Picture walking into a fast-food outlet to pick up your order for a juicy burger and paying at the counter by just smiling into a camera. Imagine applying for a personal loan on a bank holiday and being approved online in one second with zero human intervention. Fancy being able to get medical advice for a toothache at midnight from a call centre staffed by over 1,000 doctors.
If you happen to live in China today, you need not imagine any of the above. Fintechs like Alibaba, Tencent and Ping An are making all these scenarios possible with innovative use of technology and data. I just returned from a mind-boggling innovation tour of China where fintech start-ups are mushrooming like nowhere else in the world and creating an overwhelming influence on people’s lifestyles.
Over the past few years, internet finance has put on an impressive feast globally, with countless start-ups emerging across continents. In China, this feast is particularly appetising with nearly 20 per cent of its gross domestic product (GDP) driven by internet finance and with seven of the top ten fintech companies in the world based there. Ant Financial, valued at about $150 billion (Dh551 billion), is the most valuable fintech in the world today.
A number of factors have driven this impressive growth. First, the regulatory authorities have publicly supported start-ups and innovation. Secondly, with smartphone penetration at 72 per cent, China boasts the highest internet transaction volume worldwide, at over $5.7 trillion annually. And finally, the huge “tail” of low-income customers have historically been underserved by the traditional banking sector, creating a ripe environment for an inclusive financial system being created by the disruptive fintech players.
Third-party payment is the earliest, largest and most developed segment in China’s internet finance market. Large players and first movers dominate, with Alibaba’s Alipay enjoying about 50 per cent market share. Alipay has recently launched its ‘Smile to Pay’ service at select fast-food outlets where a plastic card or mobile wallet is no longer required to complete a purchase. Ant Financial has grown rapidly since its inception of Alipay and is today is a full-fledged financial service provider. It serves over half a billion active customers, and is now repositioning itself to becoming a “techfin” player providing technology support to traditional banks.
Wealth management is the second area of disruption for Chinese fintechs. Compared to traditional bank offerings of wealth management, internet players have higher returns, very low entry barriers and same day liquidity. Alibaba’s Yue Bao fund, originally set up as a repository for leftover cash from online spending, is now the world’s biggest money market fund with $260 billion under management. Ping An’s Lufax platform makes available as many as 5,000 wealth products online.
Financing is the third big area of disruption in China, and where most innovations have flourished. Consumer finance, peer-to-peer lending, supply chain financing and crowdfunding are the four main modes. Ping An uses 6,000 variables to evaluate risk and identifies fraud risks by analysing micro-expressions of the borrower’s face over a video interview. Alibaba has lent out $299 billion to 11 million SMEs, with each loan application requiring three minutes to complete and one second to process with zero manual intervention. Tencent’s WeBank provides micro-loans 24/7 to a pre-approved white list of WeChat subscribers, based on 100,000 parameters gleaned from public bureau, social media and e-commerce behaviour. No surprise then that over 50 per cent of WeBank employees are technologists.
Lessons for bankers
What lessons do Chinese fintechs hold for bankers across the world? First is the obsession with customers, and the constant multiplication of use cases to increase stickiness. Tencent has driven alliances with service providers in transportation, digital media and entertainment so that WeChat users can enjoy easier access to a variety of work and leisure activities. Ping An, a traditional insurance company to start with, has expanded to banking, health services, housing and automobiles. Ping An Good Doctor offers digital access to 1,000 in-house doctors and 60,000 external physicians to its 160 million users.
Second is the acute focus on big data. Chinese fintechs build competitive edge by acquiring thousands of data points and then integrating these innovatively to obtain customer insights. Ant Financial has leveraged transactional data, demographic data and behavioural data to develop a proprietary credit assessment engine called Sesame Credit. Ping An uses artificial intelligence to analyse real-time indicators of disease and predict, for example, the progression of a flu epidemic.
Third is the sizeable investment in cutting-edge technology sustained over the long-term. Alibaba announced recently that it will spend $15 billion in R&D to become the global leader in artificial intelligence. Ant Financial has 90 patents in Blockchain technology, more than any other bank in the world. Ping An spends 1 per cent of its profit every year on technology, and employs over 20,000 data specialists.
Should traditional banks lose sleep over the fintech revolution sweeping China? Definitely yes. Given that some of these fintechs have global growth ambitions, no bank anywhere should assume it is business-as-usual for the future. I, for one, am convinced that our most formidable competitor in the future will be a fintech.
— Suvo Sarkar is the senior executive vice-president and group head of Retail Banking and Wealth Management at Emirates NBD.