A Technological Takeover: Undercovering China’s FinTech Revolution
It’s now safe to say that cash no longer reigns as king in China.
In 2012, less than five percent of the Chinese population reported having used a digital payment system. In contrast, by 2017, a whopping 40 percent of the Chinese population cited digital payment systems as their primary medium for making purchases. In a mere five years, state-backed ‘digital attackers’ like AliPay and WeChat swept in and made their mark. In comparison to wealthy Western nations like Canada where cash is still dominant, many businesses in China now only accept mobile payment. And usage of digital payment systems isn’t just limited to upscale, exclusive services — even food stalls and street vendors have taken on these technologies.
The Fall of Traditional Institutions
The rise of China’s FinTech revolution has its roots in a web of interrelated social, cultural and economic factors. For one, historical institutions like banks and credit card companies have been defined by rigid structures which have left rural residents, small business owners, and China’s rising middle class underserved. To address this gap, China’s central tech giants, “BAT” — Baidu, Alibaba, and Tencent — are pushing accessible payment technologies into the market. A prime example is WeChat, a social media network similar to Facebook that includes its own integrated e-wallet. With accessible user interfaces and no costs for usage, the popularity of products like WeChat’s e-wallet are growing exponentially with underserved communities.
Although banks are now attempting to expand their services, they are seemingly uncompetitive, inflexible, and slow-moving in the eyes of Chinese consumers. Many of these consumers have lost trust in China’s big banks after years of scandals involving poor management of financial products and public relations issues. From money laundering to foxing regulators, not one of China’s big four state-run banks has avoided major controversy in the past decade. Seemingly invincible historical institutions have suffered surprising levels of decelerated growth. For instance, China’s Commercial Bank only grew 2.4% in 2015. Above all, consumers want to use services which they trust will charge fair fees and prioritize their needs. Hence, the lack of trust and innovation in traditional financial institutions has driven Chinese consumers to embrace new, accessible alternatives.
Social Norms Driving China’s Technological Takeover
Outside of the failure of traditional banks to sustain public trust, cultural beliefs and social norms in China have also had a heavy impact on the success of FinTech services. In comparison to American or German consumers, the Chinese are much more open to FinTech services. Part of this comes from a willingness in Chinese consumers to disclose personal information, having few hesitations about sharing financial data on technological platforms.
Interestingly, it would be false to say that Chinese consumers don’t place value on protecting financial data. Rather, given their lack of trust in traditional institutions, many Chinese actually view technological alternatives as superior options. This idea of trust isn’t just about securely storing money, but also about receiving unbiased, high quality financial advisory, and being charged fair fees for these services.
Moreover, at the center of China’s rising middle class are the ‘digital natives’. Comprised of Gen-Y as well as millennials, the digital natives are a prominent, tech savvy group who embrace rising technologies readily. Alongside the fact that digital natives have heavier spending habits and grew up surrounded by greater financial stability, they also prefer personalized, user-centered services to traditional financial products. Particularly in the mobile payment space, China’s digital natives account for 45% of total users, making them a force to be reckoned with. However, it’s not just digital natives who have access to innovative financial services. China has been investing heavily in digital infrastructure, with publicly accessible networks available in many of China’s largest cities. While less than 2% of the Chinese population were internet users in 2000, by 2017, this figure grew to 54% of the Chinese population. According to estimates made by EY, China can reach North America’s internet penetration rate within a few years if it sustains its current growth rate.
The Sleeping Giant Awakens
While FinTech’s influence is no doubt amplifying across the globe, it has distinctly revolutionized many aspects of China’s financial services industry. Looking forward, it is possible that the Chinese FinTech market will serve as an international model for other countries looking to integrate new technology into financial services. Yet it is essential to note that China’s rapid acceptance of FinTech is not only the result of aggressive ‘digital attackers’ who disrupt the market, but also the product of declining traditional financial services and unique cultural perspectives, both of which may not be duplicatable in other countries. Moreover, the Chinese market is heavily protected from external competitors and receives strong government support. Hence, in countries without protectionist policies and state investment, the FinTech market may not thrive in the same way, even under similar conditions. In spite of these external factors, one thing is certain: China — once called the sleeping giant — has arose from its slumber and is now leading the world in the mobile payment space.
SOURCES
[4] www.businessinsider.com/cash-is-dead-in-china-2017-12
[5] www.cnbc.com/2017/10/08/china-is-living-the-future-of-mobile-pay-right-now.html
