Chinese technology firms are set to make huge inroads into global fintech markets, according to Melissa Guzy, co-founder and managing director of Arbor Ventures, speaking on a panel at Money 20/20 in Amsterdam this week.
“Chinese tech companies are going to southeast Asia, going to old banks running older infrastructure and telling them: ‘Fine, keep running on old infrastructure, we’ll set up something that’s going to mirror transactions every single day.’ They’re not going to charge $5m for a project that takes months but set something up in weeks and only take payment on new account openings. Temenos, Jack Henry, banks and legacy vendors are going to wake up to this new world.”
Michal Kissos Hertzog, CEO of Israeli bank Pepper, added that European challenger banks have also changed the landscape. “It’s mind-blowing. When we first thought about Pepper we were looking at banks which nowadays are irrelevant. Incumbents are trying to react to a changing market.”
An audience poll taken during the panel indicated 58% of those present believed China would be the global leader in future fintech. “Asia is about the supercity consumer,” said Guzy. “The apps which Chinese companies have created are helping to solve problems in people’s everyday lives.”
Pepper’s Hertzog added that when people go to sleep, “they don’t think about the mortgage product they want, they think about the house the want to buy. It’s a different value proposition, and it’s not as simple as having a digital skin.”
For Guzy, a product-led proposition just does not matter to the demographics which Chinese firms target. “These people don’t have bank accounts. What’s a bank account to them? What QR payments give them is a way to participate in ecommerce and pay for things without cash. It’s a completely different infrastructure for a group of people who participate in the system in a completely different way.”
Matthew Chen, CEO of Sunline International Business, a Chinese core banking provider, agreed. “If you compare China to America less than 20% of people have credit cards in the former,” he said. “There are plenty of underbanked people, you have beggars collecting money with QR codes. The legacy is not there, and therefore the technology can do wonders.”
In May the Hong Kong Monetary Authority granted Tencent, Alibaba and Xiaomi a set of digital banking licences, with all three intending to launch propositions within the next six to nine months.
“Regulation is always the most important piece in the sector,” he added. “In China, unlike the rest of the world, there is no small sandbox approach. The whole country is a sandbox. There is no way to regulate something like that in real-time, so the regulators created black and whitelists. When the dust settles the government will come in and provide licences.”
Hertzog added that while regulation can seem like a burden, it can also be seen as an enabler. “In Europe you see PSD2, GDPR and Open Banking. A lot of traditional banks look at these and say, ‘oh what can we do with that’ but challengers will often say, ‘my consumer has a problem and these [regulations] can help them’."