Eastern philosophy, Western banking - How China is quietly building its own digital bank disruption

Written by Zennon Kapron || July 22 2015

One of the advantages of living in China is that you have ringside seats to one of the most dramatic economic transformations of our generation. China’s economy over the past three decades has outperformed every other economy globally and is now the second largest. China has the world’s largest rail network with 112,000km of track as of 2014, enough to wrap around the globe nearly 3 times. China has brought more people out of poverty than any other country in modern history… You could go on and on with the unique ways that China has shattered everyone’s expectations besides its own.

The financial industry has of course been a critical part of that story, and is virtually unrecognizable to the industry I encountered when I arrived to China just over a decade ago. In 2004, whenever I had to pay my rent, I would go to my bank, queue, withdraw my rent as cash, walk it across the street to my landlord’s bank, take a number and queue, and then eventually deposit my rent into his account. The process took about an hour and a half, and if I was lucky, I could time lunch, so that I could eat before my number was called.

Fast forward to today: I pay my rent using Alipay from Alibaba. I invest using WeChat from Tencent and I bought the Baifa 100 financial product from Baidu. The landscape has completely changed. Tech companies are driving innovation, but not the kind of small fintech companies you would find in the west, in China, it is (very) big fintech.

And they are coming to it with a completely different set of rules and fundamentals. Rather than buying a core banking system on their own, they are making it. The systems at MyBank, the private bank recently launched by Alibaba’s Ant Financial, was built nearly completely in-house and sits on Aliyun, the Alibaba cloud. Not only is Ant Financial using the product for its own banking platform, but it plans on offering it as a cloud service to small and medium sized banks in the future. This is all done under the watchful, but supportive view of the government who, towards the end of July, published a series of comments basically stating that financial innovation was here to stay.

To a certain extent, I feel guilty for even describing China’s new private banks like Ant Financial and Tencent as ‘digital banks’. They are much more than that. Digital is in their DNA, but the real innovation is how they are bringing products and services to market that actually matter to consumers. The total value of mobile payments transacted in China was larger than the next three countries combined. E-commerce on Alibaba on one day in China in 2014, double the two largest shopping days in the US. Digital is evidently in Chinese consumers’ DNA as well.

The new private banks will continue on this path by offering a completely mobile and online banking experience. Who cares if it’s omni-channel or digital banking, it is moving the industry forward. Swap the chinese characters for English words, and the private banking platforms that we will see launched over the course of 2015 and later will trump anything that has been seen in the west. This is just the start. In the last four years in China we have seen more financial reform and innovation than in the previous twenty combined. Alipay, Yu’ebao, Sesame credit…these were just the teasers in what already is, the world’s largest center of digital banking.

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