The United States may boast the world’s most exciting array of fintech companies, but in many respects, it’s China that’s actually the center of innovation, with the greatest potential to shape the global landscape. In fact, what’s happening in China—where investment is flowing into the sector and consumer behavior is arguably most rapidly shifting—could offer a case study for future developments we might see in the United States and on the world stage.
Part of what’s driven fintech adoption in China is, perhaps ironically, the lack of established, inclusive financial infrastructure; one in five people are unbanked, and as much as 60 percent of the population is credit-invisible. On the other side, China is highly saturated by internet access and smartphones.
In that sense, and as Ant Financial’s leaders have pointed out, China and its leading companies are taking more of a “techfin” approach than a strictly “fintech” one. It’s about technology, which just happens to be applied to one’s financial life. And, unlike what’s driving progress in the United States, fintech progress in China is not nearly as closely linked to the bank’s deposit account.
Instead, tech companies have been able to create their own, closed-loop ecosystems to serve the needs of consumers, whether those needs are financial or not. And in China, those consumers tend to be shoppers; China itself accounts for 47 percent of the world’s global ecommerce sales.
Before the emergence of ecommerce, cash was king. China never had the phenomenon of plastic that was so critical to the payments landscape in the US. When Chinese consumers wanted to shop online, they started tossing their cash in favor of digital wallets that store value, bypassing use of cards entirely.
It’s not just global leader Alibaba that has shaped consumer behavior in this arena. Social media giants cast a long shadow, too. Tencent, a social media and gaming company, produced WeChat, which has become deeply entrenched in the lives of its customers. So when the company came out with WeChat Pay, it quickly became customers’ rails of choice to send money to friends, family—even for work. Now, half of WeChat Pay’s 900 million users spend more than an hour in the app every day.
These are the types of case studies that tend to provide an interesting backdrop whenever news hits about Walmart pursuing a banking license or Amazon growing its lending practice.
Yet these are very different dynamics than in the United States, despite the continued growth of payment platforms like Venmo, Square Cash, Zelle, and mobile wallets like Apple Pay, Samsung Pay, and Google Pay. According to a survey from E&Y, 98.3 percent of Chinese respondents reported using mobile payment platforms over the past three months, compared to the estimated 19 percent of iPhone users who have tried Apple Pay at least once.
And so it will be interesting to see how these innovators, which are arguably on the leading edge of changing consumer expectations about where and how financial services ought to be delivered, evolve. Already, we have some previews—and they might be starting from the same block that U.S. fintechs are: with a developed, and entrenched, banking infrastructure.
For one, Alibaba spinoff Ant Financial partnered with First Data to allow its service to be used at point-of-sale systems in the U.S.—a decidedly offline approach for the techfin company. U.S. regulators shot down its plans to acquire Texas-based remittance company MoneyGram.
And when Alibaba’s subsidiary Alipay announced plans to bring its payment systems to the United States, the company insisted it wasn’t doing so for the American consumer. “Our objective is not the American consumer. It’s the Chinese [consumers] all over the world,” like the 4 million Chinese tourists who visit North America every year, Souheil Badran, president of Alipay Americas, has said. “How can we give them the same convenience like we do online?”