Tencent says Libra would pose serious threat to WeChat Pay

October 24, 2019 14:16
Pony Ma's Tencent, which runs WeChat Pay, said Libra would most likely target payment systems in developing countries before entering developed markets. Photo: Bloomberg/Reuters

Chinese internet giant Tencent Holdings (00700.HK) said Facebook's proposed digital currency Libra would pose a serious threat to current digital payment systems such as its own WeChat Pay and Alibaba Holdings' Alipay.

In a blockchain whitepaper released this week, Tencent said Libra, if it is launched, will affect not only traditional financial institutions but also internet companies that have built up relatively mature payment ecosystems, particularly in their global expansion plans.

Since Facebook unveiled the Libra project in June, China has seen widespread interest in the cryptocurrency initiative. Within the first month of its announcement, China ranked first in the list of countries with the highest number of "googling" for the term "Libra", according to data from Google Trends. 

Sina Weibo, one of China's biggest social media network, has also recorded massive interest in Libra.

According to the Tencent whitepaper, Libra would make “a significant presence” in the global blockchain industry.

Initially, the project would be targeting payment systems in developing countries. "But, in fact, it’s a safe play resorting to the strategy of ‘encircling the cities from the rural areas’, in which Libra coin could quickly enter markets with underdeveloped financial infrastructure, especially those that do not have a credible local currency of their own, before it sets its foot in developed markets," Tencent said.

"If Libra successfully launches, it will undoubtedly significantly bring an impact on the global payment space, and the entire financial industry around the world. It will drive the industry's innovation and development in user experience, service cost, technology and business model, it will also lead to further industry reshuffle,” it said.

The whitepaper, however, did not provide clues on how Tencent will respond to the potential threat.

While China has banned cryptocurrency trading and initial coin offerings, it has also been encouraging the development of blockchain technologies.

But in the whitepaper, Tencent discussed the use of digital tokens in blockchain solutions: “For blockchain application, ‘token’ is often regarded to be a tradable, encrypted digital rights certificate, which can be used as a medium for value exchange. Physical and digital assets such as securities, bonus points for gift redemption scheme, tickets, among others, can be ‘tokenized’ and be transacted on blockchain.”

Tencent believes cryptocurrencies can make a significant contribution to the building of an ecosystem for blockchain applications, noting that such tokens can greatly reduce the cost of financing, research and development, community governance and user acquisition.

Blockchain startups and projects have been using cryptocurrencies to provide an incentive for users to use their platforms, and such tokens have seen sharp rises in value as a result.

Tencent agreed that tokens can incentivize users to engage in the ecosystem of blockchain platforms, but it also recognized that their proliferation has brought chaos in the market with lots of crypto projects simply aiming to rip off investors and speculators.

In order to ensure the healthy development of a blockchain project, the internet giant said one needs to consider the regulatory environment and how the crypto token can be designed based on the intrinsic value of the blockchain project.

Both WeChat and Alipay have said that they are not considering joining the Libra Association, which will be responsible for running the proposed cryptocurrency.

They have also take a firm stand against crypto exchanges using their payment services as a gateway for Chinese customers to exchange their fiat currencies for cryptocurrencies.

Meanwhile, China’s central bank has been working on its own national digital currency for the past few years.

Appearing before the US Congress on Wednesday, Facebook chief executive Mark Zuckerberg said Libra could serve as a counter to China's proposed digital currency, which he believes China will launch in the coming months.

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