For Chinese tech giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd. (00700.HK), Southeast Asian domestic helpers in Hong Kong may prove key to their global ambitions in financial services.
Both companies recently launched money-transfer services that allow Hong Kong-based workers from Indonesia and the Philippines to send money home cheaply and easily. The moves are a first step in going after a global remittance business that moves more than US$600 billion around the world annually.
But the initiatives are also part of the firms’ broader efforts to take their wildly successful WeChat Pay and Alipay mobile payment system overseas.
Southeast Asia, with a growing population of 600 million people who mostly lack bank accounts, is a strategic battleground for Asian tech behemoths and their US rivals.
Alibaba’s financial affiliate Ant Financial called its Hong Kong remittance initiative “a starting point and significant step in accelerating our pace to promote financial inclusion globally”.
Tencent’s WeChat Pay, which is ubiquitous in China but has struggled to gain traction abroad outside of Chinese tourist destinations, is more circumspect about the goals for its Hong Kong We Remit service, although a spokesman allowed it was open to “all possibilities”.
Sending money across borders, however, is harder than it looks. That helps explain why both companies are working with a Hong Kong-based financial technology start-up, EMQ, which has regulatory approvals and bank partnerships in place across Southeast Asia and elsewhere.
“We are the pipes and distribution for Tencent,” said EMQ chief executive Max Liu. He declined to comment on any relationship with Ant Financial, but three sources with knowledge of the matter told Reuters that Ant Financial is developing its own partnership with EMQ as part of a suite of new cross-border payment efforts. Ant Financial declined to comment.
The “pipes” are only part of the challenge. Reuters interviewed six Filipino and Indonesian domestic workers in Hong Kong who said it would take time to get their families to trust receiving remittances via their mobile phones.
Indeed, We Remit doesn’t currently link up to mobile phone wallets. Instead, recipients pick up funds at banks or pawnshops, just as they’ve traditionally done with services from market leaders Moneygram and Western Union.
For the senders, the new services can be a revelation. For years, the only way Filipino maid Rochelle Bumanglag could send money home was by spending her off days on Sunday waiting hours at banks and remittances shops in downtown Hong Kong.
“When I go to a bank, it’s a lot of queuing and a lot of hassle. WeChat, they always give us a good rate. It’s very convenient, very fast. I go to 7-11 and put money in my account,” the 42-year-old said.
Another big attraction: neither WeChat nor Alipay are charging fees, at least for now
“The WeChat rate is 6.80 pesos to the HKD (Hong Kong dollar), whereas the bank’s rate is 6.79 pesos plus a HK$25 (US$3.20) cable charge. It’s a big difference for us,” said Bumanglag, who sends about 10,000 pesos, or about HK$1,470, a month home.
Eventually, those new WeChat and Alipay users might be persuaded to use other services too, the companies hope.
Filipinos and Indonesian make up most of Hong Kong’s 370,000 domestic workers, according to government data. The two countries are among the world’s top recipients of money transfers: The Philippines received US$32.8 billion in remittances in 2017, while Indonesia had US$9 billion, according to the World Bank. Over US$16.9 billion in remittances flew through Hong Kong the same year.
Global remittances to low and middle-income countries alone are expected to reach US$485 billion in 2018.
The scale of the market helps explain why Alibaba sought to acquire Moneygram last year in a US$880 million deal that was ultimately scuttled by US regulators.
Together with US-based Western Union, Moneygram has long been a dominant player in a business that’s traditionally depended on large physical networks of local agents ranging from banks to convenience stores and pawnshops.
Those expensive networks, together with complicated compliance requirements and other technical and regulatory hurdles, have meant high fees, often for those who can least afford it. Reuters found that remittance fees in Hong Kong start at HK$15 and can range to as high as HK$200, with additional costs sometimes in embedded in unfavorable exchange rates.
For now, WeChat and Alipay are focused on gaining acceptance. WeChat became operational in Hong Kong last year, working with EMQ and other partners including popular Filipino pawnshop chains Cebuana and Palawan.
Ant Financial’s venture, launched through its Alipay HK affiliate and based on blockchain software, started moving money between Hong Kong and the Philippines in late June. Unlike We Remit, it allows real-time transfers between Alipay HK accounts and the Filipino mobile payments service Gcash, which Ant Financial partly owns and which is operated by telecommunications firm Globe Telecom.
Sources say the Hong Kong initiative isn’t Alipay’s only move in remittances. Job advertisements in September for Ant Financial’s Malaysia office listed remittances as a responsibility.
The firm has launched joint ventures in seven markets for local digital payments services, which operate independently under the partnerships’ brand names, including in Indonesia and Malaysia.
Analysts say that AlipayHK’s remittance tie-up with Gcash could be replicated in other markets.
“Ant Financial’s eventual aim is to create a global payment system for its consumers,” said Zennon Kapron, director of fintech consultancy Kapronasia.
“The first focus was following Chinese customers, the second was expanding merchant acceptance beyond typical tourist destinations, and the third is for local value wallets.”
Ant Financial raised US$14 billion in June, earmarked for its international expansion.
EMQ’s network shows where Tencent and Ant could be going. The company has regulatory approvals in Vietnam, Cambodia, India, Singapore, China and Japan, which would allow clients to quickly scale up their operations.
The startup is in the middle of expanding to the Middle East and has a partnership with Chinese financial technology startup QFPay, whose point-of-sale terminals are used by Alipay and WeChat Pay in the mainland.
Alibaba and Tencent face plenty of competition in remittances, not to mention the long list of technology and financial services companies that aim to compete more broadly in payments.
Moneygram head for Asia Yogesh Sangle told Reuters it would difficult for any company to equal Moneygram’s global network of partners across 200 countries.
And the incumbents have their own tech initiatives too: Moneygram started a partnership with Gcash in February, while WeChat Pay is working with Western Union on a service for Chinese students abroad. Reuters
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