WeBank registers strong profits as it expands financial ecosystem
WeBank, the digital-only bank subsidiary of Tencent, has emerged as an industry leader due to its scale, profitability and innovation
The digital banking race has been accelerating in line with a more supportive regulatory environment and sophistication of technology. Asian markets have gradually adopted digital banking licencing frameworks with an aim to boost market diversity and encourage healthy competition in the banking industry. Financial regulators in Australia, Hong Kong, China, India, Japan, South Korea, and Taiwan have all recently issued new licences. Singapore is still in the process of announcing the successful applicants. As new players enter the market, virtual banks need to exert more effort to scale and eventually achieve profitability.
This year, significant steps were taken to ensure that the Excellence awards programme remains the most rigorous, comprehensive and transparent of its kind for the financial services industry. The evaluation period was extended to take into consideration the disruptions caused by the COVID-19 pandemic and how banks are responding to it.
Among digital banks in Asia Pacific, WeBank emerged as a leading player in the region in terms of scale, profitability and execution of marketleading propositions.
Brand and digital users: dominance in digital banking space
Since its launch in 2014 as the first digital-only bank in China, WeBank has expanded its customer base to more than 200 million individual customers and 0.9 million small and micro businesses. The bank is estimated to add over three million users per month, while other players in the region are averaging around a hundred thousand.
Financial performance: net profit grew 60% in 2019
Profitability has been difficult to achieve for digital banks, given that players typically focus on expansion rather than profit by operating a no-fee model to compete with incumbent banks and build a customer base. On average, newly-established digital banks such as WeBank, MYbank and kakaobank turned their business from loss to profit-making in just two years. Meanwhile, first generation internet banks such as Jibun Bank and Rakuten Bank took more than four years to turn profitable.
Across Asia Pacific, WeBank posted the highest net profit in 2019, followed by Australia’s ING Bank and Japan’s Seven Bank. WeBank outperformed other digital banks by increasing its net profit by 60% to $565 million and achieving a return on equity (ROE) of 28.2% in 2019. The ROEs of digital banks XWBank and aiBank in China, Jibun Bank in Japan and kakaobank in South Korea were below 3%. Looking at net profit per user, however, ING Bank with 2.6 million customers generates around $117 per user while WeBank only makes $2.8 per user.
Ecosystems: utilising innovative technologies
A competitive advantage for digital banks backed by existing super apps such as WeBank (Tencent), MYbank (Alibaba) and kakaobank (Kakao) is a broad and highly interconnected ecosystem of global business and content platforms. By leveraging the scale of giants such as WeChat with 1.2 billion monthly active users (MAU), Alibaba with 654 million MAU, Kakao Talk with 45 million MAU, these banks can gain traction in various customer life scenarios and create value-added services.
WeBank connects a range of internet companies and financial institutions to jointly create an inclusive finance ecosystem enabled by digital and fintech capabilities. In 2017, the bank introduced a ‘collaborative business model’, a type of production relationship formed between multiple parties on the basis of mutual economic benefits and status among participants. In 2019, the bank continued to strengthen its FISCO BCOS programme, an open source platform leveraging blockchain technology that brings together thousands of community members and is one of the largest and most active locally developed open source ecosystems on a consortium blockchain. Currently, thousands of developers have joined the community while hundreds of organisations have adopted FISCO BCOS and designed various use cases.