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Is SMS the next frontier for consumer finance?

China’s Microfountain is helping banks reach consumers via mobile without relying on WeChat.

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A Chinese tech company is helping financial institutions and other enterprises get around the headaches of reaching customers via superapps – but while also trying to dodge telco company restrictions on using their airtime for commercial purposes.

In China, banks, insurers, brokers and asset managers seeking to engage with Chinese individuals have to go through WeChat. The cost is more than just monetary, because its operator, Tencent, keeps the user data, denying business account owners meaningful insight into user behavior.

Companies put up with this because WeChat is now ubiquitous in mainland China and among Chinese people overseas: the service claims 1.15 billion users as of September 2019. In other Asian markets a similar picture is emerging, with messaging apps and ride-hailing apps vying for WeChat-like dominance.

For consumers, this means convenience: these superapps aggregate all kinds of digital services and experiences. But for enterprises, the cost of customer acquisition is high: it’s hard to stand out in these ecosystems. Banks and insurers want people to use their own apps, but success stories are rare.

Channel SMS

What to do? One technology company in China is helping enterprises get around WeChat by making SMS more interesting – or more intrusive, depending on your point of view.

Microfountain is based in Zhuhai, Guangdong. Founded in 2011 by Ryan Duan Yuluo, its technology integrates with mobile phone handsets to jazz up text messages, turning the staid SMS into an engagement tool.

“SMS” stands for short-message service and is a standard component among mobile-device systems. Although it can be used for peer-to-peer communications, SMS has been rendered obsolete as a social consumer tool by the rise of WeChat and other instant-messaging apps.

SMS is linked to people’s phone number

Han Cheng, Microfountain

SMS, which is sent via cellular networks (not wifi or the internet) is now used for billing statements, bank notifications, government alerts and other non-fun stuff. It is usually limited to 160 characters.

Another version is the MSS, or multi-media messaging service, which allows images as well as audio or video files, but carriers tend to limit the size they will allow.

Jazz it up

“People think SMS is out of date,” said Han Cheng, bank industry team leader at Microfountain, speaking at a conference in Shenzhen in January. “But it’s linked to people’s phone number.”

Both SMS and MSS usage cuts into consumers’ data allowances – but in the U.S., carriers throw these services in for free or at very low cost, which is why texting remains popular in America, and it’s big business for communication-services firms like Twilio. Outside of the U.S., however, mobile operators charge for texts, which is one reason why WeChat, WhatsApp and other platforms became ubiquitous.

But superapp saturation means enterprises are looking for other ways to reach consumers directly – which includes reconsidering the humble SMS. Ironically it’s some of China’s most tech-savvy institutions that are trying this: Han says WeBank (which is owned by Tencent) and Ping An Bank are among Microfountain’s clients.

Companies can reach consumers via SMS without requiring them to install an app. Microfountain’s service, called BizPort, enables companies to brighten their text messages with corporate logos, personalized offerings or services, “fast apps” that can be run directly from the text message, and call-center outreach on top.

So instead of a bank just notifying a customer via SMS of a transaction it recorded, it can suggest a loan or a credit-card deal on top. Larger transactions might spark a wealth-management product push.

Algo war

If customer acquisition costs through messaging platforms are rising, so too are the costs of reaching consumers via SMS. This is where the service gets controversial: telecom operators actively try to squash companies using their platforms to send commercial SMS messages.

“Message interception is a headache,” Han said. Microfountain is locked in an algo war with telecom operators, which may treat these messages as spam. It has developed tools to measure the likelihood of success of a given corporate message making it through to enough phones. It is now handling about 20 million messages a month, of which some percentage (sometimes more than 50%) will get intercepted, and another percentage will go ignored by users.

Telcos may be adversaries, but Microfountain works with handset makers to embed its technology in Android handsets. It claims to have its software included in 62% of Android smartphones delivered in China, including those from Huawei and Samsung, among others. In addition, it uses A.I. tools to generate metadata from those devices that goes to honing its texting services.

This highlights another potential problem with this kind of business. Some consumers might like it, but others might groan at the prospect of being bombarded by text message, particularly if they can’t opt out. People know how to deactivate an app or turn off its notifications. How do you turn off the SMS function embedded in your phone?

It is not clear whether SMS is just the natural next evolution of mobile-based financial services in Asia, or if it’s ripe for a regulatory crackdown. But financial institutions seeking to reach consumers – and to track trends in China – should keep an eye on how this plays out.

Microfountain received a $50 million series C round of funding in 2018 led by Gopher Assets, the investment arm of Noah Group; JD Finance; and Zhuhai Technology Innovation Venture. Earlier backers include IDG Capital, VIP.com, Chengwei Capital, Milestone Venture Capital, and Singapore’s CAC Capital.

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Is SMS the next frontier for consumer finance?