Retention and Monetization of a Super App

Chinese internet giant Tencent recently announced that it grew annual revenue by 48% in 2016 over the previous year, with most of that growth coming from its mobile payments service within the WeChat product.

For a mature company with already-widespread market penetration, this is a pretty major accomplishment.

Tencent’s earnings report says that the company saw over 600 million mobile payment MAUs on WeChat. Facebook is also getting into the messaging-plus-payments game, with its recently announced integration with TransferWise.

Today, we’ll look at how WeChat’s payments service alone has hit massive reach through platform-based network effects, and its impact on retention and monetization within the app.

Network Effects & Monetization

Facebook makes 95% of its revenue from advertising, but the figure is only 19% for Tencent, up significantly since that company’s recent investments in brand partnerships and other advertising features.

Despite those efforts, it’s not the core focus or money-maker for Tencent. Instead, the company earns most of its revenue from the broad category of “value-added services,” including games, digital music and media, virtual goods and payments, the layer that enables all those transactions (and many more offline ones too).

While messaging and payments may not have seemed like an obvious pairing to some of us, WeChat has driven massive adoption of payments by interweaving that feature into its core communications service in a few different ways.

1. Red envelope gifting overcomes initial friction

Money gifting between individuals leading up to Chinese New Year (as well as on January 1) is the most popular payment use case.

Red envelope gifting is a cultural norm with universal adoption in China. Because of the depth of this cultural “habit,” people may be willing to overcome a little extra friction -- linking up your bank account, for example -- in order to be able to say “Happy new year” to a remote relative or friend by sending them a little cash.

WeChat’s initial Chinese New Year promotion back in 2014 yielded 200 million bank accounts linked and $83M (USD) of money gifted in a single day. It’s grown since then -- during the 2017 Chinese New Year, over 14 billion transactions were sent on Chinese New Year’s eve alone.

2. Gated access to popular features to incentivize payments adoption

The Groups feature is a popular part of communicating with friends and interest communities on WeChat.

But, to join a group of over 100 people, users first have to link their bank account with WeChat.

Joining a friend or interest group and linking your bank account may seem like unrelated actions, but because WeChat has very wide “daily life functionality” coverage -- multiple touch points with a user’s daily routine -- they have a uniquely broad array of incentives to choose from.

3. Platform network effects via WeChat City Services

A major part of Tencent’s mission to its users is to make their lives “more convenient.”

To that end, WeChat City Services lets users book doctor appointments, view traffic camera feeds, pay their utilities bills, pay traffic fines, book trains, buses and hotels, monitor air quality, file police reports and many other “daily life in the city” tasks within the platform.

The retention loop might look something like this:

 More tasks -> more convenience -> more payments -> more tasks 

Retention (and monetization) for life

WeChat hooks users with messaging and from there seeks to become the utility layer facilitating all other human to human interaction. For many users in China, it’s the center where everything happens, and the service is even more “necessary” than Facebook is for US users.

Adding more service layers increases engagement while also driving up monetization potential. At the same time, monetization efforts also drive retention into other parts of the WeChat ecosystem.

For example, users get charged a fee when they move from their WeChat account to their bank account. encouraging people to retain more funds in their WeChat wallet, which reduces the spending friction for the array of service and ecommerce plays on the platform.

As Chinese mobile apps across the board are seeing increasingly alarming levels of churn, WeChat seems to be entering a golden age of growth -- and the two phenomena are related:

Imagine the dozen apps on your home screen all consolidated into one single super-app. All of their functionality bundled together into one seamless, integrated experience that you never need to leave. That’s WeChat.