Earlier in January, a user reported that Meituan [0369:HK] requested her to return borrowed money, though she had never applied for any loans on the platform. After contacting Meituan’s customer service several times, the user was informed that the unsolicited loan, called Meituan Monthly Payment, resulted from clicking on a pop-up notification when she paid for other services on the platform, including food delivery, online shopping, and hotel booking. Apart from this user, many consumers also found they unknowingly accepted such microloan services after using Meituan’s bike-sharing and ride-hailing services. Following that, Xinhuanet [603888:CH] criticized Meituan for infringing on customers’ basic rights.
Meituan Monthly Payment, also known as Meituan Yuefu (美团月付), launched in May 2020. It is a credit service enabling users to buy instantly and pay later. It allows up to RMB1,000 in interest-free loans for at most 38 days. When at maturity, users can choose to pay immediately, postpone the repayment, or repay the loan in installments for up to 12 months. For the latter two choices, the overdue interest of Meituan Monthly Payment is 0.05% per day, or 18.25% annually. According to Eastmoney [300059:CH], data shows that consumers who use the monthly payment service place 20% more orders and spend 15% more per order on average than other users.
Meituan began its internet finance business in 2015. During the COVID-19 pandemic, its 1Q20 financials saw a boost, with its revenue increasing by 4.9% YoY to RMB4.2bn. This was mainly attributed to newer initiatives such as its microloans business, as well as Meituan Grocery (美团买菜), Meituan Instashopping (美团闪购).
China’s Tech Giants Allocate more Resources towards Offering Financial Services
As the growth rates of their core businesses slow, Chinese technology companies are eyeing financial services, especially consumer loans, to generate more revenue and profit. E-commerce platform and online retailer JD.com [JD:US] established JD Finance, while ride-hailing company Didi Chuxing also owns DiDi Financial Services. Other participants and their products include Xiaomi’s [1810:HK] Xiaomi Finance, Qihoo 360 Technology’s [601360:CH] 360 Jiedai, Baidu [BIDU:US] ’s Du Xiaoman Financial. These tech firms intend to replicate the success of Ant Group and Tencent Holding [0700:HK], known for their third-party payment platforms, Alipay and WeChat Pay respectively. According to PingWest, when making payments, Alipay and WeChat Pay are still the first choice for the majority of consumers, jointly making up 90% of market share for online payments. The two have promoted their own consumer loan services, creating a challenging situation for laggards in the market.
The reason that other tech giants are vying to offer financial services lies in two parts: on the one hand, the companies seek to cut costs. As Tencent and Alibaba hold such high market share, most companies need to offer Alipay and Wechat Pay as payment options on their platform. Doing so requires paying Tencent and Alibaba usage fees. Secondly, user data is a valuable asset, where tech giants can then advertise value-added services and target users with more offerings, such as consumer loans.
Regulation Creates Headwinds in the Financial Services Field
To avoid systematic financial risk and increasing consumer debts, Chinese regulators are now tightening supervision over financial services offered under tech firms. Before starting a financial services business, tech companies must obtain related licenses from local financial regulatory bureaus. Late in 2020, PBoC and CBIRC jointly issued a notice to regulate commercial banks’ businesses through internet finance platforms. Since then, tech firms have begun to remove their online financial products, including personal deposits, loans, and insurance products. On January 17, Meituan announced it was shutting down its online healthcare mutual aid program on January 31. The program, previously considered an innovation, now faces legal risks and scrutiny for its lack of licenses.
With intense competition and tight regulation, tech giants are facing headwinds from multiple directions. Meanwhile, data privacy has also been a rising concern. In August 2019, media exposed financial service apps of excessively collecting users’ personal information and abusing user privacy. Examples include disclosing user contracts and locations and even collecting audio records of users.
To make headway in the competitive financial services sector among tech giants, gaining clients has become a key goal for companies. Some companies began to use irresponsible methods to gain clients. In December 2020, JD finance received huge criticism for advertisement on Douyin, inducing users unable to make debt payments to apply for loans. In August 2018, a rental platform misled a tenant to sign a loan contract rather than a rental agreement.
Financial Tech Giants are Required to Shoulder Responsibility to Customers
Legally speaking, customers have the right to know and to choose. One of China’s e-commerce laws stipulates that when e-commerce platforms provide information about goods and services, they should clearly stipulate the information, rather than cover it up. Moreover, such agreements should not be considered as a default option. On Sina’s consumer services platform for Meituan’s monthly payments, there are more than 2,000 complaints as of January 2021. Earlier, in October 2020, five months after the service went online, an individual complained that Meituan opened its monthly payment service without the user’s permission. Among the complaints, most are regarding the fact that notification to use the service is not obvious enough. Also, Meituan Monthly Payment is the priority payment option on the check-out menu, while other payment methods are displayed under a folding menu. Users thus can unintentionally select an undesired payment option.
As to the sustainability of such businesses, misleading measures will negatively impact these enterprises. Trust is core to customer relationships. A foreign research NGO, BAI, found in its 2020 survey that 97% of millennials read online reviews before they selected a company to do business with. Moreover, 75% of those born between 1981 and 1996 confessed that they would switch to a better app. These trends indicate that what is said about a company online can directly impact whether a potential customer ever reaches out to it.
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