China is digitising at a rapid rate and has become the hotbed for innovation in Asia. Here, Ernesto Pittaluga, Citi’s Asia Pacific Sales Head, Treasury and Trade Solutions, details what is behind this and how digitisation is also sweeping across the whole Asia Pacific region.
Asia Pacific Sales Head, Treasury and Trade Solutions
The pace of digital evolution in China is nothing short of remarkable. In an exceptionally short time, the country has transformed from being behind in the technological stakes to one at the forefront of innovation. It is now blazing a path for other markets around the world to follow. This is especially true for China’s financial services sector, where fintech is booming. Indeed, data from Oliver Wyman shows that in 2016, venture capital investment in Chinese fintech firms topped US$6.4bn, representing 47% of global fintech investment1.
A variety of forces are driving the growth of China’s digitised economy. One of the most important is the regulator’s ‘light-touch’ approach to fintech firms, which allows them to experiment and quickly bring new solutions to market. This regulatory approach has been especially beneficial for China’s internet giants, Baidu, Alibaba and Tencent (often referred to as BAT) who have been able to develop a host of innovative financial solutions, such as WeChat Pay and Yu’e Bao.
These products have become widely popular in China because of the country’s expanding internet user base – in 2016, China had more internet users than the United States and the European Union combined. What is more, the majority of these internet users are tech-savvy and primarily use mobile devices, which have become vital tools in their day-to-day life.
Although China is leading the way with regards to digitisation in Asia Pacific, digitisation activity across the entire region is vibrant. In Singapore, for instance, regulators are focusing on creating a pan-Asian digital ecosystem, especially around trade and payments. The city state’s aim is to solidify its position as one of the region’s leading financial centres.
India is another market taking notable strides forward. Comparably, India’s digitisation efforts are largely focused on removing friction in the domestic economy and enabling the country’s vast unbanked population to gain access to financial services. However, in India, it is the government, not private enterprise, leading the charge. This is evidenced through Modi’s Digitise India initiative that has given launch to Aadhaar – a unique identification number based on biometric information issued to residents of India – and a new Immediate Payment Service (IMPS). Banks and fintech firms are now leveraging these platforms to bring a wealth of innovative digital financial services to individuals and business in the country.
Elsewhere, all other countries in the region are pressing ahead and building faster payment rails. Indeed, by 2020, every country in the region, bar Bangladesh, will have a faster payments platform in place. These payment platforms will act as the backbone for further innovation from banks and fintechs.
The payment experience
As well as revolutionising the financial services industry, the rise of digitisation across Asia is transforming the business landscape. This has seen the emergence of a variety of businesses who solely operate online. These businesses are disrupting well-established industries such as transportation, hospitality and commerce. Likewise, more traditional businesses are also evolving their own offerings, building eCommerce business models to scale up, drive revenue growth and remain competitive.
To achieve this, companies are thinking through how they can market themselves to reach a wider customer base, chiefly by removing any friction when accessing products and/or services. Core to this is the payment experience. It is here that treasury plays a crucial role in understanding how consumers want to pay and then working to enable the business to collect using these preferred methods.
Accepting a wide variety of different payment methods can create challenges for treasury, potentially increasing internal complexity and costs. It is here that a bank such as Citi, which is deeply integrated into core markets across Asia Pacific, can add value by working with treasury teams to seamlessly embed these different payment types into their operations.
Once the efficiency is in place, treasury can leverage the wealth of data that flows through these digital payment rails. By harnessing this data, treasury can begin to build a rich understanding of customer behaviour. The business can then leverage this information to develop more refined and targeted sales strategies, potentially creating a competitive advantage for them.
Over the coming years, the opportunities for businesses to grow through digitisation in Asia Pacific will continue to emerge. Indeed, in China, McKinsey & Co predict that internet applications will account for between 7% to 22% of incremental GDP growth through 2025 – this translates into RMB4trn to RMB14trn in annual GDP in 20252. Treasury departments must therefore ensure that they stay abreast of the changes that are coming and be ready to make any necessary changes to their operations for the business to thrive.