14 Mar 2017
All aboard fintech’s Trojan horse
Andrew Cornell |
The US Federal Reserve has raised interest rates as expected but all eyes are on the future as a slightly disappointed market reflects on what happens next.
21 Jul 2017
Alibaba, fintech & techfin
In late June Chinese behemoth Alibaba said its revenue for the year ahead would increase by just less than 50 per cent. The following day the market added $US42.25 billion to its value - a figure roughly equivalent to the size of Barclays Bank.
Alibaba is essentially a technology company described by some as ‘a big-data conglomerate’. The company’s vertically and horizontally integrated services include online shopping, music streaming, photo sharing, logistics, news and finance - all of which contribute information on customer spending, locations and viewing.
This data is collected, collated and fed back to the merchants who use Alibaba’s ecommerce platforms, enabling them to better target customers.
"Techfins see data as not just something to help grow their business but as the core of their business.” -Steve Worthington
In 2014, Alibaba created Ant Financial, a financial services arm. In the year ending March 2017 its pre-tax profits rose by 86 per cent to $US814 million. Through its payment platform Alipay, Ant Financial now commands more than half of China’s $US5.5 trillion mobile payments market.
Alibaba certainly fits an image of “fintech” – it offers disruptive financial services technology. But its hydra-like business model is perhaps better described as ‘techfin’ – a technology driven organisation which sees data as not just something to help grow it business but as the core of its business.
Alibaba’s hundreds of petabytes of data - most of it provided by users for free - enables it to accurately calculate its user’s ethnic affinity, sexual orientation, political affiliation, social class, travel preference and much more. Indeed, much more and in more granular detail than the Australian census!
While western technology giants like Facebook or Google have enormous data pools, neither has the scope and scale of business applications exploiting them as Alibaba.
Super app
The longer someone shops on Alibaba’s ecommerce platforms the longer the data trail they leave. As a result, targeted advertising is more effective - Alibaba’s average customer places 38 orders in their first year of use; by their fourth the average is 123 orders.
Alibaba now has more sales than Walmart, EBay and Amazon combined and China’s digital payment market is over 50 times greater than that in the United States - a figure only partly explained by the lack in China of other widely available alternatives to non-cash payments.
Alipay runs off one super app which has over 80 sub-apps running of it, including consumer-to-business payments; person-to-person payments; booking and paying for taxis and restaurants; and paying utility bills.
Alipay reputedly has 450 million active customers, mainly in China. Two million Chinese merchants accept Alipay payments, which equated to 58 per cent of all Chinese payment transactions by September 2016.
In October 2016 Alipay struck an agreement with Commonwealth Bank of Australia which allows Chinese tourists and students in Australia to pay for their purchases with Alipay, in merchants who use the CBA’s Albert terminals, of which around 55,000 are in use.
With more than 120 million Chinese tourists travelling abroad every year Alipay is on the verge of becoming a worldwide digital payments provider.
New Channel
Alipay is not just another only brand running on existing rails, rather it’s a new, hybrid service which bypasses the global authorisation intermediaries like Visa and MasterCard while using an infrastructure created for a different purpose. Payments using Alipay are made by scanning a QR (Quick Response) code with the Alipay app. QR codes originated in Japan in 1994 as a means of tracking automobiles during manufacture on the assembly lines.
The code was developed to allow high speed component scanning and it consists of black squares arranged in a square grid on a white background. Used on a mobile phone the QR code is presented at the point of sale and scanned by the merchant to instigate the transfer of funds from the consumer to the merchant.
This use of QR codes off-line has created a ‘codeconomy’ in China and driven the transition to a less cash society.
Codeconomy
The ‘codeconomy’ is already changing Chinese social behaviour. Some restaurants pin barcode tags to the chest of waiters and waitresses and even chefs so customers if they are satisfied with the service, they can scan the code to leave a tip.
Beggars even wear a QR code tag around their neck for donations and at wedding ceremonies bridesmaids have worn code tags to collect gift money from guests.
The QR code has also helped to expand the emerging sharing economy in China, with bicycle rental companies using QR codes as a means of unlocking the bikes.
Whether it’s a street pedlar or a supermarket, the QR code has been widely accepted in China and is used by almost every merchant.
The technology is simple and easy to use and a transaction can be completed almost instantaneously, in any venue with mobile phone signal coverage. In the Chinese context the QR code is much more convenient and hence more widely accepted than the payment card.
Other Asian countries have also started to use QR codes; India via Paytm; Singapore via Nets and Thailand. The big attraction of the QR code is it can be used anywhere and using it quickly becomes a habit with consumers.
Wepay
Ant Financial operates a range of other financial services besides Alipay. It provides small loans to those without a bank account and assesses their creditworthiness based on their spending history and their friends’ credit scores from Alipay data.
Ant Financial is also looking to expand outside of China; it has invested #US1 billion in the Indian payments company Paytm, as well as in Ascend, a Thai online payments business and M-Daq, a Singaporean financial business. Korea and The Philippines are also targeted countries and Alipay is now accepted on Carnival Cruise ships in Asia.
Alibaba’s main rival in China is Tencent, which own the social media service WeChat. This has now expanded to include ecommerce, news, gaming and payment services via WeChatPay.
The estimated 850 million active users of WeChat now have no need to leave its integrated full platform of services and WeChatPay is increasingly accepted as a payment function for all types of transactions.
WeChatPay is for example accepted at all Starbucks cafes in China and on food delivery apps, customers order on and then pay for via platforms such as WeChatPay.
Both Alipay and WeChatPay facilitate the Chinese lunar new year tradition of gifting hongbao, which was traditionally done via red envelopes with cash inside. Hongbao is now offered by virtual person-to-person transactions via these online platforms.
By late January 2017 a total of 14 billion virtual red envelops had been sent by WeChat users to their family and friends. Tencent’s WeChat is a model of how a messaging service can be monetised by using the data it holds.
For those in the financial services sector, the threat the Chinese techfins is enormous: they already have scale, scope – and they have created the own ecosystem on a completely different playing field to the one established competitors are on!
Steve Worthington is a Professor at Swinburne Business School
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
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06 Apr 2017
Why BlueNotes is wrong: fintech has not peaked
Tareq Muhmood |
I was intrigued by BlueNotes columnist Andrew Cornell’s recent article All aboard fintech’s Trojan horse which highlighted a KPMG report showing the value of Fintech investment in 2016 was well down on 2015.