Autor: Palestrante Pascal Coppens
As described in my book China’s New Normal, about every other year from 2013 to 2030, another major industry has or will be disrupted by China. In 2015 the Chinese social media platform WeChat (Tencent) started looking in its rear mirror to Facebook regarding customer experience. In 2019 Facebook intends to add WeChat’s payment and personal commerce model (2014) into WhatsApp. What a vision Mark! In 2017 Alibaba introduced New Retail where online and offline merge into one truly seamless shopping experience through Alibaba’s connected data platform for supply chain, payment, delivery, stock, pricing, branding, …announcing the slow death of the complex and expensive multi-channel model of western retailers. 2019 will be a wake-up call for our financial institutions. No, it’s not Brexit that will scare the sector, but China. By 2016 China already reached 47% of the global FinTech investments and by next year this industry in China will match the GDP of Luxembourg. China is showing us how to better spend and manage our money.
China leads the FinTech Adoption
It was in 2013 that this FinTech boom started. Since then, online peer-to-peer loans, online investment management, online insurance and online transaction payments have all doubled or tripled each year. The previous archaic nature of China’s financing system has led to an explosion of Fintech companies in recent years, in part due to a shortage of financing options in comparison with the West. Chinese Fintech companies, such as Ant Financials (Alibaba), Lufax (Ping An) and JD Finance (JD.com) have succeeded in flourishing in a veritable rain forest of regulatory arbitrage and have managed to create their own Garden of Eden of financial products. 70 percent of all Chinese netizens today make use of Fintech products, in contrast with 33 percent in America and 42 percent in England. With the growth of new legislation in the sector, the Chinese Fintech companies are now making the jump to the next level, which will see even more technology and data-driven disruption of the existing market. China is offering the world a preview on the financial world of the future.
This swift transition was fueled by a change in the way Chinese pay. The world already knows that China is the most advanced country in terms of mobile payment. The figures are truly impressive. 75 percent of all online transactions are made by smartphone. More than 1.1 billion digital accounts have been opened in China, which is five times more than PayPal worldwide. In 2017, 30 trillion USD worth of mobile transactions were carried out, which is 50 times more than in North America. More than 3.4 billion companies and people have opened a mobile payment account in order to buy or sell things. Half of the urban population of China no longer take money with them when they leave their homes, since mobile payment is possible everywhere for everything. China is set to become the first society in the world to function fully without cash. The two companies that realized this transformation are Alibaba and Tencent, with their respective banks Ant Financial and WeBank. Together they are good for 93% of all mobile transactions in China thanks to their products AliPay and WePay which process billions of dollars every single minute. He who owns the money flows, owns the data, and ultimately owns the customers.
The power of China’s financial ecosystems
This duopoly came about through an ecosystem of partners around Alibaba or Tencent, in both the online and offline world. In China, an ecosystem is more commonly built up around an area of expertise, rather than around an industry or sector. With this in mind, Tencent and Alibaba invested already in over a thousand scale-ups in 20-odd industries from healthcare, transportation to entertainment. Both giants keep investing huge amounts into new partners, thereby creating a solid vested interest, leading to interdependency, co-creation and mutual accountability. This gave them the extreme Chinese speed of execution we always wonder about in the West. It’s just like a heap of ants working together in a colony with each group owning a unique expertise, but together operating as one unified entity, collectively working together to support the colony (or ecosystem). Alibaba chose its name for its bank very well: ‘Ant Financial’.
Within Chinese ecosystems, innovations are more focused on improving customer comfort than on product innovation. In the world of customer- and data- centricity it is above all key to be fast and relevant, not necessarily big or cool. China’s Fintech successes are the result of a ‘long-tail’ strategy that offers niche financial products at lower rates to huge numbers of clients within the ecosystem. More recently, I noticed that western financial companies do understand the value of ecosystems, but often wrestle with the question whether they should build their own or belong to someone else’s. The problem in the West, as I see it, is that ecosystem models are far too often seen as an opportunity to leverage existing businesses, rather than as an opportunity to create a new business or a new market, which is how they are viewed in China. Chinese customers trust an ecosystem more than a brand. Could western customers ever trust China’s FinTech solutions more than our local brands and experts, all because of the power of the ecosystem? Why not?
Financial institutions without AI focus will soon become “irrelevan”
China’s asset management sector is still relatively young. As a result, China is confident that its early promotion of AI and mobile apps will allow the Chinese people to make better investment choices, as well as helping the asset managers with their digital transformation via the development of new investment platforms. In this way, for example, Alibaba’s Ant Fortune open platform has brought together a total of 100 asset management companies, which now have 90 percent of all Chinese funds and most of the Chinese banks as customers. In particular, the AI-driven Caifuhao business account on Ant Fortune has been a popular success. According to Alibaba, after just one year the account was able offer its first 27 fund clients benefits that included a 70 percent increase in operational efficiency, a cost reduction of 50 percent, ten times more visitors (including three times more returning visitors) and an increase of 89 percent in the investor holding period. Even if we regard these impressive figures as the result of a one-off period of hockey-stick growth in the new financial industry, it is still worth noting that in just three years time — the platform was first launched in 2015 — Ant Fortune has been able to offer more than 4,000 investment products to tens of millions of customers. AI has clearly created disruption in the savings and investment pattern of the rising Chinese middle class, which has greater confidence in AI-based advice than in the advice of the grey-suited state bankers. The West continues to cling to their outdated people expert model, but may find itself paying the price if or when our financial institutions are placed under increasing socio-economic pressure. Should Alibaba then come to Europe with its AI FinTech platforms, it could abruptly end more than a century of tradition of grey-suited bankers.
My advice to our financial institutions is to assume the Chinese are coming to the West with their powerful ecosystems and AI algorithms, optimized by a billion users. Work backward from that assumption and create an appropriate strategy that customers would appreciate. Just like Chinese do, look at it as an opportunity to enter new markets and access new clients by investing into new FinTech partners. We have to let go of the illusion of control and learn about these new models, where the ecosystem partners become the most important parameter for measuring our future success.
Autor, Especialista em inovação e Palestrante