China’s Tencent Buys Stake in UK Digital Bank Monzo​

By BK​

What do you need to know this week?

Tencent, a Chinese social media, gaming and fintech giant with a market value of more than £296 billion, has taken a stake in Monzo, a UK-based digital lender. Tencent is the latest international investor to back a funding round worth £444 million. The news comes following serious concerns at the start of the pandemic over Monzo's ability to stay afloat.

Although Monzo’s revenue doubled last year, its annual profit losses widened last year as it faced a potential civil and criminal money laundering probe from the Financial Conduct Authority (FCA).

The Financial Times reports that Tencent, one of China’s biggest companies and most active tech investors, has built up a formidable global fintech portfolio. Tencent also holds major stakes in US tech companies such as Tesla and Snap Inc.

Why is this important for your interviews?

This move demonstrates two major trends in the commercial sphere.

Firstly, Tecent’s acquisition spree over the past year is an attempt to diversify its portfolio globally as Beijing tightens its grip on Chinese tech groups. As Beijing targets many of its core business areas such as gaming, Tencent has increased investments in overseas start-ups by more than seven times. Tencent has struck a record-breaking 16 deals in Europe in the first half of 2021, many of which were in the gaming sector. For example, in July 2021, Tencent struck a £919 million deal to buy the UK games developer Sumo Group.

How has Tencent’s gaming-industry “shopping spree” gone under the radar? Well, here’s three possible reasons. One, the potential security implications in the gaming industry may not as clear as in, for example, the social media industry. Two, many governments underestimate the gaming industry’s economic potential. Three, the gaming industry’s potential in collecting vast amounts of user data is often overlooked when compared to social media sites.

Secondly, Monzo’s run-in with the FCA demonstrates the growing regulatory scrutiny of financial institutions. Within the last month, the FCA fined Natwest £265 million, for failing to prevent the laundering of £400 million and HSBC UK £63.95 million, for its sub-standard anti-money laundering prevention processes.

How is this topic relevant to law firms?

Many corporate, finance and intellectual property departments will be in demand following Tecent’s tech ‘shopping spree’.

Corporate departments will be called to assist in laying out the foundation for the acquisition, such as, the mode of acquisition and future corporate structure. The banking and finance departments will be involved in managing the capital necessary to fund the acquisition by, for example, managing the contractual relationship between lenders and borrowers. Finally, Tencent has primarily been purchasing gaming companies who own highly valuable intellectual property rights. The protection, purchase, licensing and management of these rights will require the expertise of specialist intellectual property practitioners.

Firms with a strong international presence (especially in Asia Pacific and Europe) and leading Technology, Media and Telecom (TMT) teams will benefit from Tencent’s growing interest in Europe. Their ability to offer specialist advice, coupled with their geographic accessibility, will be a huge advantage.