Tencent Waves Off Impact of Revamp Into Financial Holding Firm

Tencent Holdings Ltd. expects “neutral” impact to its operations were it to fold its fintech business into a financial holding company, stressing it’s been compliant with regulations.

Tencent’s fintech operations haven’t been affected much by a slew of rules rolled out in past months that curbed everything from online lending to interest rates and customer age-limits, President Martin Lau said during a post-earnings press conference Wednesday.

China’s largest company faces more scrutiny of its fintech operations as regulators step up supervision of a fledgling but sprawling industry that could pose systemic risks. As one of the largest operators in the sector along with Jack Ma’s Ant Group Co., Tencent’s businesses face the same stringent measures that have dented Ant’s breakneck growth.

“Compliance is our lifeline,” Lau said, adding that Tencent “has exercised restraint when it comes to controlling the scale of its fintech operations.”

Bloomberg reported this month that regulators are considering asking the company to fold its fintech operations into a financial holding entity that could be regulated more like a bank.

Revenue from fintech and business services, which includes cloud computing, increased 26% to 128 billion yuan ($19.6 billion) in 2020, on the back of more revenue from commercial payments, wealth management and cloud services, the company said. It declined to break down the contribution from fintech separately.

Tencent’s quest to fold its fintech business into a financial holding company could be structurally more complicated than with Ant. Scattered across several business groups, Tencent’s payment business, wealth management, lending, insurance and banking services fall under the supervision of several units, unlike Ant which consolidates all of its fintech operations into a single entity.

Tencent’s payment business straddles two business units including WeChat, the ubiquitous instant messaging app, and the fintech unit that provides the back-end infrastructure under the leadership of the corporate development group. That group also oversees the wealth management business, mutual fund and money market fund investment options offered via WeChat.

The micro-lending business is operated by WeBank, in which Tencent owns a 30% stake. The service is provided via a banking license. Tencent provides technology to the lender to market the loans to its users.

While regulations are still under discussion, one of the possibilities the micro-lending business could face is to co-provide 30% of funding, which could increase capital requirements for the operation. “Any extra capital requirement will be shared with the other partners, so may not be too onerous for Tencent,” said Bloomberg Intelligence analyst Vey-Sern Ling.

Tencent management however said during last quarter’s earnings call that they didn’t expect new rules to affect the micro-loan business Weilidai because it was operating under a banking license. And the Tencent-backed insurance business WeSure operates as a standalone business, functioning only as a platform for selling insurance products. It doesn’t offer mutual health-care products like Ant’s Xianghubao.

©2021 Bloomberg L.P.

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