The huge success enjoyed by Ant Financial highlights Asia’s booming fintech markets. The European financial industry and technology scene are being put on the spot as a result. We take a look at the backgrounds and examine the prospects.
Last week, we learned that the Chinese payment processor Ant Financial managed to collect a further 14 billion dollars in a new financing round. With a valuation of 127 billion euros according to Bloomberg, the operator of the Alipay payment service is the most valuable fintech and start-up company in the world – a flagship company of the former parent company Alibaba, which still has a controlling interest in the company. According to a statement in the manager magazine: “The company primarily needs the money for global expansion and also to respond to increasingly strong competition in the domestic market from Tencent for example.”
Alipay and PayPal are worlds apart
Chris Skinner warns against misjudging Ant Financial and Alibaba as purely Chinese players: “Ant Financial is an open marketplace of apps, APIs and analytics, that I’ve been describing for a while as the Open-Source Financial Marketplace. They got the idea before many others and, unlike many others, have the billions of dollars to make it happen on a globalised basis.” Around nine trillion dollars were processed via the Alipay mobile payment platform in 2017, while PayPal recorded comparatively low payment flows to a total value of 451 billion dollars.
The ant in its name suggests that Ant Financial primarily concentrates on the little people. “That describes the business model remarkably well, after all a large proportion of the customers belong to the group known as the ‘underbanked’ – people or small businesses with limited access to the financial services that are normally offered in retail banking”, writes the Handelsblatt. That may explain the clear distance between Alipay and Paypal, with the American company targeting a well-supplied banking market. Asian fintechs are causing a stir in other areas as well. More than two billion US dollars were invested in the market there in just the first quarter of 2018, representing a growth in financing of 188 percent compared with the last quarter of 2017.
To start with, financiers from Europe and the USA are looking for alternatives to the saturated domestic markets and they are also expecting high yields due to the quickly growing middle class in many Asian countries and the high level of affinity with smartphones as demonstrated by the people. Western financial institutions are also looking for possibilities for cooperation with the strong Asian players. Among other things, they intend to serve their demanding customers in finance hotspots, such as Singapore and Hong Kong, with innovative wealthtech solutions.
No fintech revolution without genuine innovation
In his presentation of the future study “Banking 2025”, Prof Dr Remigiusz Smolinski, VP Business Development and Innovation Management at comdirect Bank AG, states that the great fintech revolution has been absent thus far. In his opinion, this is due to the fact that the offers of the start-ups are not necessarily innovations in the narrow sense of the word: “An innovation differs from a good idea or an invention due to the fact that the innovation is not just seen as promoting development internally, but is also seen by the customers as relevant to their needs.” It is sometimes difficult for customers to recognise the added value of the offers. The figures stated above prove that it is clearly easier for people in Asian countries to recognise the use of various applications in their daily life. Anyone who does not have a house bank will be glad to have the opportunity to pay by smartphone without having to provide their own corresponding infrastructure.
The “Banking 2025” study also suggests that both banks and fintech representatives increasingly regard one another as cooperation partners. The more large technology companies push into the market, the greater the demand on financial institutions, “to shorten their innovation cycles in order to remain competitive,” which should push cooperation with fintechs. “The banks must set up their services, products and their internal and external processes more flexibly so that new technologies can be anticipated as quickly as possible. They can also enter into strategic alliances on this basis,” Prof Dr Remigiusz Smolinski states. “The key to the future success,” he argues, can be found in the: “suitable use of open API interfaces.” With our Digital Banking Hub, financial institutions achieve a form of open banking which enables this type of use. This makes it possible to not only stand up to GAFAs with their US American origin, but also to companies such as Alibaba and Tencent.