At the beginning of 2016, the top five Chinese companies were worth one-quarter of their US counterparts. By the end of March 2018, this had risen to one-third. What difference do you see between Chinese big tech companies and US big tech companies?
Many had started life as clones of some of the big US tech companies to localise the offering for the masses in China. However, in recent years these companies have expanded the existing product or developed entirely new propositions and capabilities, which have surpassed their US counterparts. For example, Alibaba have gone way beyond its origins and created a wallet in which a consumer can virtually live their entire life in, from all types of paying moments online and offline to savings and investment products.
Regulation has been fairly in light and supportive/conducive to enabling growth; for example, the use of data has really helped fuel some of the growth. This can be seen in the way Ant Financial has been able to use consumer data from Alibaba’s ecommerce business to help credit score millions of people around China. Comparatively, regulation in the US provides very little support for fintech or tech companies and current regulatory posture is aggressively positioned against digital only banks, hence the reason why there is a lack of digital only banks in the US market.
The largest challenger bank in China, WeBank, was founded by Tencent, and today it has more retail customers than JP Morgan Chase has in the US. WeBank, based in Shenzhen, is not a run of the mill challenger bank, as it has leveraged new technology in an innovative way to create new sources of value. For example, WeBank has a real-time blockchain-based core, can monitor marketing campaigns, transactions, applications, cyber security threats, and everything else operationally in real-time. With more than 80 million retail customers, this three-year-old bank is a major player in the Chinese ecosystem today.
China has a leading role in fintech, with a study from EY showing that 69% of Chinese consumers had used at least two fintech services in the last six months, compared to India (52%) and the UK (42%). What explains this mass adoption of fintech in China?
In 2018, Ant Financial and Tencent will preside over more than USD 22 trillion in mobile payments, representing 98% of the lucrative Chinese mobile payments market. That’s more than the entire world’s debit card and credit card payments volume this year. There are numerous reasons for this mass adoption, which range from a lack of alternatives, to high adoption of smart phones, to lack of existing infrastructure, to consumer willingness to move away from cash and lastly trust. One of the key reasons, though, is believed to be government support.
How do Chinese fintech companies collaborate with banks?
Until recently, Chinese fintech and tech companies were competing with the banks, but this seems to be evolving into a coopetition model. Companies such as Ant Financial, PingAn’s One Connect, and Tencent are developing B2B propositions for banks. The play here is to become technology providers to banks, leveraging their advanced cloud technology, AI, machine learning, and data analytics expertise. This is potentially a massive game changer. Leveraging B2C experience and, in the case of Ant Financial and Tencent, their respective banks, provides a great way to test and trial new services outside of a live operation. Some are referring to this type of proposition as a ‘super app model for banks’, while others are referring to it as a financial cloud with a suite of modules from lending to payments and savings. This essentially enables banks to cost-effectively improve their offering to customers both online and offline in a contextually seamless way.
These new platforms also allow banks to manage customer data better and significantly reduce the complexity associated with regulatory compliance management and new product development. Ant Financial, the pioneer of the super app via its Alipay product, is currently leveraging its tech capability to be a partner to banks, such as its recent agreement with China Everbright bank. Under the agreement, Ant Financial will share its financial technology capabilities and expertise with China Everbright to help the bank develop cloud computing, internet finance, mobile payment, artificial intelligence-driven applications, smart risk management systems, as well as biometric verification.
Similarly, Tencent has been working closely together with Sunline to provide intelligent financial solutions, anchored around the core concept of providing ‘banking everywhere’ in a seamless way. Sunline and Tencent will jointly launch a brand-new portfolio, integrating their respective technology advantages. Fusing Tencent Cloud’s technology in cloud computing, big data, and AI platform capabilities, Sunline aims to help banks achieve ‘banking everywhere’ through seamless integration with social media and mini programs like WeChat and QQ.
This editorial was first published in our Payments and Commerce Market Guide 2018-2019. The Guide presents the key trends and developments in global and regional payment methods by highlighting the innovation, challenges, and developments in the use of the most important payment methods across geographies and verticals.
About Pat Patel
As the Global Content Leader at Money20/20, Pat gets to travel the world building relationships with the leading companies and rising stars within the Tech, Financial Service, and Retail sectors. Pat led the market launch of the successful Money20/20 Europe and Money20/20 Asia events.
About Rebecca Martin
With a successful track record in launching new event products in the UK, Germany, Austria, Singapore, and China, Rebecca has deep knowledge of the Asia markets with a keen focus on AI, Blockchain and deep insight and relationships with key tech giants in the region.
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