How China’s banks are competing with bigtech

  • By Jame DiBiasio

It is difficult to visit China these days because you can’t pay for anything. 

You can hail a ride or order tickets or even feed yourself unless you are using one of China’s two “superapps”, AliPay or WeChat Pay. 

Superapps are a Chinese innovation. 

In the West, our digital lives are parsed among the likes of Amazon, Facebook, Google, eBay and Netflix. Alibaba, an ecommerce company, added payments. 

Its competitor Tencent, which operates the social messaging app WeChat, did the same.

By layering the ability to pay for things on top of all the other things we use computers for – especially our mobile phones – AliPay and WeChatPay cemented themselves at the heart of Chinese commercial life.

It seems everything that happens now in the lives of middle-class Chinese people is done out of these two ecosystems: lifestyle purchases, games, social media, news, investments, business finances, insurance, consumer borrowing – everything is contained in those two superapps.

Alibaba and Tencent also see the data that consumers and businesses produce whenever they search, scroll, and buy. 

Banks don’t see that data. The government does, but it’s not seamless, which is one reason why the People’s Bank of China is piloting a digital currency. 

A digital yuan, which will exist alongside physical cash and one day may replace it, will also help the government better supervise AliPay and WeChat Pay, serve as a backstop should there be a failure in a corporate server, and to ensure money can flow freely between these two closed-loop ecosystems.

The private innovation of the superapp is therefore leading to the government innovation of fiat currency that is purely digital, and programmable. Programmable money.

The superapp phenomenon has also rendered China’s commercial banks almost irrelevant to the lives of consumers and small businesses. 

The Communist Party of China is suspicious of private companies, even national champions like Alibaba and Tencent. 

These still need a bank account, but just as a means of getting a superapp payments account and a way to funnel money there.

Banks in China have learned to live with Ant Group (the entity now holding AliPay and Alibaba’s related financial services) and WeChat. 

These technology platforms rely on banks’ balance sheets for lending. But without the consumer data, banks can’t innovate. 

They have retreated to serving wholesale markets, especially state-owned enterprises. 

The same is true of China UnionPay, the country’s major credit-card company: in terms of cardholders, it is bigger than VISA or Mastercard, but it is merely a vendor for the superapps.

The Communist Party of China is suspicious of private companies, even national champions like Alibaba and Tencent. 

Its digital currency project pointedly relies on big state-owned banks and telecom companies to disseminate digital renminbi to retail users – not Ali or Ten. 

It has also forced the internet companies to settle payments via the central bank, so the authorities can prudently manage the economy.

This is reminiscent of how China invented paper money in the ninth century. 

Merchants in the bustling but distant city of Chengdu worked out how “flying cash” could let them move money among accounts at great distance, without having to carry strings of coins. 

Once the government understood what was happening, it coopted paper banknotes, imposing a monopoly on their issuance – and replacing banknotes’ value of merchants’ collateral with the naked decree of the emperor.

Today, China’s banks are digitizing at a furious pace, although this is probably more to win new market segments than go after the retail and small-business customers that the tech companies now own. 

China’s advances in artificial intelligence, 5G communications and distributed-ledger technology are laying the groundwork for a new global financial infrastructure, with banks playing an important but subservient role.

For Western financiers and regulators, watching the Chinese fintech story unfold has been unsettling (or, at least, it should be). 

The question is not whether we will still have banks. It is whether those banks will defend the margins of their brands, or whether they merely become vendors to bigtech

They don’t want to suffer the same fate as Chinese banks.

The unique circumstances that made Ant and WeChat kings in China do not exist in the West, nor in emerging markets. China’s example is a warning, however, that digital platforms can rapidly overtake the relevance of an incumbent.

Consumers everywhere want finance to be as easy as buying something on Amazon. 

“Open banking” is an industry term that means consumers can require banks to share their data with third parties, be they fintechs, ecommerce sites, or other banks. 

It’s the law in some places, a convention in others. 

The rise of all-digital challenger banks and upgrades in payments infrastructure in many countries adds to the pressures on incumbents.

Banks in the rest of the world, having seen what could happen if they remain complacent, have responded with better, digital offerings, partnerships with consumer services, and their own standalone mobile-only brands. 

WeChat has shown the power of integrating money with social media and lifestyles.

Now from Singapore to San Francisco, financial services are scrambling to get ahead of the Information Revolution.

The question is not whether we will still have banks. 

It is whether those banks will defend the margins of their brands, or whether they merely become vendors to bigtech and savvy corporations with millions of customers.


Jame DiBiasio is author of Cowries to Crypto: The History of Money, Currency and Wealth. The book is illustrated by Harry Harrison and is published by OANDA. It is available now from amazon.co.uk