Despite its reputation as a financial center and focus on technology and innovation, Hong Kong has been criticized for its slow adoption of financial technology. The city, however, is working hard to catch up in this field.
For example, CK Hutchison Holdings Ltd. (00001.HK) and WeLab, a local fintech startup, jointly launched on Wednesday a consumer financing solution that will turn hundreds of CK Hutchison shops into loan application centers that will enable customers to borrow cash to buy their favorite gadgets.
Their collaboration will provide sales financing and consumer lending services for customers at the conglomerate’s 3 telecommunication service shops and Fortress electronic stores across Hong Kong. The services may be extended later to other CK Hutchison businesses in Mainland China, Indonesia and Europe.
The move marks an important step for CK Hutchison, which is now led by chairman Victor Li Tzar-kuoi, to enter the fast-growing fintech sector.
While CK Hutchison does not have equity interest in WeLab, its subsidiary TOM Group has been a WeLab investor since 2014. TOM currently holds a 6.76 percent stake in WeLab. Thus, it makes sense for CK Hutchison to forge a relationship with WeLab, and inject fintech into its retail operations.
Their collaboration comes at a time when smartphone makers are finding it hard to convince consumers to upgrade to their latest models. One hindrance is that Apple and Samsung fans, in particular, find the latest models too expensive. Apple’s iPhone XS and iPhone XS Max cost HK$8,599 to HK$12,499, while the price range for Samsung’s Galaxy Note 9 is from HK$7,698 to HK$9,798.
In the face of such high prices, phone buyers have little incentive to upgrade. Such a reluctance, in turn, is bound to affect the business performance of smartphone makers and telecom operators.
To overcome this trend, CK Hutchison’s mobile arm 3HK and WeLab jointly launched a “New Phone and Cash Plan”, which enables customers to subscribe to tariff plans for the latest smartphone models without having to make a prepayment upfront.
To join the plan, customers need to provide key personal information such as their residential address, monthly salary and Hong Kong ID for WeLab to conduct an online credit assessment.
Once the application is approved, the customers will immediately get a loan for the purchase of a smartphone with a service contract. They can then go to any 3Shop to activate the loan when they purchase the phone plus a service plan. Customers can also get extra cash if they are unable to use up the approved loan amount.
Fortress offers a similar loan plan and customers can get five times more MoneyBack points if their loan application is approved.
The clincher of the loan plan is that customers, once their loan application is approved, have to pay nothing to acquire a new iPhone or any other device. All payments will be part of the monthly installment plan.
Such a deal will greatly reduce the entry barrier for customers who want to upgrade but are put off by the price of the latest model they want to own.
Actually, the scheme is no different from the long-standing offers of mobile operators or retailers who offer credit-card installment plans.
However, the CK Hutchison and WeLab partnership has taken such initiative to the next level, thereby enabling the two firms to compete with credit-card issuers in the fast-growing and high-margin consumer financing business by leveraging on CK Hutchison’s huge customer base and WeLab’s fintech advantage.
Under the financing plan, customers are charged a monthly administrative fee equivalent to 0.8 percent of the total loan amount during the installment period. The longer the loan period, the higher the revenue generated from the administrative fees.
As such, CK Hutchison and WeLab will be able to secure a new revenue stream if the loan plan is well-received by customers.
WeLab, while headquartered in Hong Kong, is focusing on mainland China, which is understandable given its huge market. Thus, its partnership with CK Hutchison paves the way for the aggressive startup to expand overseas.
Its partnership with a venerable conglomerate will go a long way in bolstering WeLab’s valuation ahead of its planned initial public offering.
At the same time, the partnership will help enhance the reputation of Hong Kong as it marches on in the field of fintech.
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