Here's why Tencent's peer-to-peer payments business could explode this year

BI Intelligence

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Chinese Internet giant Tencent is poised to have a breakout year with regard to its mobile payments business.

Reuters notes that the company's mobile payments business is thriving, but transaction fees are a problem.

Tencent's mobile messaging app, WeChat, had 697 million monthly active users in December 2015, up from 650 million in September. Those users can make peer-to-peer payments and can pay for cab rides, meals, movie tickets, and more right from the app.

In fact, more than 200 million WeChat accounts were tied to bank accounts or other payment information as of the third quarter 2015, reports the Wall Street Journal.

Furthermore, Reuters estimated that Tencent is on pace to process $556 billion in P2P payments in 2016, nearly twice PayPal's payment volume of $282 billion in 2015.

But the operation of a free mobile payments service is expensive for Tencent. The company said in its fourth quarter 2015 earnings that it must pay banks a fee worth 0.1% of the value of every P2P transaction, and those fees totaled $46.4 million in January. Reuters extrapolated this to estimate that Tencent's P2P transaction volume in January totaled $46 billion.

Those fees would cause problems for Tencent if it tried to monetize its mobile payments business, but that same business is so valuable to the company because it keeps WeChat users engaged and attracts new users to the service.

WeChat's expanding user base should, however, provide Tencent with some monetization possibilities. If more users are engaged with WeChat and make P2P payments on the app, then this could generate revenue and turn Tencent's mobile payments business profitable in due time.

The P2P space is getting more crowded as more players enter the field. Venmo is the household name in the U.S., but banks are getting in on the action, as well. So what will the future of P2P payments look like? Who will be the dominant forces?

John Heggestuen, managing research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report that explores the market for P2P payments, how they work, and the types of businesses that are offering these services and why. 

BI Intelligence

Here are some of the key takeaways from the report:

• We estimate that US annual peer-to-peer (P2P) payments — informal payments made from one person to another — reached over $540 billion in 2014. These payments were made by cash, check, digital money transfer, or other means.
• Mobile P2P payments are having a huge impact on this informal economy and diminishing the need for cash and checks. We forecast that mobile P2P payments will grow to $174 billion during the same period. That means that 30% of P2P volume will be paid via mobile, up from 1% last year.
• There are four types of businesses making major moves in mobile P2P payments: social messaging companies, banks, card networks, and other payment companies. Each of these types of companies has its own objectives and strengths in offering mobile P2P payment services which we explore in the report.

In full, the report:

• Forecasts the value of total and mobile P2P payments made in the United States through 2019.
• Explains the networks that P2P payments providers use to move value from one person to another.
• Analyzes why mobile P2P apps are seeing such a rapid uptake among millennials and other demographics.
• Explores the disparate objectives different companies hope to achieve by offering these services.

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The choice is yours. But however you decide to acquire this report, you’ve given yourself a powerful advantage in your understanding of P2P payments.