The Mobile Dragon

Topic: Pearls of Wisdom

Nicole (Weiss) Louthe 

December 18, 2015

Image used with permission: iStock.com/mengqi


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The Mobile Dragon

“You forgot your wallet, and it’s four flights up to your apartment in Shanghai’s French Concession. No worries. You’ve got your smartphone. Open Tencent Holdings’ WeChat, the Chinese Twitter on steroids, and tap China’s versions of PayPal, E*Trade, Uber, Amazon, and TripAdvisor rolled into a single app. Order and pay for your taxi and then book a restaurant where you’ll split the bill electronically with a friend. With a few minutes to spare, transfer money into the mutual fund run by e-commerce giant Alibaba Group Holding. See a poster for a hot new movie? Snap a photo of it and let search engine Baidu find a theater and buy you tickets for later that evening”.

According to an article in Bloomberg Markets Magazine, China, with its population of 1.3 billion and $7.8 trillion of deposits, is leading the world in financial ingenuity as it relates to digital banking, investing and lending.  Technology companies are challenging the archaic banking system, in which consumers are loathe to use cash and cheques.  With the largest banknote clocking in at 100 yuan (USD $16), it’s no wonder consumers find paying with cash inefficient.

“Financial innovation is being discussed everywhere – New York, London, San Francisco, Hong Kong, but mainland China is where it has gone beyond talk and is really having an impact. What we’re seeing here is the future of global banking.” -Zennon Kapron, managing director of Shanghai-based consulting firm Kapronasia

Companies such as Tencent’s WeChat (called Weixin in Chinese), Alibaba’s Alipay arm and Baidu are leading the way with digital wallets and bypassing the outdated, backward and inefficient traditional banking in China by letting consumers manage their money via their phones. In China 390 million people are registered to use mobile banking. That’s more than the population of the U.S. and 40 percent of the people worldwide who bank by phone. Chinese companies that process online payments have lured even more converts. In July Alipay said it attracted 400 million people worldwide who actively use the payment system on their desktops and mobile devices. It processed $778 billion of payments in the year ended in June 2014.  Tencent’s QQ messaging service counts more than 815 million active users each month.  For perspective, contrast these numbers to Paypal, one of the first online payment systems, which had 165 million users worldwide in the latest quarter.

Song Fuqiang, who lives about 370 kilometers (230 miles) from Beijing in Hebei province, owns a textile business and uses Alipay every day. The 31-year-old has even put about 40,000 yuan into Alibaba’s money market fund, Yu’E Bao. “Checks are so outdated, so few people use them,” he says. “I don’t bring money when I go out. I use Alipay to pay for everything.”

Mobile and Internet banking doesn’t come without its challenges. . .these companies have a major weakness: the anti-money-laundering and compliance-obsessed financial industry requires consumers to have an account at a “bricks-and-mortar” organization in order to be identified and verified by a human being.  An Alibaba affiliate and a startup called Megvii are tackling this issue head-on (so to speak). Megvii offers facial-recognition software based on China’s public security scans of its 1.3 billion citizens. These scans could potentially be used to identify online banking customers, Megvii says.

Consultant Kapron marvels at how China’s fintech revolutionaries have upended the cautious approach favored by Deng Xiaoping, the leader who began opening China’s economy in 1978. “Instead of crossing the river by feeling the stones, they’ve built a high-speed train,” he says.

Source: Shair Oster, Bloomberg Markets, “Let A Hundred Apps Blossom”, October, 2015.

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