Summary

Michael focused on RedTech’s recent consumer finance survey that tracks the financial lives of 2,000 Chinese consumers. The results show that while Tencent’s WeChat is gaining in payments, Ant Group’s Alipay still dominates and its Huabei digital credit card is taking consumer lending by storm. Because credit is now the largest and fastest growing area of Ant Group’s business, Michael believes that the trajectory of Huabei will be a big determinant in the overall success of Ant. In RedTech’s survey, more than 53% of Alipay users currently use Huabei, and fully 33% choose it as their default payment method. That compares to just 2% of WeChat Pay users - most of whom choose cash in their e-wallet as their default payment method. Michael believes Ant’s leading position in the app-based credit market highlights two critical things about the firm: 1) Ant is best positioned to profit from a credit boom in China, especially among underserved, lower-income households; 2) Ant may be too confident in its ability to measure risk, with credit models that have never been tested in a deep and prolonged credit bust as seen in South Korea and Taiwan. To make this point, Michael says the RedTech survey shows Ant’s Huabei is as popular among lower income groups as it is among higher income groups, which is quite surprising. Michael says other warning signs include high leverage among lower income groups in the sample and that some borrowers in the survey believe they would be less impacted by a default on Alipay. Michael says these types of risk at Ant will be the subject of future research. As part of the call, Michael also described RedTech’s survey methodology, which involves talking to real stakeholders, such as consumers, merchants, advertisers, real estate agents, etc. In addition to online surveys, RedTech has a field network of more than 1000 researchers across tier 1-6 cities in China who conduct offline retail channel checks. In addition to these resources, Michael believes a key differentiator is RedTech’s 10-year track record in gathering and analysing primary data - his experienced team knows the right questions to ask and how to interpret the results. He also points to the fact that RedTech Advisors is not a sell-side equity research house but a market research firm, meaning they have greater flexibility to work closely with clients. RedTech’s surveys are just one part of its research deliverables focused on Chinese Internet and consumer companies.

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