Bottom line: Tencent’s inclusion in a national credit database initiative reflects the big commercial potential of WeChat, but a lawsuit over rumor spreading also highlights one of WeChat’s biggest liabilities.
Two stories in the news are showing how WeChat is likely to become the future big bread-winner for Internet giant Tencent (HKEx: 700), even as the wildly popular mobile messaging service poses tricky liability risks for its parent. The first headlines spotlights WeChat’s huge potential, with reports that the central bank has invited Tencent to take part in development of a new national credit database. The latter news isn’t quite so upbeat, with a Shenzhen-listed drugmaker suing Tencent for failing to stop the spread of rumors about its products over WeChat.
From the broader perspective, this pair of stories underscores how Tencent has been far more successful at monetizing WeChat than its closest rival, former social networking (SNS) high-flyer Sina Weibo (Nasdaq: WB). WeChat’s rapid evolution as a marketplace was undoubtedly a key element that prompted the central bank to ask Tencent to join its new national credit database initiative. Weibo also faces the same issues with the spreading of rumors, but again it seems that Hainan Honz Pharmaceutical (Shenzhen: 300086) has decided to focus its lawsuit on the more influential WeChat.
Let’s start with the credit database initiative, which has just been disclosed by the People’s Bank of China as part of a drive to build a credit-based society. (English article) Most western countries currently have numerous such credit databases, which allow banks, companies and landlords to quickly evaluate the reliability of the people they do business with. China has no such national database, and instead banks and businesses rely on local information or their own resources to make credit determinations, which is time consuming and provides an far less complete picture.
According to the latest reports, the central bank has asked the financial units of Tencent, Alibaba (Nasdaq: BABA) and 6 other companies to open consumer credit information businesses within the next 6 months. The choice of Alibaba isn’t surprising, since it already collects huge volumes of relevant financial information via its massive e-commerce platforms where billions of dollars change hands daily.
Tencent also handles large volumes of money via its various services, though the central bank’s decision in this case looks squarely aimed at the growing potential of WeChat as a major Internet marketplace. This latest win for Tencent’s financial arm comes the same week it formally launched its new private bank, WeBank, under another Beijing initiative to liberalize the lending sector. (previous post)
While its inclusion in the credit database marks a major victory, a sign of future headaches Tencent will face came in the form of the newly filed Hainan Honz lawsuit. Honz said it filed its suit in its home province of Hainan, after repeatedly seeing false rumors about its products being spread over WeChat. (Chinese article) The case has the potential to be ground-breaking, as it’s one of the first to test a 2-year-old law requiring network gatekeepers like telcos and SNS operators to police their sites for false rumors and quickly delete such talk when it emerges. (previous post)
Many people will be watching this case closely, since it could determine what kind of liability Tencent and other SNS operators will face from the false rumors that are a regular feature on their services. I expect that Honz will probably win the case, since it presumably has ample evidence of the false rumors that it believes were sent over WeChat. If that occurs, we could see a flood of similar lawsuits from other companies with similar grievances, providing headaches for Tencent and other Internet companies, even though damage amounts are likely to be small.
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