Chinese Internet Giants Alibaba, Baidu, Tencent, Lead Fintech Revolutionby Fintech News Singapore May 10, 2016
Disruptive innovation in banking and payments is overwhelmingly coming from China. Established global banks had better watch out or they may soon not have a future, according to Haydn Shaughnessy, co-founder of The Disruption House and author of Platform Disruptive Wave.
The BAT (Baidu, Alibaba and Tencent) are now highly scaled Internet and mobile platforms and are excelling at a new form of deeply integrated business based on the ability to maintain near flawless platform performance.
Shaughnessy, who names Alibaba as the most innovative financial institution on the planet, argues that the likes of Alipay, WeChat and Tencent have developed platform-based financial services, starting in areas such as e-commerce, to include integrated escrow, payments, wealth management, business loans, logistics, and much more.
Alipay is a third-party online payment platform launched in China in 2004 by Alibaba Group and its founder Jack Ma. As of 2014, Alipay had the biggest market share in China with 300 million users and control of just under half of China’s online payment market.
“What’s relevant to Alibaba is that it has integrated logistics with payments with merchant to consumer trade,” Shaughnessy told IBTimes in a recent interview.
“It’s really important to understand that this is not about payments as such. That’s a low margin, high volume business and a very over-crowded market. […] What you have there is the beginning of a new global trade system. That’s what I think people miss.”
Shaughnessy noted that Alibaba has established all the necessary trust factors after being in that business for 15 years. He said that the firm is now an integral part of what China is trying to achieve politically, by allowing, notably, the development of bi-lateral trade corridors with countries and regions that have strongly emerging middle classes such as India and Africa.
“There are a good number of reasons for trading bi-laterally between Kenya and China, for example, and between certain parts of India and China, rather than trying to become a major player in the global multi-lateral trading environment that western financial institutions dominate and where the dollar will remain king,” Shaughnessy said.
“The upshot of this is I think what China does in India and what it does in Africa and Asia will, over time, compress opportunity for western multinationals. That’s probably a more effective way of competing with them than to try and come to Europe and to the US and try and do plot market entry strategies against strong incumbents.
“China and Alibaba are practicing a different type of geopolitics, if you like. If you look at the overall picture western multinationals will be short of growth at home and competing on China’s terms in the main growth markets.”
In a separate report entitled ‘The Platform for Disruption,’ Zennon Kapron of Kapronasia and Shaughnessy, argue that the advantages that the BAT are creating from their base in China will have a global impact, affecting the economy, trade and payments.
As the BAT move further into financial services and products, banks and incumbents will need to further consider how and what they provide as additional products and services to customers.
“The BAT have already shown that services like wealth management can be provided to anyone at an affordable price, relative to the value, which often means incredibly cheap,” the report says.
“In China, this has already increased the cost of capital for banks as deposits move onto these online finance platforms and is affecting product revenue as distribution channels shift away from the traditional models to online and mobile.”
Featured image: Chinese Dragon Lantern via Toa55, via Shutterstock.