There is a financial technology tsunami headed this way from China and our government, business and regulation leaders need to get ready to adapt.
So says Grame Barty an experienced international trade envoy and China hand who previously led the Austrade international operations group where he helped set up a landing pad in Shanghai, as well as leading an innovation-centric delegation to China. He also has experience as a tech entrepreneur in his own right
Mr Barty has watched the phenomenal growth of Chinese electronic sales platform Alibaba and its subsidiary payments vehicle Alipay. Both Alibaba and Alipay are gearing up in Australia and other Western countries as well as Africa and Asia.
He says Western players do not well understand the size and scope of Chinese financial technology.
“The size of what’s occurring in terms of financial systems and the uniqueness and their foresightedness of what they are doing around digital currency will change the world’s financial systems, maybe even with ten years,” says Mr Barty.
What has given China an edge is that it had very little 20th century financial system baggage to contend with.
“China had the advantage of never having much landline infrastructure and going straight to mobile and WiFi. They never had credit cards or charge cards – it’s a cash economy.
China economically opening up to the world, its rapid development of a large middle class and its rapid embrace of business and consumer technology on a vast scale have created a perfect storm that will break on Western shores in the near future.
“They create a huge number of smart phone users who turned into internet users. We are talking around 700 million people – that’s twice the population of the US.
The very fast creation of online sales and other services became a necessity in China’s internal economic and technology disruption.
“It wasn’t just ‘nice to have’ as it is some markets. We might do online shopping every now and again, but in China it’s almost critical. You go into the store, buy your goods and then they deliver it to your house.
“This is online services being delivered in China out of necessity because of the way they live in urban environments. Then on add on discretionary income increasing as hundreds of millions come out of poverty
“The third component is they never had credit cards to begin with. This meant Alibaba was able to set up a payments system (called Alipay) which effectively holds the transfer of funds in escrow. But in doing so, like in any escrow, all the details of you and the supplier are required and they are also held in escrow. Here’s an instance where I (as in Alipay) are guaranteeing the transaction and I don’t require a charge card to do it,” said Mr Barty.
China now has an automated, online payments system that does not rely on the major credit card providers like Visa and Mastercard, as it does in the West.
“It’s the world’s largest FinTech happening right before our eyes,” said Mr Barty. Alipay accounts for roughly half of online payments in China.
Then there’s the Chinese messaging giant WeChat, which Mr Barty said was more like a monster online operating system than a social media device.
“WeChat is not Instagram or Twitter. WeChat is more like a fully integrated operating system of itself. What happens on that OS is everything. You can order a meal and the OS already knows you and the payment can be automatically taken off your account via Alipay.”
All these factors create Mr Barty’s tsunami of Chinese financial disruption.
“This means China has hundreds of millions of people with a changing lifestyle and an ability to spend. We have a (credit card free) financial practice that doesn’t have to change because it never existed. We have online access using smartphones and the logistics to do the delivery mechanisms. We have an operating system which allows all of that to happen seamlessly.
“That’s a tsunami waiting to happen.”
Mr Barty believes the big advantage the Chinese FinTechs like Alibaba and social media platforms like WeChat have is they have huge scale just from their local market.
As the likes of Alibaba expand globally, they will be seen less as a means for outsiders such as Australian China aware companies to expand into Chine and more as a way for locals to push into emerging markets such as Africa, Asia and South America, Mr Barty said.