How Chinese companies are about to roll a Trojan dragon of innovation into global banking markets…in the year of the horse

Written by Zennon Kapron || January 16 2014

For decades, China has been known as the imitator and not the innovator. The argument goes that the West came up with social networking, mobile payments, group-buying, etc. and China imitated it, sometimes better, sometimes worse. C2C – copy to China. R&D – rob and duplicate. There are numerous terms to describe it. 

After living in China for nearly 10 years, I concur – there is a lot here that’s copied. From pirated DVDs to fake Louis Vuitton bags, there is a healthy market in both “near-genuine” and “blatantly-fake” products and services. On the services side, well, let’s just say that customer service isn’t the number one priority for many workers and nor do the Chinese consumers expect anything more in many cases.

Apple of China's Eye

Yet, expectations are changing. Companies are reacting. Innovation is coming. Customer service is now a key asset for innovative companies like Xiaomi which currently holds potentially the most deserved ‘Apple of China’ moniker of any Chinese company so far.

If you haven’t heard of Xiaomi before, google them now and read up. They make mobile phones. I know, so does everyone, but really, they make really good mobile phones. Xiaomi’s development cycle includes gathering feedback from users on the phone experience and updating the phone’s software kernel on an incredibly frequent basis improving usability and functionality. They are the Zara of the mobile phone world, except they just follow one trend and they follow it really well.

They are a great example of how China is about move beyond the immatator and become the true innovator.

Taking innovation to the bank

China’s financial industry has been one of the most staid and un-innovative parts of China’s economy. This has been due to three main factors:

  • Regulation, regulation, regulation – This is really the challenge that has been at the root of everything – regulation in China has hindered both the products banks can offer and the services they can provide. This is changing.
  • Fixed interest rates – China’s domestic deposit  and lending rates have historically been largely fixed within a very narrow band. If you’re a large bank or an investor in one, this is a good thing as it’s allowed you to leverage typically massive deposit bases to essentially print money.
  • SOE banks – As part of China’s financial development, large state-owned banks (SOEs) were developed to support the financial needs of a fast growing nation. These banks grew large and still dominate the retail banking industry.

So essentially, the industry is controlled by a group of tightly regulated massive banks with incredible profitability that have been loath to change because, well, if you’re making large profits, why rock the boat? 

Regulations are changing and in the process, the fixed interest rate system as we know it will soon disappear to be replaced by market driven interest rates. If that wasn’t enough, innovation is coming. This is not your father’s innovation of C2C/R&D mobile or online banking, this is true innovation.

Enter the (Trojan) Dragon

The confluence of social media, mobile chat and non-bank financial institutions in China is changing the financial landscape in the country. And this, more-so than any other innovation to come out of the country before, will change the global retail banking industry in ways that you never thought possible - there is a trojan dragon of innovation about to enter global banking in 2014.

In our next series of commentaries, we’ll look at why this is happening and some of these products and services in detail – stay tuned.