Hey, guess what? I just returned from a trip to Kangaroo Island in South Australia. You know that now because I just told you. Actually, it’s old news. Sorry about that.
My bank knew early last month when I paid for the flights and ferry trip. It also knows where I stayed, and that I hired a car. It all went down on my credit card.
You don’t care about my trip. But the bank does. Because that trip is all part of the data stream it can use to profile my spending habits, and what products and services it can try and sell me based on analysing them.
Other companies would pay for that information, too. For example, they might not waste advertising money on targeting me for a new jacket, knowing I don’t spend much on clothes. Breweries and booksellers would like their odds much better.
The same principle is true of you and everyone else with an account in Australia. Data is the new gold behind money, and the banks are sitting on a mountain of it.
Whether the banks can protect that mountain is the next question for the industry. As it stands now, that data currently belongs to the banks.
They don’t want to share the data, or that thought, because it’s quite obvious the data belongs to you and I — if you actually DO think about it. Then it becomes a question of recognising that in law.
That’s what the Brits are doing as we speak. Transaction and loan repayment data over there is moving to a new era of ‘open banking’. Competitors to the banks will be able to see the information they’ve collected.
The same proposal is before a parliamentary committee in Australia. In the UK now, control no longer belongs to the banks, but the customer. It’s a new asset.
This is also what makes giant Chinese firms Tencent and Alibaba so interesting to watch. They don’t get much of a mention in the Australian press. But these giants could run in the same way Amazon has. You keep thinking it can’t go higher, but it does.
Both of them have user bases measured in the hundreds of millions. They can then leverage the data that stems from that into other areas of their business. They can, and have, branched into areas as diverse as payments, media, travel and financial services.
Tencent and Alibaba
Look at the some of the numbers. Tencent runs WeChat, the messaging service in China with a staggering 800 million-plus users. Alibaba runs Taobao, a social commerce platform with 500 million users. Alibaba handles more transactions that eBay and Amazon combined, according to The Economist.
What’s interesting is how aggressively they’re going after market share in the financial system, all over the world. It goes back to the data it provides, as above.
Apparently, 200 million Chinese already have their credit card linked to a WeChat wallet. Alibaba has Ant Financial, which has 450 million customers, and offers services from online banking to investment products, and China’s first credit-scoring agency.
It can then leverage this into insurance. Alibaba will have the necessary data to evaluate the risk of its customers, to a degree possibly unparalleled in the history of the industry. This is a high-margin market that could pour rivers of cash into the business.
Then it’s a case of rinse and repeat. Ant Financial has invested into Thailand, Singapore, the Philippines and South Korea. It’s made an aggressive bid to get a foothold in the US. Alibaba and Ant have put US$900 million into India’s top online payment firm, Paytm.
Another potential idea behind this is the network effect. The more a network grows, the more valuable it becomes. And as they say in Top Gun, there are no points for second place. You are either on Facebook, or you aren’t. Nobody cares about any other platform.
What’s so fascinating is how much growth Tencent and Alibaba still offer despite being so enormous already.
We do have a problem with the conversation around China. In Australia, it’s almost within the context of what happens here if the Chinese economy crashes (the eternal bogey being from too much debt). I suggest it’s more fruitful if we start talking about the opportunities around China.
The Beijing government has made it quite clear it wants China to be a leader in the key technology sectors of the next 20 years. It has enormous resources it can invest to making sure this happens. We’d be mad not to pay attention.
That’s it from me for today, and also for my time at Port Phillip. It’s been a blast writing to you over the last five years. I’m moving on to a new challenge. I’m the new editor of the Daily Reckoning Australia. I’ll be writing over there from now on. I hope to see you over there. In the meantime, good luck for the rest of the year, and your bottom line.
Editor, Markets & Money