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. There is a lot of optimism about digital disruption from brick and mortar companies, especially digital banking. Many banks and financial services companies are starting to see digital banking or open banking as an explosive growth opportunity, provided they play it right. The opportunity is so big that everyone has enough room to play – despite the disruption that it brings along.
Transactions being digitized in China
The first stop on my trip was China, which is the undisputed world leader in global payments industry. It 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 society, digital seems to be the most convenient way to make payments. 75% of the total payments is digital in the country as estimated. 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.
China is at the forefront of opening up the financial services sector to the tech industry. However, China may not have new regulations about open banking. 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 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.
I could see almost every restaurant, transportation provider preferring to accept digital payments, via these social media platforms. Social media platforms (often referred to as FinTech) and traditional banks differ little on offering financial services except for regulation. Consumers often have accounts with both of these types of institutions. Traditional banks are trying to emulate these emerging Fintech companies. They either start their own version or launch their digital banking platforms. With the banking platforms, they offer complementary services – known commonly as Open Banking initiatives.
Technology shaping the Insurance Providers
I was particularly impressed with two of the leading digital insurance companies in China- Zhong An and Ping An. I was amazed to know that over 50 percent of Zhong An is a tech team. They are essentially a tech company delivering insurance services and growing. Zhong An saw a 25 percent growth in policies sold per capita in the year 2018. They sold on an average of 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.
Ping An, a 30-year-old insurance company, has also emerged even stronger in the digital era. It focuses heavily on three core technologies – AI, Blockchain and Cloud Computing. Ping An now ranks one in the Fintech Inventions Patent Ranking. 64 million retail customers now have multiple contracts with Ping An due to their innovations. They have recorded a growth of 34% in 2018 in their contracts.
Both these companies demonstrated the increasing attach rate because of digitization. As a result, they have successfully integrated financial services seamlessly with their consumer journeys. Both starting from different sides of the digital divide. Zhong An started out as a technology platform for insurance service. Ping An transformed its platform to provide more digital services for its customer base. These are just two examples of the massive transformation in the Chinese financial services or digital banking space.
We will continue to see increasing adoption of open banking initiatives from the mainstream Chinese banks. The banks in China 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…