For more than 20 years, there have been great expectations for the future in China, after the country joined the World Trade Organization (WTO) in 2001. Year on year ever since, there has been massive growth in trade and wealth across the country, with megacities emerging, many with populations of more than 10 million, from Chongqing and Chengdu to Harbin and Tianjin.
Studying the development of China since those days has been fascinating. For example, IT spending in China’s banks increased 32% annually from 2004 to 2007, rising from $10.1bn to $23.2bn, which is faster than anywhere else in the world. Seeing this trend, I forecast that half of the largest banks in the world would be Chinese by 2010.
At that time, there were a few Chinese banks climbing the table, but most were from the US. Today, using The Banker’s annual Top 1000 World Banks ranking, in 2023 half of the top 10 banks by Tier 1 capital are Chinese, with the four largest banks in the world based in the country.
Meantime, alongside the rise of these banks, one of the big innovators in commerce and society has also emerged, namely Ant Group’s Alipay, which has expanded from payments into core banking offers in the form of MYbank. This is the leading internet bank in China and an associate of Ant Group, serving 50 million small and medium-sized enterprise clients since its establishment in 2015.
The question we should be asking in Europe and the US is: what can we learn from these developments?
Having visited China and spoken to many of these banks, the main lesson is rapid cycle change with exact precision.
For example, China’s traditional banks were actually reborn in the 21st century. In the last century they were state-owned but, since the agreement with the WTO, the Chinese banks were set free — relatively — and therefore built technology-led financial systems using the best new technologies.
Before, you had to be an expert in using an abacus to work in the bank; today, you need to be an expert in Python.
This is a key differentiation: as the internet matured in the late 1990s and, when set free in 2001, the Chinese banks created network-based systems. Ever since my meetings with these banks, I refer to them as “born on the network”; most of my bank buddies in Europe were born in the branch. That is a key difference.
Read more
Another big difference came about when I was writing a detailed case study on Ant Group, the spin-off company from Alibaba which runs its payment app, Alipay. I was fascinated that the company regenerated its systems architecture around every three or four years. As a European, I was used to seeing banks regenerate their systems almost never.
Why would you regenerate every three or four years? Because of growth. Evolving from scratch in 2001 to more than a billion Alipay users in 2023, you have to constantly change and regenerate. That was the lesson gleaned from Ant Group.
Similar lessons can be learned from other internet banks in China, such as WeBank, the Tencent financial inclusion platform, whose per-account IT operational and maintenance annual cost is about $0.40, a tenth of the cost at regular big banks. Xiaomi-backed XW Bank can process online loan application in under 40 seconds, with the fastest processing taking just seven seconds.
More recently, it has also been interesting to see how these companies are moving into serving small businesses and international expansion. In fact, at the recent Singapore Fintech Festival, I was taken with the forward strategy of Ant Group’s overseas business group, Ant International, which is based on travel, trade, technology and talent.
The idea began in 2015 by supporting payments of Ant’s self-run Alipay app at global merchants before the company launched Alipay+, the cross-border digital payment technology and marketing solution, and expanded the support to other popular digital payments including e-wallets and bank apps.
Eight years later, as of November 2023, Alipay+ connects more than 88 million merchants in 57 countries and regions to 1.5 billion user accounts on more than 25 e-wallets and banking apps. That actually means that consumers can travel and pay worry-free across borders, while merchants can do more business. Sounds good to me.
There are more nuances to this discussion, but the key lesson from Asia, and China in particular, is the numbers. These companies are deploying technologies in rapid cycles, refreshing them regularly and reaching out to millions with resilience and reliability. There are very few similar examples — unless you look to India — but the sheer ability to deliver systems at this scale blows my mind. Most banks in the West are proud to get a few million, let alone a billion.
