Are banks still necessary? The view from China in 4 charts
- China's fintech ecosystem is the world's largest.
- Here are four images that show how Chinese users conduct their financial lives without banks.
Both in the US and abroad, people are increasingly using financial tools and apps that aren’t supplied by their primary banking relationship. From money movement and payments, to investing and borrowing, users have a lot more options. While banks offer digital options, millions of people are turning to apps like Venmo and Robinhood to provide meaningful financial services.
Nowhere is this more poignant than in China where mobile payments dwarf the US. With $12.8 trillion in mobile payment transactions from January – October 2017, China far surpasses the U.S. at only $49.3 billion. And Chinese users are doing this all without formal banking help. They’re turning to social media firm WeChat and payments firm Alipay to provide a financial experience that’s integrated into their messaging apps, digital wallets, and online and offline stores.
Ant Financial is a rocket ship. The firm was started to support payments on Chinese ecommerce site, Alibaba. It now claims 700 million active users and in 2018, raised almost as much money as all US and European fintech companies combined. With a $150 billion valuation, the company also manages the world’s largest money market fund Yu’e Bao — with over 400M users and $211B assets under management today. Ant Financial uses an open ecosystem that brings people with low income and limited to no credit history onto the financial grid by incorporating digital payments into existing e-commerce and social media platforms — a feat by any standards, especially as other markets, like the U.S., lag behind.
WeChat began as a Chinese messaging app, like WhatsApp or Facebook Messenger. It uses messaging as the core of a platform that over 1 billion Chinese users plug into daily to read the news, shop, invest, and trade. What made WeChat so successful is that it encouraged an ecosystem of apps to grow up around its messaging functionality.
In supermarkets and with street vendors, Chinese users use WeChat Pay like Americans use credit cards. It’s become a default payment choice for many online merchants in China. The Chinese as a whole kind of skipped the evolution of the credit card and went straight to mobile phone payments.
Ant Financial launched its own credit scoring system, Sesame Credit, in January 2015. It draws upon the biggest pool of non-traditional ratings data in the world. Even though Ant Financial doesn’t use its ratings for its own lending decisions, Sesame Credit synthesizes data from hundreds of sources — from purchases on Alibaba’s Taobao marketplace to subway fares — into a single trustworthiness number for each user, called a “Sesame score”.
This score extends itself into all areas of Chinese life, quantifying citizens’ behavior and trustworthiness. A good score offers users a range of commercial benefits like deposit waivers for services like car rentals, hotels, home stay platforms, bike sharing and libraries
Ant’s Sesame Credit’s business is evolving as regulation has forced the firm to take a different approach to measuring creditworthiness. Now the firm acts as a sort of data repository to help companies understand their own data and pinpoint which customers are most likely to default on whatever service a company offers.