https://www.afr.com/companies/finan...ncent-march-on-us-card-giants-20200504-p54pkz Afterpay swept up in Tencent march on US card giants James Eyers Senior Reporter May 4, 2020 – 5.31pm Afterpay shares closed 24 per cent higher on the back of Tencent's equity investment, as analysts suggested it could be swept up into China's ambition to take on the giants of the United States payments industry, Visa and Mastercard. The Afterpay deal will open up Tencent's footprint in western economies. Dominic Lorrimer After losing more than three-quarters of its value when COVID-19 struck, Afterpay is surging again, closing at $36.10 on Monday on the back of upgrades to price targets and earnings multiples pointing to its new opportunity to enter China and other Asian markets in partnership with Tencent. Both companies described their futures as intertwined on Friday, as China's fintech giants, Tencent and Ant Financial, look to expand abroad after pioneering mobile phone-based payments in China. The dominance of the global credit card giants, which have been prevented from competing for domestic Chinese customers, has made it hard for the Chinese companies to expand abroad, given the ubiquity of the card schemes in the west. But Afterpay now provides options for Tencent to connect its Chinese consumers with western retailers. “With western countries dominated by the Visa and MasterCard payment rails, organic global expansion for Tencent and AliPay is challenging. As such, we think Tencent is attracted to Afterpay's merchant and customer networks in Australia and the US, and the pace at which consumers are taking up buy now pay later offerings," said Tim Piper, an analyst at RBC Capital Markets. "Tencent may be able to leverage Afterpay's merchant networks in [Australia and the US], helping to enable the millions of Chinese transacting outside of China to use Tencent more widely in countries around the globe.” Both Afterpay and WeChat Pay, Tencent's payments service, use QR codes to facilitate transactions inside stores. Mr Piper also said the deal "could accelerate the adoption of mobile [point of sale] payments outside of China, which in many western countries remain in their infancy". Grant Halverson, CEO of Mclean Roche Consulting, said China is on a global "search and grab" for technology companies and has global aspirations for its Union Pay credit card, and for Alipay and WeChat Pay. "Having secured their local market without any competition, WeChat and AliPay now operate in 32 countries globally, setting up a battle with existing global networks, Visa, MasterCard, American Express, JCB, and Diners Club," he said. Mr Halverson said China's BAT stocks (Baidu, Alibaba, Tencent) are keen to match up against the US FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) and he says Baidu, Alibaba and Tencent have invested in 81 technology unicorns since 2015, with total investments of $US80 billion ($125 billion). Tencent Investments has been leading the charge, making 46 investments in global unicorns worth almost $US40 billion, including holdings in Tesla and Spotify. Afterpay is not the first Australian fintech to be backed by Tencent. It was a lead investor in Airwallex’s Series A fundraising, in May 2017, and has continued to participate in subsequent rounds, including its Series D round last month. Since the first investment, Airwallex has collaborated with Tencent to integrate its foreign exchange and payments capabilities with WeChat Pay, reducing FX costs on all overseas transactions for Chinese customers and increasing the speed of merchant settlements. "We are fortunate to have Tencent, one of the biggest Internet companies in the world, as a key investor and partner,” said Jack Zhang, CEO and co-founder of Airwallex. "Tencent has played an instrumental role in Airwallex’s growth and global expansion over the last few years. Our continued collaboration has provided many strategic avenues for us to learn from their extensive experience, and as a result, expand our product offerings to better serve our customers worldwide." Tencent recently launched a 'buy now, pay later' option in its app, known as Fen Fu, and its main competitor, Alipay, owned by Ant Financial, has a similar product known as Huabei. But the Chinese companies have both been looking for global expertise to improve their offerings. Tencent's 5 per cent stake in Afterpay comes after Ant Financial took a 1 per cent stake in Klarna in March. Bank of America Merrill Lynch head of research Sameer Chopra said while Afterpay's entry into China is not expected in the near-term, this was "now on the cards". He lifted his target price on Afterpay from $33 to $37 on Monday, suggesting that Afterpay could also seek to team up with other players in global e-commerce. "This stake could bring other fintech and ecommerce participants to consider a similar ownership and go-to-market partnership with Afterpay," Mr Chopra said. RBC's Mr Piper said it would have been very hard for Afterpay to enter China without a strategic partner, and by collaborating with Tencent, Afterpay may be able to tap into other new markets. "The likes of Tencent and Alipay have also invested in, and partnered with, other payments companies around the world in recent years, hence the Tencent partnership may accelerate expansion opportunities beyond just China," he said.