by banks in the West,” says Florian Pihs, senior planning director at SapientNitro.

However, Pihs continues, many brands are currently not in a position to take full advantage of third-party payments as they do not control their sales channel, with the exception of retail companies such as Starbucks, KFC and McDonalds.

 

Rising NFC

Major retailers have yet to partner with Chinese third-party-payment providers, but they have begun introducing another mobile-based payment method. Near-field communication (NFC) compatible POS terminals such as Quick Pass (or Shan Fu, in Chinese) are becoming common sights in big cities such as Beijing and Shanghai.

NFC payments have recently become a buzzword again in the Chinese mobile-payment industry after Apple’s launch of iPhone 6 and iPhone 6 Plus, as each new phone has the technology built in. Although it remains unclear which Chinese bank or banks Apple would partner with, anticipation is mounting that the NFC system is finally ready to take off in China thanks to the iPhone’s following. “Popular smart devices like the iPhone are likely to push the adoption of NFC mobile payments, especially among retailers in first-tier cities,” says iResearch’s Wang.

China UnionPay, the nation’s debit-card network and provider of POS terminals, handles the Quick Pass terminals. These accept most Chinese bankcards, but only work with UnionPay-approved smartphones, such as HTC Desire C, Samsung Galaxy Note 3 and Note 4. Phone users need to download a UnionPay app in order to use the service.

“It definitely is an opportunity for phone makers and I think it’s the trend that many phone makers will partner with financial services through allowing the latter to pre-install the NFC-compatible apps on their phones. But it’s up to financial services to choose the phone with the No.1 NFC capability,” says Steve Laue, director banking, insurance and Finance at Millward Brown Hong Kong and Taiwan.

UnionPay also has partnered with China’s largest mobile network carrier China Mobile, which launched its own NFC payment service ‘He Bao’ in July. Users of the network’s phones can add their bankcard information to the app and make small payment transactions simply by tapping their phone against a Quick Pass terminal.

NFC debuted in China in 2006 via UnionPay, but the promotion has been a slow process due to the cost of turning traditional POS terminals into a NFC readers — approximately Rmb300 to Rmb500 for each. According to UnionPay, China has over 10 million POS terminals but only 3.6 million are NFC-compatible.

But Leo Chu, regional head of digital at Wieden+Kennedy, warns that the day of mobiles replacing cash completely is still some way off. “At the current stage I think only big brands will consider employing NFC readers. After all it’s a big  investment,” he says.