How fintech is turning China’s cities into cashless societies

In 2025, will Tencent be the biggest company in the world? Or will it be Alibaba? Tencent’s story, just like modern China’s, is one of superlatives and big numbers. Founded in the southern Chinese city of Shenzhen in 1998, Tencent launched its first product, the QQ instant messaging service, a year later.

QQ today has something like 800 million monthly active users while its WeChat messaging platform, launched in 2012, now boasts more than a billion monthly users, as well as a sprawling and ever-spawning digital ecosystem. 

WeChat’s virtual network is designed to constantly connect it users to a suite of services that include platform advertising, gaming, micro lending offers and, especially, mobile payment facilities.

The success of the platform’s TenPay payment service has made Tencent the dominant player in China’a surging mobile payments market. Something like 80% of WeChat users are said to have used TenPay, which means it has overtaken rival Alibaba’s Alipay mobile payment platform, with its, mere, 550 million users.

In 2016, China’s mobile payment market, by volume, was worth US$5.5 trillion, making it roughly 50 times the size of America’s. But today that number is thought to have at least doubled and now more than half a billion residents of the PRC use a mobile phone as their wallet.

It means China’s cities are probably the closest examples we have yet to cashless societies, and it is not just with fintech that China is dominating global markets, but with financial-related blockchain applications too.

A recent study from accounting firm EY,  or Ernest & Young, showed Chinese fintech adoption rates to be the highest in a table of 20 major economies.

It revealed that almost 90% of Chinese consumers have made payments or money transfers on their phones, almost 60% use fintech platforms for savings and investments while close to 50% have used fintech services to borrow money.

The numbers for blockchain are, if anything, even more impressive. In 2017, there were a total of 400 global patent applications and more than half came from China. According to May 2018 data, Alibaba then owned more blockchain patents than any company in the world and all had a financial focus, with 49 of its patents belonging to its Ant Financial subsidiary.

And there is clearly more blockchain activity in the pipeline. This year Alibaba launched, together with the local municipal government, a $1.5-billion blockchain research project at the Future Sci-Tech City complex, which it also partly owns and is close to its HQ in Hangzhou in Eastern China.

State news agency Xinhua reported in May that China has now formed “a complete industrial chain” in terms of blockchain-related hardware manufacturing, platform services, security services, industrial technology application services, investment and financing, media and human resources services.

In the same month, President Xi Jinping told a meeting of China’s leading scientists and engineers that blockchain, together with artificial intelligence, quantum computing, mobile communications and the Internet of Things, has the capability to solve the world’s biggest challenges, and this includes food and energy security, and climate change.

These “breakthrough applications,” Xi said can help build a new “scientific and industrial revolution.” And here Xi is referring to the PRC’s “Made in China 2025” plan.

In fact, the policy is actually the first part of a three-stage vision. The last stage ends, not by coincidence, in 2049, on the centennial anniversary of the founding of the PRC. Then, according to the plan, China will be “the leader among the world’s manufacturing powers.”

People in the world’s second-largest economy are well used to big-picture plans. They are also used to seeing them realized.

It is almost 30-years ago that the country’s then leader, the reformist Deng Xiaoping, visited Shenzhen, China’s first free-enterprise “Special Economic Zone,” to call for faster reforms.

On this “southern tour” in 1992, Deng was meant to have uttered the now much-quoted “to get rich is glorious.” If he did or not is now irrelevant because his free-market sentiments were so clear that they went onto launch one of the boldest economic experiments in history. China, in the past three decades, has moved from a state-controled economy to a global powerhouse.

Back in 1992, the land where Tencent’s HQ now stands would have been fields. And “Pony” Ma Huateng, Tencent’s founder and reportedly to be the richest man in China, would have been just out of his teens.

After Deng’s visit to Shenzhen, the city exploded with commercial activity and became a chaotic but wondrously bustling mix of lax traffic controls, scant building regulations and crowded streets bursting with raw and unashamedly rampant consumerism.

Of course, there were no Chinese tech giants then and there were no smartphones or everyday internet use either. But there was a tech revolution happening in home computing.

In the numerous downtown rabbit-warren computer malls, locals were feverishly purchasing domestically-made monitors, basic homespun motherboards and microprocessor chips.

These components were then all put together, often by the purchaser at home, to create a home computer that would, went the logic, help its user join the on-going entrepreneurial uprising.

Things have changed beyond recognition in the past 30 years. How will they change in the next 30 is really anybody’s guess. But Tencent will probably have something to do with it.