Tencent is betting heavy on European fintech companies

In the last decade Chinese companies have rapidly grown to international players in foreign markets by leveraging the growth experienced in the huge domestic market, and by taking advantage of government policies, such as the Belt and Road Initiative, have pushed companies to go abroad.

For a long time the United States has been a natural destination of preference for Chinese investments for the efficiency and advancement of its financial market, technology and legal system, but since Donald Trump became president in late 2016, it has suddenly reduced investment opportunities and in some cases prevented Chinese companies from entering the market.

In this context, Chinese firms started to consider investing in countries or regions that are more open to foreign investments and the natural choice is the European Union market, considering the size and the long tradition of good political and commercial relations with China.

Tencent Holdings Limited, a Chinese multinational conglomerate founded in 1998, one of the three most important Chinese tech firms known as BAT (Baidu, Alibaba and Tencent) and one of the top companies around the world in terms of market capitalization, has been one of the most active entities towards the international growth by leveraging the huge popularity the company has in China with its messaging and payment app and gaming platform.

Tencent as been dominating the Chinese market of payments together with Alibaba and its push toward internationalization up to now has been made through the launch of WeChat Pay in international markets, given the popularity of the payment app among Chinese communities located almost everywhere in the world and the large number of Chinese travelers visiting other countries for business or pleasure.

What Tencent has understood is that in developed markets WeChat is not and probably cannot be as popular as it is in China due to the consumers’ preference for Apple and Google payment platforms or to the presence of local payment apps created by banks or fintech firms.

In this context, last month Tencent decided to make important moves by acquiring strategic stakes in promising French startups, including mobile payment app Lydia and challenger bank Qonto. According to Tencent’s business development strategy, the investments in the two startups represent a key to develop its fintech business in Europe through local rising stars.

Qonto is a French B2B challenger bank founded in 2016 focusing on small and medium-sized enterprises (SMEs) and freelancers in Europe. The startup last month raised 115 million U.S. dollars in a funding led by Tencent and DST Global together with existing investors Valar Ventures and Alven Capital Partners. It is expected that the funds will be used to grow in Italian, Spanish and German markets and to support Qonto’s business in an attempt to obtain a credit institution license.

Last month, a few days after the investment in Qonto, it was reported that Tencent had invested in another French fintech startup. Lydia is a payment app that has become hugely popular in France and aims to become more popular abroad with the 45 million U.S. dollars raised in a funding led by Tencent. Lydia is the French version of the mobile payment app that become popular in America which allows users to easily transfer money and make purchases at stores.

Tencent’s acquisitions of two French startups clearly represent an attempt to step in and grow in the lucrative European market by strategically acquiring startup companies with good potential of growth and by accessing their technologies and management expertise.

The investment of a successful payment app such as Lydia will serve as a platform to develop the fintech company by offering full digital banking services and by creating a financial hub within the app leveraging the successful experience of WeChat in China.

The investment in Qonto is even more strategic because the company is licensed in France and it can easily enter the European single financial market without the requirement to open offices or get a license from other EU/EEA member states. Moreover, Qonto already held a payment institution license and was predicted within this year to receive a credit institution license that would make of the startup a fully licensed European bank.

Tencent has not given up its natural desire to grow in international markets because of protectionist decisions in the United States and has instead turned its attention on the European Union, which is committed to build trading relations with China.

The investment in these two fintech companies, even though a local commitment, is going to grant Tencent access to the whole European market that consists of 27 countries, and the status of national champions by projecting China’s economic influence onto the international stage.

Matteo Giovannini is a finance professional at ICBC in Beijing and a member of the China Task Force at the Italian Ministry of Economic Development. The article reflects the author's views, and not necessarily those of CGTN.