The Story Behind Fintech in China

One significant development in business is the rise of financial technology, referred to as “fintech.” This is the growing integration of technology with finance in order to improve and automate financial services, thereby increasing the convenience of financial operations. In the past year, significant advances in fintech have been on the way in East Asian countries; this article will specifically discuss the rise of fintech in China. 

China wasn’t on the frontiers of modern finance. Before their entrance into the WTO, the whole system was running on cash, which meant they lacked credit assessment data. Of course, China could’ve easily caught up with the world by allowing western companies and their payment systems, such as MasterCard and Visa, into domestic markets. But they were reluctant, fearing it would harm their own payment procedures as they couldn't compete with such experienced financial companies. As such, the process was slow; their first payment system was UnionPay which was very far behind to start competing and, due to multiple factors, wasn’t innovative. 

The first breakthrough in fintech was by the famous billionaire Jack Ma. He made two websites. The first was Alibaba, which is a business-to-business service. The second was Taobao, an e-commerce marketplace. This relates to fintech because Jack Ma noticed that consumers had trouble with payment. This is because they couldn’t pay with credit, which is usual for business interactions, and they don’t want to pay in advance as they don’t trust the other party in the exchange, hindering e-commerce growth. So, he created Alipay, which works like this – consumers pay, Alipay holds the money, and once consumers receive the goods, Alipay pays the producer. This brought about change as Alipay had to interact with banks while developing a whole payment system for the internet. 

Over time other companies joined in with Alipay. The first instance whereby these fintech companies came to compete with ordinary banks was when they started getting into real-life stores. One of their innovations was using QR codes instead of cash.  Once this became the primary payment method, it opened multiple potentials. For instance, they went into the investment and debt markets, and then their significant innovations, or what some would call a dystopia, were the Super Apps. These apps are like Swiss army knives. They can do multiple services, including payments. Through these apps, you can pay for utilities, insurance, food, taxi, etc. Some with less technocratic affinities would call it a dystopia, as do you really want to have your real life all in one app for convenience? These applications are now being expanded beyond Chinese borders.

The story of China and fintech is extraordinary. From a country where you could barely access credit or any e-commerce without crippling obstacles to them now being advertized on your phone. These Super Apps have made China a formidable competitor, and it has just started. The new network and payment infrastructure it developed and the data gained can produce incredible innovation. However, there are downsides, especially regarding data accumulation leading to privacy concerns – as if the current businesses don't have enough. Furthermore, during covid, it provided an easy way of controlling the population by providing a health pass with which you can only imagine the dystopic scenario it could bring about. For more on the topic, I would recommend “The Cashless Revolution” by Martin Chorzempa.