China’s fintech behemoths
Anyone with even a passing interest in the financial technology sector cannot but help gaze in awe at the growth of China’s big brands such as Tencent and Alipay. Though little known outside their homeland, they are ranked 3 and 5 respectively in the global internet companies.
So how can we compete and emulate this success? Well that’s not an easy question to answer because it goes right to the heart of cultural and historical differences that lie between China and the West.
These apps were not created with new or innovative technology. They could have been introduced in the United States or Europe, but they would have met consumer resistance and this is down to three Western pre-occupations: freedom, privacy and security.
As the world hurtles inexorably to the cashless future, there are some who have misgivings. As China tries to drive their fintech models down the old Silk Road, it will find strong cultural resistance.
Firstly, people are naturally conservative when looking after their money. Over the centuries, we in the West have built an effective, reliable and secure financial infrastructure. Any start-up will have to compete with this but in China, bank accounts are a comparatively recent phenomenon and credit cards go against the Chinese instincts for thrift and self-reliance. In China, the likes of Alibaba and Tencent play the role of consumer banks which in Europe, have branches on every street corner.
We may reluctantly give our data to advertisers on our spending habits, the inland revenue on our income and credit agencies on our prudence. China’s payment apps scoop all this up in one go. We seem to forget what a wonderfully liberating thing cash is.
Now allow me to speak hypothetically. Perish the thought that readers of this blog would consider such a thing, but we are free to walk on the wild side and partake of the black economy. You may consider theology to be outside the scope of this blog, but it is important to understand the profound fissures that separate the western and eastern minds. Free will is central to Christian tradition. We know what we should not do but it is important to know the opportunity to transgress is there. How can we become virtuous without temptation? Cash or other anonymous payment systems are a cornerstone of a free society. The if-you’re-good-you’ve-nothing-to-worry-about rationale convinces few in the west but in China is accepted without comment.
If the state is privy to all your transactions, right down to which pizza topping you choose, then there can be enormous advantages. A citizen will not ever need to fill in a tax return form or claim benefits – all will be done automatically. If these ‘advantages’ fill you with misgivings well you’re probably a westerner. No-one likes to proclaim their attachment to cash too loudly as it may give the impression one wants to evade tax or buy illicit drugs. For this reason, it is easy to underestimate how strong this feeling is.
Most important is the issue of security. How hack-proof are these digital wallets? Security is more than anything a feeling. We lock the front door at night to help us sleep. If we think rationally, an extra bolt won’t make much difference, but we find comfort in the ritual. Physical cash has the same effect.
Consumers are looking for fintech solutions which bring down the cost of banking, make our money more secure, access to it more convenient and information on transactions clearer and more readily available. Banks in Europe are separate to other compartments of our lives. They know little of our spending habits and are uninterested in what they are. Neither do they know our browsing history and affiliations. But the new Chinese fintech models combine banking with social media and shopping. To make matters worse there is the ever-present scrutiny of the state who in the case of China, are interested in reasons that go beyond that of mere taxation.
There is a whiff of defeatism in the fintech sector when beholding the successes of the Middle Kingdom. But this is misplaced. As their brands extend their tentacles into Europe, they are likely to have to adapt their models away from an all-encompassing, walled garden to something, well to use two quintessentially European words, boutique and à la carte. This offers important opportunities for the home-grown fintech sector.