#Apple’s plans for #China seem to be going—well, going. During the company’s Q1 2017 earnings call yesterday, CEO Tim Cook reported #record revenue for the quarter at about $ 78.4 billion. $ 7.2 billion of that was generated by revenue from Apple services—including digital content and services, AppleCare, and Apple Pay, whichRead More
Bank Innovation
Here there be dragons, and they’ve started to rule over unicorns—well, in matters of #funding, anyway. According to a new report released by Citigroup on digital disruption, the second of its kind, #China has now overtaken the U.S. to claim the No. 1 spot for investments in #fintech on a global scale.Read More
Bank Innovation
When thinking about #FinTech as such,we often imagine Western economies at the heart of it, mainly putting our focus on Europe or United States. However, such a position is very misleading and rather biased. There is one economy that can soon outperform all the others. And it is #China.
Chine can soon become the superpower in FinTech.
Numbers speak for themselves – for the period July 2015 to June 2016, Chinese FinTech investments in the market surged to about $9 billion, making it the largest share of global investment in the named sector. To put it in perspective, this is equivalent to an increase of 252% since 2010. Now this is truly amazing (!). If this exponential growth will continue, China will soon become the superpower in FinTech.
Below you see a very good graph illustrating the Chinese preferences for using FinTech services instead of traditional banking/financial services in comparison to other Asia-Pacific nations. It is obvious that China is leading in all fronts, and customers are very positive in using FinTech (later we will see what drives such decisions).
When talking about FinTech in China, we can name 7 different markets that concentrate all the activity. These are the following:
Having grasped the idea of what it is all about, one should undoubtedly question what drives the development of FinTech in China. Basically, there are 3 KEY drivers.
Financial Needs. Or to be more precise – unmet financial needs. Exponentially growing Chinese economy (which is almost equal to the next 10 largest markets by GDP) with emerging middle class has raised the demand for financial services. Since traditional #banks cannot satisfy all that is demanded, or it fails to satisfy it in the best way, FinTech players are taking their share from the pie. The core reasons behind going forFinTech, instead of choosing traditional providers are rather obvious: more attractive rates/fees, better online experience and functionality, better quality of service, and more innovative products than available from an old-fashioned bank.
Abundant Connectivity. Although China’s physical banking infrastructure is less developed than in Europe or US, its digital set-up is far more mature. Online penetration rate in China should be the highest in the world within several years (it has grown from 8.5% in 2005 to 51.7% in mid-2016). To add, smartphones are becoming the universal internet access device having nearly 700 million users (which is more than 90% of overall internet users). It is important to stress that people are using smartphones not only for access, but also for conducting real financial activity. In fact, 1 out of 2 persons are using their smartphone to perform financial transactions primarily through Alibaba’s Alipay or WeChat’s payment service.
E-Commerce Maturity. China has become the world’s largest and most developed retail e-commerce market. E-commerce sales in China account for nearly half of global digital retail sales. Hence, such a mature market drives the growth in mobile and digital payments. It is not surprising though that mobile payment platforms such as Alipay are now used by more than 80% of the users as the most frequent payment method. In fact, according to one survey, Alipay is more popular than cash or credit card in China.
For more insights read a comprehensive report by EY.
[linkedinbadge URL=”https://www.linkedin.com/in/linasbeliunas” connections=”off” mode=”icon” liname=”Linas Beliūnas”] is Foreign Business Development & Sales at Paysera and this article was originally published on linkedin.
Heraclitus, a Greek philosopher of the 5th century BC, is quoted as saying “#Change is the only constant in life.” His doctrine was around change being central in the universe. This has also been translated to “the only constant is change.” And this exactly why #Regtech, the cross-sector #Fintech category, #thrives and will continueRead More
Bank Innovation
When it comes to introducing cashless transactions to new markets across the world, #Visa is usually the pioneer. Not so in #China, however, according to Visa’s Chief Financial Officer Vasant Prabhu: Normally we go #into countries, and we are the ones who are out there, doing the missionary work inRead More
Bank Innovation
Image source This is a two part investigation. Part two will be on Friday. Big: a big and fast growing middle class and a banking sector that has been asleep at the switch on the consumer side; the idea of #China as a consumer market is relatively new and ChineseRead More
Bank Innovation
A central #divide in the #blockchain industry is being mirrored in the startup cultures of two major #cities.
A central #divide in the #blockchain industry is being mirrored in the startup cultures of two major #cities.
Many of the successful #Fintech companies started as social enterprises in emerging markets and scaled successfully to be a unicorn. Notable examples are Ant Financial in #China and M-PESA in Keyna. Alipay of Ant Financial and M-PESA both exhibit the LASIC (Lee and Teo, 2015) characteristics. Alipay has more than 800m users globally with more than 300m Chinese mobile users and M-PESA accounts is 4 times more than all the traditional bank accounts in aggregate in Kenya. LASIC startups are those with low profit margin business, asset light balance sheet, scalable business, innovative #technology and operate in a compliance light regime. Ant Financial and M-PESA have all the LASIC characteristics.
When it comes to #insurance in China, Zhong An will rank the highest in terms of innovation and valuation given its association with Alipay as a digital (online and mobile) micro insurance provider (Fintech News, 2016). It is not surprising that Zhong An exhibits the LASIC characteristics too. But a new class of LASIC #insurtech model may be emerging in China. These new insurtech business models originated from the concept of Mutual Aid and started operation in the last two years. In organization theory, the term mutual aid is used to describe a voluntary reciprocal exchange of services and resources for mutual benefits. In America, the fraternity societies existed during the Great Depression providing their members with insurance and benefits for health, life and funeral. In the 1930’s, the English “workers clubs” also provided health insurance. But as early as 18th and 19th centuries, forms of mutual aid oragnisations such as the Friendly Societies and medieval craft guilds provided their members with insurance, funeral expenses, pensions, care for sickness, and even dowries for poor girls. The intellectual abstraction has its roots in mutualism, labour insurance system, trade unions, cooperatives and other civil society movements.
Typically, mutual aid is a term used to describe a structure or organisation that everyone is free to join and free to participate. The participants in mutual aids groups and all their activities are voluntary. It emphasizes the open and voluntary cooperation as opposed to induced cooperation (Kropotkin, 2008). The idea of mutual aid flourishes in entities that support participatory, democracy, equality of member status and decentralization of decision making at the structure level. Status of the group is determined or conferred mainly by participation. External societal status is irrelevant within the group.
On the internet, Mutual Aid Platform is seen as a mutual financial assistance and risk sharing platform. It is a class of platforms that members can lower their aid threshold and raise their aid limitation through mutual financial assistance and risk sharing. Members can join a mutual assistance plan with an advance deposit of only RMB10. As a member, one may apply for an aid of up to a maximum of RMB300,000. The maximum deduction from the member’s account for each application is RMB3. The more members there are, the lower the contribution. When there is zero balance in the member’s account, there will be a call for payments. If the member’s account keeps zero balance more than 30 days, he/she will quit the plan automatically. It is estimated that the yearly contribution is between RMB60-90. When there is an application for RMB300,000 as mutual aid amount and if there are 1m participants, each user contributes only RMB0.30 （PR Newswire, 2016）.
The largest mutual aid platforms are listed below.
10. Banmashe,斑马社
Started in July 2016 with a #Blockchain platform, Shanghai based with RMB100m registered capital Zhongtuobang (ZTB) has reached two million users as at 1 Oct 2016 and it is the first mutual aid company to have a double A rating from the Chinese Internet Association iTrust. On August 19, Shuidihuzhu was the largest with over a million users before being taken over by Zhongtuobang in the second half of 2016. The growth in this sector is exponential. The founders of these platforms have insurance experience and bridge the gap in serving the underserved.
ZTB main business is in medical mutual aid and lower the barrier entry for micro enterprises and farmers that are deterred from buying insurance of high entry premiums. It is a form of insurance inclusion scheme where the risk is pooled with low contribution. Zhongtuobang has launched multiple mutual aid products including Anti-Cancer & Disease, Travel Accident, Dad & Mom Mutual Aid, Women’s Health and a Students Comprehensive Plan. According to ZTB, the average age of members is 31 and 27 for male and female respectively. To cater to those who are above 55 and not eligible for traditional insurance, ZTB rolled out mutual aid product for those between 51-65 years old. They have launched products specifically designed for medical care personnel and diabetes sufferers. There are plans to launch smart contract insurance products using the Blockchain technology. Blockchain with analytics also has certain features that will minimize false claims and frauds because the data are transparent and permanent. The total investment by Venture Capital into Beijing based Shuidihuzhu is RMB55m by IDG, Tencent, and others. They have launched four programs so far.
There are two Blockchain use cases that we know of in the mutual aid industry in China, ZTB and Tongxinhuzhu. Tonxinhuzhu blockchain (https://www.tongxinclub.com/pc/blockchain/index) has 124,858 members, 90 nodes and around 971,533H/s, equivalent to computing power of 4 MacBook Pro and 2.7GHz Intel Core i5 8G storage. There are 537345 blocks as at 4 Oct 2016. Both cases are using Blockchain for identification and verification purposes for the members.
The advantage of this Blockchain application is that historical information can be obtained for every account at low cost. Given that the information is permanent and public (it prevents the service provider from changing the records), it solves the issues of trust in a mutual aid platform. It is easy to match, execute, monitor with the potential use of smart contracts at low cost as compared to a centralized system. At present, claims are not verified or executed by smart contracts and Blockchain is only utilised to address the issue of trust in the mutual aid industry.
This ZTB use case has demonstrated that mutual aid is scalable by solving the issue of trust among potential subscribers who are strangers to each other. This is scalable to 1.3b population from all over China with potential use of smart contracts. Insurance inclusion is achievable for specialised risk pooling in areas of insatiated demand, especially in rural areas and critical illnesses. With big data, such risk will be better understood and allowing for mass adoption and efficient pricing of insurance services. Network effect of risk sharing will enable mutual aid platforms to scale across a large number of members.
Are these new Mutual Aid business models a form of LASIC InsurTech? This class of business model has low profits margin with no requirement of heavy investment in assets. It has been scaling as seen in the last few months with the help of low premium. Some of them are using Internet with Blockchain as an innovative technology to lower cost and increase trust. There are hardly any compliance rules at this moment for the industry. It remains to see if the use of new technology can detect and reduce fraudulent claims and whether the industry can increase its scope of services to a larger base of sticky customers. Ant Financial has only 1 fraud in 100,000 transactions and like M-PESA, offers services beyond payments of daily purchases and utilities. Users can buy insurance, funds, tickets, movie bonds, obtain loans, and even get a credit rating. The latest innovation Alipay Everywhere is to purchase household services such as cooking and caregiving from neighbours for a fee (Horwitz, 2006 and Jain, 2006). These are all made possible because of data analytic, location services and mobile technology. Big data, smart contract and artificial intelligence risk analytic remains an area that the mutual aid InsurTech industry need to take advantage of. There are LASIC unicorns such as Ant Financial to emulate and if the industry can harness the right technology to serve the masses, mutual aid startups such as Zhongtuobang will become the new unicorns.
References
Biznews, “Mutual Aid Rising in China”, Sep 2016,http://www.biznews.in/article/mutual-aid-rising-in-china
Fintech News, “Top50 Fintechs in China”, Sep 2016,http://fintechnews.sg/5639/fintech/top-50-fintechs-china-kpmg/
Horowitz, Josh, “With Alipay, China’s Most Popular Payments App, You Can Now Ask Total Strangers To Do Anything For A Fee”, Sep 2016, http://qz.com/795732/alipay-everywhere-from-alibaba-and-ant-financial-lets-you-ask-total-strangers-to-do-anything-for-a-fee/
Huzhuzhijia, “互助之家”，http://www.huzhuzj.com/
Jain, Aman, “New Alibaba App Allows You To Ask Strangers Do Anything For A Fee”, Sep 2006, Valuewalk, http://www.valuewalk.com/2016/09/alibaba-app-strangers-anything-fee/
Kropotkin, Peter, “Mutual aid: A Factor of Evolution”, 2008, Forgotten Books, Charleston, SC.
Lee, David Kuo Chuen and Ernie Teo, “Emergence of Fintech and the LASIC Principles”, Journal of Financial Perspective, 2015, Vol 3, 3.
PR Newswire, “Mutual Aid Rising in China: Inclusive Aid Catches Up With New Opportunities After the G20 Summit”, Sep 2016, http://en.prnasia.com/story/159264-0.shtml
Acknowledgement
Appreciation to Ge Long, Co-founder, Eric Yu, CTO of Zhongtuobang and James Gong of Chainb.com.
About David LEE Kuo Chuen
David LEE Kuo Chuen, PhD(LSE), Professor (UniSIM), 2015 Fulbright Scholar (Stanford University), is an investor in Blockchain companies and #cryptocurrency. He is also the founder of Dlee Capital Management and various other companies. His award winning book “Digital Currency” was voted as outstanding by the American Library Association. His business and operating experience includes manufacturing, finance, hospitality, real estate, consultancy with 20 years in alternative finance. He is nominated by Internal Consulting Group as the Global Thought Leader for Fintech and Blockchain.by Internal Consulting Group as the Global Thought Leader for Fintech and Blockchain. He is contactable at [email protected].
#China‘s #Juzhen Financials has raised $ 23m (¥153m) to develop clearing and settlement solutions based on #blockchain.
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