Larry Summers, former director of the National Economic Council for President Barack Obama, writes a regular column in The Financial Times. His latest piece is his take on FinTech, which has the main headline that FinTech is taking away frictions in finance. Yep. The frictions are illustrated by things like interchange fees, the length of time it takes to clear cross-border cheques, the charges per transaction for basic banking services, the high overheads of insurances and interest on mortgages, etc.
He provides comparisons of the impact FinTech will have on banking being like:
FinTech to banking is like Skype to telecoms – drastically reducing margins; or like Netflix to Blockbuster – yes, some banks will go bust
Ten years from now, he predicts that one or two firms will have valuations of $250 billion, the value of America’s biggest bank JP Morgan Chase, and maybe hadn’t noticed that Ant Financial is heading that way already.
A further prediction is that the American internet giants won’t get into banking:
I am “sceptical of the idea that one of the big tech players like Apple, Google, Facebook and Amazon would also become a big player in financial services (due to) the traditional American aversion to combinations of banking and commerce and also that I thought privacy rules would preclude their using their massive data troves to drive lending activity.”
This illustrates the difference between the Chinese internet giants – Baidu, Alibaba (Ant) and Tencent (Wechat) [BAT] – and the American ones. Google, Apple, Facebook and Amazon [GAFA].
BATs are integrated versions of a Facebook, Amazon and PayPal in that they offer social, commercial and financial all-in-one app. A great illustration is the Alibaba story, which talks about their mobile app as a complete ecosystem:
- you see the latest Jackie Chan movie at the cinema, where you buy the tickets with Alipay;
- you order the streaming version of the movie, when it is released, as you leave the cinema in the app;
- you get a note saying that there is a new Jackie Chan sequel being made next year and would you like to take part in the crowdfunding of the movie;
- you put $1,000 towards the movie, and receive a Jackie Chan T-Shirt as a thank you;
- you get regular updates about the movie being made, and join the social chatroom about the movie;
- you form a fan page, and start selling Jackie Chan memorabilia through the app;
- you get an invite to come to the movie premiere;
- you go to the premiere and buy a whole load more Jackie Chan stuff; and
- you receive payment returns on your crowdfunding investment.
And all of this is in the app. You never leave, but just move between the different states seamlessly in the app.
That is quite something, and now we see the BATs moving into Europe and America. Alibaba has a joint venture with Ingenico and Wirecard in Europe, whilst working with First Data and acquiring Moneygram (probably) in the States. Many think these movements are to allow Chinese tourists to pay easily when on holiday through the app – more people us mobile payments in China than cash – but as Alibaba have made clear their mission is inclusiveness, I fully expect them to be onboarding Europeans and Americans in the next few years to their apps.
Equally, the same goes for Tencent, who have quietly launched in Europe (France, Germany, Italy and the UK) and America. Admittedly, WeChat with 768 million daily users and Ant Financial with 400 million are large-scale services and, with that scale, what is to stop them going global?