Banking & Payments
Three massive trends from this year’s Singles Day
Kung Fu Data’s Josh Gardner explains what financiers should know from China’s e-commerce extravaganzas.
E-commerce is one of the biggest drivers in payments and consumer banking, especially in Asia. Alibaba and Tencent have created the model combining payments with a gigantic, all-encompassing ecosystem in which financial services is a necessary but rather small player.
The ultimate expression of these business models are one-day online shopping festivals organized by Alibaba and by JD.com (which is owned by Tencent).
Alibaba’s “Singles Day” on November 11 created turnover of about Rmb500 billion ($76 billion) in gross merchandise value across its various shopping platforms, including Tmall, Tmall Global and Taobao. JD.com racked up another Rmb270 billion ($41 billion) over the same period.
Together the $117 billion roughly doubled the amount the two companies announced from the previous year.
Josh Gardner is CEO of Kung Fu Data, which helps Western brands succeed in China’s online marketplaces. He spoke with Hong Kong marketing impresario Napoleon Biggs on Wednesday, November 25 about what’s happening. DigFin selected three points he made that are relevant to the financial world.
Trend 1: Chinese consumers are so post COVID
Can we decipher any clues about COVID-19’s impact on Chinese activity through Singles Day?
Yes. First of all, Singles Day is one of several giant e-commerce holidays in China. The second biggest is 6:18 (June 18th), which is sponsored by JD.com and usually registers only half the turnover as Singles Day.
This year, however, Alibaba saw bigger turnover on 6:18. By June, China had come out of pandemic lockdown, and 6:18 benefited from “revenge spending”, as Gardner put it. Alibaba clocked about Rmb700 billion of turnover from the June event as people splurged.
By November, on the other hand, consumers acted strategically, waiting for discounts on things they already knew they wanted, with little impulse buying.
This year Alibaba also pursued a different strategy: instead of one giant sales day, it started discounts on November 1, using the early days to push emerging brands. Gardner says the way they structured promotions was confusing and may have dampened some buying.
Foreign brands also struggled to meet local demand: the West is still grappling with COVID, with problems around supply chains and financing, and some companies failed to get their inventory ready for China.
Gardner says they won’t make the same mistake next year, and are already planning for a big Chinese consumer spend in 2021.
Add it up, and Singles Day’s performance should be taken as good news, especially for Alibaba.
Trend 2: Never mind Ant…Alibaba & Tencent still rule business
The government’s undermining of Ant Group’s IPO has cast a shadow over large-scale fintech in China. But the lesson from Singles Day is that the Alibaba-Tencent duopoly is entrenched. Beijing can crack down on fintech business models but, unless it takes direct and meaningful action, this won’t impact the underlying power of these two tech platforms.
Although there is a proliferation of digital ecosystems, ultimately everything funnels through a business owned by Alibaba or Tencent. Gardner does not think third-party rivals like Pinduoduo pose a serious challenge. Nor will even the biggest brands succeed in diverting customers into their own apps or digital funnels. (This goes for banks too.)
- Read more:
- For corporate banks, e-commerce is the prize
- Ant’s debacle and the fate of platform finance
- Half of Invesco’s China sales now via digital
“Alibaba and JD.com own all the infrastructure for trust,” Gardener said. There’s no risk to consumers from buying on their platform, even if it means some extra hassle navigating through a superapp. Platforms assume the risk of delivery, guaranteeing goods, and providing an incredible degree of transparency on pricing – so much so that retailers have to give customers bespoke, white-glove service direct from their factory.
Alibaba and Tencent therefore own the warehouses, the distribution, the payments – and the trust.
This translates into a vast data advantage. The internet giants will sell it, but Gardner says few companies know how to make use of it. Meanwhile Alibaba’s algorithms are starting to not just provide insight, but predictions. This remains experimental but select customers ended up receiving goods they didn’t order but that Ali’s algos thought they’d want at short notice. A harbinger of 2021?
Trend 3: China’s gone from cashless to touchless (so Beijing’s digital yuan won’t have much impact)
Gardner says China has already gone past becoming a cashless society. Now it is becoming a touchless one, in which people can consume online or offline without having to physically handle payments or goods. Brands are integrating with Alibaba and JD.com online and offline so that inventory and buying is handled seamlessly. This cutting-edge system is fragmented and experimental, but real, Gardner says.
Because of the trust and the incredibly high level of service these platforms provide, Gardner doesn’t expect China’s creation of a digital yuan (its DCEP project) to have an impact. Unless the government intervenes in a direct and forceful manner, the superapps will continue to control commerce, because they make it so convenient.
Alibaba and JD.com own all the infrastructure for trustJosh Gardner, Kung Fu Data
Gardner says a digital currency is just a payment option that doesn’t improve the fundamental experience. “The superapp itself is the source of life,” he says, noting the ubiquity of AliPay and WeChat.
Indeed, the two internet companies continue to promote their own digital scrip in the form of reward points and gift vouchers. The government can mandate benefits and civil servant salaries use a digital yuan but Gardner doesn’t see why consumers would use it in an Alibaba or Tencent closed loop unless they absolutely had to.