bobsguide spoke to Zennon Kapron, founder of Kapronasia and recognised fintech thought leader prior to his two sessions at Sibos this year. He explained the journey digital adoption has taken in China and the APAC region and how financial institutions and payments providers in that region are working towards improving the exclusion problem.
How does Kapronasia fit into the fintech industry?
We are first and foremost a market research and advisory firm focused solely on the Asian financial industry with offices in China, India and Singapore, which gives us a gives us a deeper level of insight into the region than many of our competitors. We have always been in the financial technology space, so the transition to ‘fintech’ was quite easy for us and although we certainly do product a number of fintech releated reports, our most important role is to identify, explain and interpret the major industry trends – fintech or otherwise.
Why is China so digitally savvy?
China is a big place and often the phone is the only link people have to parents, friends and co-workers who may be hundreds of miles away. For many Chinese consumers, their mobile phone is their main, and in many cases, only personal computing device and is a critical part of their life. The younger generation, like many countries, is also incredibly technically savvy and millennials have very quickly adopted digital for anything from chatting with friends to ordering lunch.
What makes the mobile phone so popular?
We’ve almost skipped the computer in China’s technology evolution and gone straight to the smart phone. As many of the world’s largest manufacturers and assemblers of mobile phones are here in China, the smartphone manufacturing industry is very strong and you can get a fully-functional Android smartphone for less than $100. Combining that level of base functionality at that price-point, has made it very easy for China to embrace the mobile phone.
How did mobile payments gain traction on such grand scale?
Digital payments, and potentially start of ‘fintech’ in China, started off with Alipay and the fact that Alibaba was looking to get a payment platform that covered escrow for their ecommerce platform. There was an element of trust that was needed between the buyers and sellers that just wasn’t there before Alipay. Gradually consumers started to get used to using Alipay online as Alibaba’s e-commerce platforms grew, then, as more platforms started accepting digital payments, included offline merchants, usage took off.
Where do other players like Tencent fit in to this story?
Tencent was responsible for what could be considered the second wave of digital payments where payments became an integral part of the platform. Tencent already had the country’s largest social chat platform in WeChat. When they integrated Tenpay into WeChat to create WeChat Pay, suddenly social payments were a real option. At the end of 2014, Alipay’s digital payment market share would have been about 95%. Shortly after WeChat pay launched, Alipay started to lose marketshare and Tencent grew from nearly nothing to about 15% of the mobile payment market.
Why open up Kapronasia in Asia?
The easy answer is Asia is where I was at the time. I studied computer science and started my career at Citibank in New York and I moved over to Europe to then go back to complete my MBA. I moved to China with Intel in 2004 so I have been working in this region for 12 years. After I left Intel, I saw a need for quality insight and market intelligence on the financial industry in China and Asia, and setup Kapronasia to fill that gap.
Is financial inclusion a problem in Asia?
Financial inclusion is something that governments across Asia have struggled with for years. In many countries, like China, economic output is centered in a few main cities and regions and the rest of the country lags. The biggest challenge for these countries seems to be getting viable business models that actually make sense for the banks or other players that could potentially fill this gap.
Using China as an example, setting up a branch network in a smaller city is difficult to justify. The actual capex to setup a branch network is large and then finding a profitable business model is challenging. There may not be many people, the incomes might be low, creditworthiness unclear, etc. Some Chinese regulators and financial institutions have been working towards more financial inclusion, like HSBC, but bridging the gap is problematic.
Does this mean that digital can help?
Despite all of the work of regulators, the government and traditional banks, they can’t seem to make something work for financial inclusion, so we are increasingly seeing third party providers move in to fill the gap. For a digital player like Alipay to setup in a small town, the costs are much smaller than a traditional player. There’s no infrastructure beyond a working telephone line required, so coming up with a business model that makes sense is much easier. Couple that with the fact that they can offer an e-commerce platform and credit scoring along with the payment functionality like Alipay, and all of a sudden financial inclusion becomes a reality.