n China, people use apps like Alipay or WeChat from their smartphones to split accounts into restaurants, invest their salaries with a single click and pay for services.
A change in financial lives
“Alipay, of Ant Financial, and WeChat, of Tencent, are unique windows that allow half a billion Chinese to access an incredible variety of services, from payments, loans, investments and credit scores to taxi trips, travel bookings and social networks “, explains the MIT Technology Review. “They have changed the way many people live their financial lives.”
On the other side of the coin, in the United States, people pay overwhelmingly with plastic and write billions of paper checks every year.
In Mexico, Banxico launches CoDi, the plan to make payments through QR codes that would lead the country to be like China.
How did China manage to be ahead?
The MIT Technology Review listed the reasons why the United States is still far from reaching China in this race towards financial inclusion thanks to fintech.
China was already prepared for a payment revolution because there were no alternatives
Fourteen years ago, only 7.3% of Chinese people used the Internet, while 65% of Americans already used it.
In 2004, Alipay was launched in China as a simple payment option. Previously, the financial system had a minimum technological level, public state banks were bankrupt due to bad loans and users had to suffer long lines in bank branches, so the emergence of a new option and all its facilities was well received and He also did not have to face other established competitors.
In contrast to the West, “where traditional financial companies have always provided decent options for loans, payments and investments,” any new fintech company has to face companies the size of Visa and MasterCard, underlines the MIT Technology Review.
Many of the fintech innovations that were so much promoted in China were actually adaptations of other technologies that had previously been used successfully in other areas.
QR codes, for example, were used in Japanese supply chains since 1994.
The dangers of the system
According to the publication, the Chinese system is “a hacker’s dream and a nightmare for privacy.”
The ease of making all payments using a single app is also a risk, since the accounts of payment platforms are the target of a large number of hackers. A similar problem is represented by Facebook, which many people use to log in to other sites.
The information of the users that Tencent or Ant Financial owns is much greater than that of the US companies of their clients and could be used against them, for example, making them pay more if they believe they have the resources to do so.
The opportunity to grow without regulation
The lack of regulation for many years, coupled with the innovation that emerged from this gap in Chinese laws, meant that fintech could grow without rules in the market.
In the United States, the approach was different. Fintech companies that were born had to comply with a regulation. An example of this obstacle is PayPal, which had to go state by state to request licenses as a money transmitter.
Those excluded from the system
Fintech services leave out older people, those who are not regular users of technology or have limited knowledge and foreigners and tourists.
While cash loses attractiveness as a means of payment, this characteristic of the system in China is something that other countries should be careful not to emulate.