Platinum co-founder Andrew Clifford says that China, with its $7.2 trillion mobile payments market, is on the way to beating the West to become a cashless society, as behemoths like Alipay make money from selling data rather than charging fees.
In a note to shareholders, Mr Clifford said that the almost ubiquitous nature of cashless payments in Chinese society is "once again an interesting example of how China has bypassed the developed world's approach and may well be moving to cashless faster than the West".
E-commerce platform Alibaba's electronic wallet Alipay has become the "essential way" of settling transactions in China, as there is not the "deep network of credit card and Eftpos terminals".
"The best news for merchants is that no fees are charged, making the system very attractive. What we were continually told by locals is that there is simply no longer a need to carry cash, ATM or credit cards, as everyone from the street vendor of snacks to taxis and organised retailers accept Alipay," Mr Clifford said after a recent visit.
Going cashless
A rapid shift in consumer behaviour has made China, the first country to introduce paper money during the 11th century, the largest mobile payments market in the world. Transactions tripled to 38 trillion yuan ($7.2 trillion) last year, according to consulting firm iResearch.
Alipay says that it has 450 million active users and an annual transaction value of $US3 trillion ($4 trillion).
In March, Australian Securities and Investments Commission chairman Greg Medcraft said that the prospect of Amazon or China's WeChat expanding "strikes fear into the heart of the banks".
"I think they're [Amazon and WeChat] coming ... Amazon might buy one of the banks, who knows?" Mr Medcraft said.
Data for sale
But Mr Clifford, who is also Platinum's chief investment officer, said that Alipay is not making its money from transaction fees but instead by selling credit rating data to third parties that include managed funds and insurers.
In one example, a company that provides small sub $200 loans for monthly periods to students is having great success, with a nominal number of non-performing loans.
"The key lending criteria are based on credit rating data provided by Alipay, which of course has quite a rich pool of data on the applicant's payment history," Mr Clifford said.
"If the Alipay model were replicated in developed markets, the implications for credit card issuers and merchant acquirers as well as others who make a living off the payment system could be quite dramatic."
Mr Clifford predicted that many will try and emulate this model.
Visions of China
In March this year Mr Clifford, who manages 40 per cent of Platinum's flagship International Fund, visited China and met with a range of unlisted companies, including internet-based finance companies.
"This type of schedule differs from our usual meetings with management of listed companies, but over the years we have found that these trips provide a different perspective on China," he said.
"As such, they can offer valuable insights on what is always a rapidly changing landscape."
In recent times Platinum has battled outflows, sub-par investment returns and rising interest from short sellers, who have criticised the fund's thin sales and distribution team, which left it vulnerable to further outflows if its funds underperformed.
Streamlined approach
But in its latest quarterly report, for the three months ended March 31, Platinum overhauled the way that it communicates with its shareholders by streamlining to "make more pertinent material more accessible to investors".
For the Platinum International Fund, which is 50 per cent managed by one of Australia's best-known investors, Kerr Neilson, improving economic news saw the fund achieve 3.5 per cent for the quarter, an outperformance of 2 per cent.
However, according to the report this still trails for the year with 14.3 per cent versus 16 per cent by the MSCI AC World Index.
"As we constantly remind investors, our aim is to achieve strong positive returns over time and, to do this, we meld fundamental research with quantitative modelling," Mr Neilson, Mr Clifford and third portfolio manager Clay Smolinski said in the report.
"It is by this method that we have arrived at a disposition of the portfolio which is completely different to that of the MSCI Index, with a heavy weighting in Asia and a low weighting in the US."
