While banks may have been assumed to penetrate the most distant areas of the world and educate the “financially illiterate” on how to use cheque-books and log-in to online banking with tokens or deposit money through ATMs, people in “leapfrog environments” do neither of these things: they bank with apps.
How would one comprehend that Alipay and Tencent today process more than Visa and MasterCard combined, with Alipay in 2017 having 2.5 times as many users as PayPal and more than 11 times as many as Apple Pay. Today Alipay has 622 million users and handle more than half of the country’s 15.5 trillion worth of payments. It basically supports the ecommerce drive of the world’s leading business-to-consumers (B2C) manufacturer - and the one that makes global waves. Banks response should be proactive: where originally trade finance deals took up to 11-13 days, the surge of e-commerce and building of logistics hubs to cover global delivery spread the meagre and 20th century processes way too thin - and create a humongous backlog banks would only be able to narrow through tech.
XYZ generations assume behaviour proposed by the invisible infrastructure of online communication and more interfaces actually tap into them and mimic their inputs and outputs: Visa and MasterCard are pushing a single QR based format and invest more in tokenisation to allow a number of ways you can originate a transaction irrespective whether you are a bank or a fintech.
They should not try and win by reinventing the wheel that’s well oiled: but propose spokes that would help the wheel to become all-terrain. One is regulation as the mastery and the accumulated skillset is probably the single most important differentiating factor for incumbents versus challengers. Yet it can be bought as the cost of access to the financial market went down substantially after the Great Recession: the liquidity glut changed the risk / reward equation of big groups now providing amble liquidity into new tech-driven financial services providers. The world of business-to-business (B2B) fintechs is upon us too: touching the subjects of trillion dollar markets that have been for long out of touch because of how complex they are in terms of regulation and how old the technology underpinning them is. Now we have Goldman Sachs and other conglomerates creating multi-billion funds to rebuild the full-stack of banking.
New behaviour cannot be captured by the requirements framework of classic paper-based and physical-realm interaction. Much has been said about the power of the internet platform and the aptitude of Tencent and Alipay to contextualise finance through the drive of commerce and communication. It also is powered by the low-cost and immense-scale of the internet platform. Chinese fintech champions turn themselves into well-equipped M&A players. Fintech M&A game is only starting: funds expecting t-bonds inflection point pushes down the horizon and push fintechs to scale efficiently - or merge (we are already witnessing this in the world of payments processing in the EU and US).
Also becoming increasingly apparent is the payment game in terms of how granular is the data captured and how it is analysed: the number of payments allow platforms to run credit checks, offer overdrafts in matter of seconds - and run B2B invoice discounting and trade finance services that give them much better margins: that is increasingly the case for major payment systems to seek value from elements that enable payment (either the stock of goods of a vendor or the reputation / identity component of a consumer).
The big question is what can be borrowed from rulebooks of payment and general fintech champions: some of their characteristics are made possible because of monopolistic tendencies and tight regulation control, lack of end-user privacy provisions on par with EU and US. The formed incongruity of drive toward open data of European PSD2 and privacy mandated by General Data Protection Requirement (GDPR) makes it hard to emulate the platform effect that’s available in Chinese society: one should still watch and learn from the massive experiment.
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