Banking on digital – China leads the way

I had the opportunity of travelling across the region, meeting our partners, industry analysts and colleagues over the last four weeks. By this time, the media buzz around issues in American politics, Brexit and Huawei ban had slowed down. This allowed many of my conversations to focus on innovation and growth opportunities. In what is a distinct departure from the past, I picked up a lot of optimism about digital disruption from the brick and mortar companies, especially the banks. I heard that many banks and financial services companies are starting to see digital as an explosive growth opportunity, provided they play it right. There seems to be now a growing awareness that the opportunity is so big that everyone has enough room to play – despite the disruption that it brings along.  

 First stop on my trip was China, which is the undisputed world leader in global payments industry.  I must say that this is the only country, one could possibly travel to without ever needing to carry any local currency. In a country, where social media platforms like WeChat, Weibo, RenRen etc literally weave together every aspect of the society, digital seems to be the most convenient way to make payments. It is estimated that a staggering 75% of the total payments in the country is digital. It is said that they are now experimenting with solutions such as “Pay with Face” or “Smile to Pay”. They are pushing the boundaries to eliminate all friction in payments. I could see almost every restaurant, transportation provider preferring to accept digital payments, via these social media platforms. It has come to a point, where there is little differentiation between social media platforms offering financial services (often referred to as Fintech) and a traditional bank except for regulation. Consumers often have accounts with both of these types of institutions. I see the traditional banks trying to emulate these emerging Fintech companies either by starting their own version or opening up their banking platforms to connect with them to offer complementary services - known commonly as Open Banking initiatives.

While China may not have new regulations about open banking, they have been at the forefront of opening up the financial services sector to the tech industry. In late 2014, the Chinese govt. issued 4 virtual banking licenses, prompting leading banks and tech companies to jump on the bandwagon to offer digital only banking services. Most of the players have been joint ventures between traditional banks and tech giants like Tencent, Baidu and Alibaba. This has truly transformed them into a world leader. While banks have hogged the limelight, I was particularly impressed with two of their leading insurance companies - Zhong An and Ping An. With Zhong An, a leading digital only insurance provider, I was amazed to know that over 50 percent of their team is a tech team. They are essentially a tech company delivering insurance services and growing. They saw a 25 percent growth in policies sold per capita in the year 2018. They sold on an average 15.8 policies per capita and the average premium per capita is just RMB28!!!. Clearly only tech can enable such an easy consumption of insurance into people’s lifestyle. Equally impressive for me was the story of Ping An, a 30 year old insurance company that has emerged even stronger in the digital era. It focuses heavily on three core technologies – AI, Blockchain and Cloud Computing. It is now ranked number one in the Fintech Inventions Patent Ranking. The innovations have led to 64 million retail customers to have multiple contracts with Ping An -a growth of 34% in 2018. WOW!

 Both these companies have demonstrated the immense possibilities that tech can bring in increasing attach rate as well as embedding financial services in a seamless manner into their consumer journeys. Both starting from different sides of the digital divide. Zhong An, starting out as a technology platform for insurance services while Ping An, transforming its platform to provide for more digital services for their customer base. These are just two examples of the massive transformation in the Chinese financial services space. I am sure we will continue to see increasing adoption of open banking initiatives from the mainstream Chinese banks as they move to attract a new generation of social media crazy and tech savvy consumers, an increasing demographic in China. And, if they don't, they risk being left behind as the industry and China moves ahead...


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