Sector Report

China leapfrogs the West: world’s largest ecosystem

by Elinor Leung / Sep 29, 2017

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China eFinance has leapfrogged the West to become the world’s largest market, with about 500m ePayment users, 400m investors buying wealth-management products online and 160m online borrowers. The country’s ePayment volume could quadruple, while online financing and wealth management could triple by 2021. Chinese eFinance company valuations could total US$250-330bn, 20-25% of the current banking sector.

We expect China ePayments to quadruple to Rmb300tn while eWealthmanagement AUM and eFinancing could triple to Rmb6.7tn and Rmb3.5tn by 1CL. High mobile internet and ecommerce penetration, and an underdeveloped traditional financial market will drive growth. CLSA proprietary consumer study shows millennials are already embracing eFinance.

China ePayment is by far the world’s largest, with Rmb79tn (US$11tn), 16 timesthat of the USA, driven by high smartphone adoption. The QR code is the secret of ePayment success. Alipay and Tenpay dominate ePayment with an 80% share, offering extensive use cases from retail stores to bike-sharing, driving China to a ashless society. Our cashless experience showed most merchants accept both lipay and WeChat Pay. WeChat Pay can be used more often as it is always on, while Alipay is popular among young people for membership points.

Chinese households have solid balance sheets, but most are weighted towards property and cash. Only 20% of assets are in financial products (versus 50% in the USA). Demand for wealth management (WM) has grown with household net worth and a rising middle class. A fragmented WM industry creates demand for one-stopshop platforms. Alibaba, Baidu, and Tencent (BAT) could break banks’ distribution dominance.