Why do young people and smartphones become the nightmare of the banking industry?

Not only is Alipay, WeChat Pay in China but other Asian countries like Korea also began to deploy payment services on phones, attracting a ...


Not only is Alipay, WeChat Pay in China but other Asian countries like Korea also began to deploy payment services on phones, attracting a group of "digital native" customers under 30 years old.

Meet the Cow is the milk tea store of Peng Xuia in Hangzhou, China. Customers here are mostly visitors, but the number of remote orders via phone is increasing. Recently, Xuia has registered to use an Ant Financial small business program and customers can pre-order using Alipay or Ant payment application. Accordingly, she found that the number of customers has increased from about 50 to nearly 70 guests / day. Payment procedure is extremely easy, just scan the QR code.

In another area in Hangzhou, Zeng Ping'en looked around his electric motorcycle shop with a proud face. He used a loan from Mybank - Ant's digital bank, to redecorate the store. The loan procedure took only a few minutes, he said: "One click on the phone is that I received the money." Moreover, the withdrawal and payment conditions are also extremely convenient, the interest rate is only a few yuan per day - perfectly reasonable for people like Ping'en. Traditional Chinese banks only facilitate lending to businesses, so without Mybank, Ping'en must borrow from friends and relatives.

Ant is the Fintech company of Alibaba. When Alibaba developed, their payment field began to allow transactions between people and people, and then a purchase at physical stores. Alipay was founded in 2011 and changed its name to Ant Financial. Currently, this is one of the largest financial companies in the world. In the latest round of capital mobilization last year, Ant was valued at $ 150 billion. Alibaba said it will buy a 33% stake in the company.


Ant's rival is WeChat Pay from WeChat - China's leading messaging app. WeChat Pay and Alipay have changed the commercial form and daily life of the people here, enabling them to use the phone payment method by scanning the QR code, bypassing the form of payment by Credit and debit cards. Everything can be done through these applications, including plane tickets, train tickets, movie tickets, taxi calls, electricity bills, food orders and many other activities.

Over the past 5 years, Ant has grown not only in the payment or other financial services sector. In 2013, they launched MMF fund named Yu'e Bao (hoarding treasure), with just one click, users can enjoy the profit on the balance of their Alipay account by depositing money in Yu. 'e Bao. As of March 2018, the fund held assets worth 1.7 trillion yuan ($ 250 billion), making Yu'e Bao one of the world's largest monetary funds.

In 2015, Ant started providing revolving credit services. The following year, Mybank was born - a service that uses Alipay data to set interest rates and credit limits for small business loans. In the same year, Ant Fortune was "released", allowing users to access Yu'e Bao and other digital funds and a range of asset management products from 30 companies.
The nightmare of the banking industry
Surprised about Ant's expansion, in the past few years, Chinese managers have had to find a way to curb their growth, giving daily limits on Alibay transactions and restrictions. traffic - exit of Yu'e Bao. Similarly, overseas management agencies are also wary of Ant's ambitions. Last year, the United States blocked Ant's acquisition of MoneyGram, because it is a service provider that can use it at 350,000 retail stores globally and is a well-known company in the US - The world's largest Fintech market.

This failure caused Alibaba to change its strategy. Back home, Ant's leadership team is discussing, supporting banking giants, finding new customers and becoming more agile. The plan to expand abroad is also reconsidered. Currently, the company is focusing on allowing Chinese people to use Alipay abroad, which is now available in 54 countries and hundreds of thousands of stores. Moreover, they also expand business to developing countries. Ant currently holds shares or cooperates with companies providing electronic payment services in Bangladesh, India, Malaysia, Mexico, the Philippines and Thailand.

Ant's incredible expansion is both a cause and a consequence of major changes in Chinese life: rapid development, rapid urbanization and a new middle class with generous views. appear. However, this situation is also an example of a greater change in the provision of financial services. These changes have crossed the Chinese border.

Many bankers in developed countries are concerned that Ant's plan to expand outside China will only be temporarily postponed. Not only that, the other "big men" in the wealthy world must also be cautious, because a "big foot" with great ambitions will make "good pieces" not as much as before. And Ant's "platform" approach, which provides a mix of financial and non-financial products from other companies on their application, poses a challenge to current accounts. The challenge is a central relationship with the banks of most people in rich countries. If it is broken, what banks will have to do to cross-sell loans, mortgages or insurance, profits from interest rate differences and commissions, or fees for irregular services like foreign exchange Or overdraft?

Ant's chief legal officer Leiming Chen said banks have nothing to fear because Ant knows his role is not to replace them, but to help them serve customers in areas they can't approach. Ant's goal is to create technology value, not deploy capital to support loans. "The idea that we are a troublemaker or a threat to traditional financial institutions is completely wrong," he said.

Even so, these organizations still feel frightened. Affected by Ant's approach is just one of their nightmares. On the other side of the hemisphere is Amazon, often rumored to be "encroaching" on financial services. Another case is Korea's KakaoTalk messaging app, or Grab and Gojek in Southeast Asia. Therefore, some bankers are concerned that customers may have "opened up" for "neobank", like Monzo in the UK or N26.
How do banks need to act?
Mobile phones allow financial products to link to other services in relatively new ways. For example, Ant's rival, "giant" Tencent. This company entered the payment field in 2013. At that time, they still did not attract customers until launching the program to send lucky money to friends and relatives in the new year. In 2014, WeChat Pay launched the "red purse" feature, which had 40 million yuan sent during the Lunar New Year. In 2015, 500 million yuan was sent in just one day.

Although Alibaba has released a similar feature, it is not possible to gain popularity like WeChat, because WeChat Pay has become a fixed application on Chinese phones. WeChat continues to benefit from the country's most popular messaging app location. WeChat Pay's mobile phone transaction rate has increased steadily and accounted for 39% of the value and Alipay was 54%. Tencent also offers personal loans and launches an online bank, WeBank. Going deeper into Tencent's financial services market will put pressure on Ant's current position.

According to the Economist, banks will have to create themselves to survive the restructuring of the industry. This process will provide a way for them to understand the upcoming war, which is banks, fintech companies, neobank and customers with innovation. Along with that development in each country is driven by the power of banks, local market habits and views of regulatory agencies.

Fintech companies will have to focus on Asia, which has a young population, a market for fast-growing financial products and where financial authorities are seeking to promote competition. by encouraging new banks, notably in the UK. They have not had many opportunities in the US, where digital banks have not developed or have a great influence on the industry. Banks here are "surrounded" by a series of state and federal regulations, operating an independent digital bank is impossible.

Because the innovation pressure comes from the mobile phones themselves, the best way to look at this battle is to observe it from the perspective of the most active user group: under 30 years old. Although many people are moving to mobile banking, the future of this industry is clearly in the hands of "digital native". Currently, the most potential place to start mining is Korea.
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High Tech Brain: Why do young people and smartphones become the nightmare of the banking industry?
Why do young people and smartphones become the nightmare of the banking industry?
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