Bernardo M. Villegas
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China Leads in Digitalization (Part 2)

          A recent publication of the Hong Kong-based think tank CLSA was appropriately titled “China Leapfrogs the West.”  Abundance evidence was presented in the report that China’s eFinance has leapfrogged the West (especially the United States) to become the world’s largest market, with about 500 million ePayment users, 400 million investors buying wealth-management products online and 160 million online borrowers.  Given recent trends, it is very possible that China’s ePayment volume could quadruple, while online financing and wealth management could triple by 2021.  Chinese eFinance company valuations could total US$250-$330 billion, 20 to 25% of the current banking sector.  The leading companies are Ant Financial, Tencent and JD Finance, while Ping An is the most aggressive offline player.  The factors driving growth are the high mobile internet and commerce penetration and an underdeveloped traditional financial market.  These factors could also contribute to a faster growth of ePayments in the Philippines if our millennials are entrepreneurial enough to partner with their Chinese counterparts so that they do not have to reinvent the wheel.  We are seeing an above-average high mobile internet penetration in the Philippines and there is no question that we have a very underdeveloped traditional financial market.  Financial inclusion is still a mere slogan in our banking sector.

         Filipino technologists should watch very closely Alibaba and Tencent as they lead China’s eFinance oligopoly.  Stand-alone eFinance apps find it difficult to compete given customer-acquisition costs.  Ant and Tencent use ePayment to acquire users in usage which, in turn, facilitate lending and wealth management.  Ant Financial is market leader while Tencent Finance is a close second.  Ant Financial aims to redefine China financial services.  Tencent focuses more on quality that quantity.  China ePayment is without doubt the world’s largest at US $11 trillion, sixteen times that of the US, driven by high smartphone adoption The QR code is the secret of ePayment success.  Alipay and Tenpay dominate ePayment with an 80% share, offering extensive use cases form retail stores to bike-sharing, driving China to a cashless society.  Most Chinese merchants accept both Alipay and WeChat Pay.  WeChat can be used more often as it is always on while Alipay is popular among young people for membership points.

         There are lessons that can be learned by Philippine technopreneurs from the success stories of these leading firms.  Internet companies are in a good position to go into consumer financing as they take advantage of high commerce and Payment penetration.  Alibaba, Tencent and JD already provide instalment payment and personal loans to consumers.  While internet companies use their own balance sheets to startup eFinancing and build a robust credit-rating system, their ultimate goal is to facilitate loans and earn referral fees.  A centralized credit-scoring system will boost eLending. There is, however, a big difference between Chinese and Filipino households.  The Chinese have always been very high savers.  They have solid balance sheets, but most are weighted towards property and cash.   Only 20% of assets are in financial products (versus 50% in the US).  Demand for wealth management (WM) has grown with household net worth and a rising middle class.  A fragmented WM industry creates demand for one-stop-shop platforms. Alibaba, Baidu and Tencent could very well break banks’ distribution dominance.  This handicap can be hurdled if there is a special focus on consumer segments that are becoming high savers, i.e. the households of OFWs and those of workers in the BPO-KPO industry.

         The competitive advantage of China is its enormous domestic market, estimated at 500 to 600 million middle-class individuals. It is relatively easy for any sector catering to mass consumers to attain economies of scale and reduce unit costs of products or services.  The same thing can be said of India, despite the still very high rate of poverty in that country.  With a total population of 1.2 billion, India can already boast of about 500 million middle-class consumers who have a voracious appetite for all types of consumer goods and services.  With declining rates of poverty incidence, the ASEAN countries can also boast of some 400 to 500 millions middle-income consumers who are ready for the digital revolution.  In the Philippines, a large majority of these consumers belong to the households of Overseas Filipino Workers and of those employed in the BPO-KPO industry.  These segments of the consumer markets are among those most ready to take advantage of eFinance, eTravel, eCommerce, and eLearning. 

            Millennials in the Philippines can follow the example of their counterparts in China.  Chinese internet platforms are relatively creative, and domestic consumers are highly receptive to new products compared to the West.  A survey conducted by CSLA with 641 respondents showed that China eFinance is already embraced by millennials.  Ant Financial is the market leader across all eFinance payments (payment, personal loans, consumer loans and wealth management), followed by Tencent and JD.   Alipay and WeChat Pay dominate the offline payment market with 50% share, driving China to a cashless society.  Online personal-loan penetration is low, but online consumer loans and eWealth management adoption is surprisingly high.  eFinance serves the needs of the young generation who seek for small loans with short duration and fast approval as well as better return-to-risk investment products.  Approximately 60% of respondents expect to use more eFinance services in the next 12 months.  Let these impressive figures from China inspire our entrepreneurs in the digital space to be equally creative in tapping the potentials in the eFinance ecosystem.  Not only can they make profits from digitalization.  Many of the successful eFinance models can also address financial inclusion.  They can give access to financial services to some of the marginalized members of our society, i.e. farmers, OFWs, teachers, soldiers and service workers.  Digitalization will give way to many social enterprises, those that are organized for profit but whose founders have a social mission to fulfil in one way or another.  For comments, my email address is