FinTech is coming and it seems as if the speed at which it is coming is accelerating.
Ant just raised $4.5 billion this week and the organization now is valued around $50 billion.
The Ant Financial Services Group was spun off from Alibaba in 2011 because of regulatory concerns. In terms of its largest business interest, Alipay, an online mobile payments business, it has more than 450 million active users. PayPal (NASDAQ:PYPL) has less than half of this number.
But, in addition to Alipay, Ant Financial owns MYbank, an online-only lender that targets consumers and small businesses; Sesame Credit, an experimental credit rating service; Tianhong Asset Management, which manages a money market mutual fund tied to Alipay, called Yu'e Bao.
In terms of its financial evolution, China has not moved far into the credit card business and has moved more directly into the digital payments regime. This is one reason for the accelerated usage of the system. Furthermore, as has been observed in India and Africa, the rural segments of the country have rapidly accepted the digital payments system because of the absence of other forms of banking in these areas.
Whereas the initial reception of Alipay into the Chinese financial system was relatively cool, the support now given to the Ant and to Alipay has been nothing short of remarkable. The banking system now seems to be fully behind these efforts and the government has really jumped on board, not only the regulatory side, but also the investor side.
Last June, Ant Financial's first round of financing was China's national social security fund. In addition, other financing came from sources tied to Chinese policy lenders.
This second round was led by the Chinese sovereign wealth fund China Investment Corp., China's sovereign wealth fund.
All this points to the acceleration of electronic banking in the world.
Banks in the United States have been slow to move into electronic banking. There are three primary reasons I believe for this lag.
First, there is the regulatory system. The US regulatory system is just not ready for ubiquitous electronic banking.
One reason for this is that the US regulatory system is, as usual, still fighting the last war… that is the problem it perceives to result from the banking system as it existed in 2007. This gets messed up with Dodd-Frank and all that fuss.
I just don't think, technologically, the regulators are up-to-speed either in their thinking or in their technical capability to handle a banking system that is predominantly tied to the Internet.
Second, the US banking system has too much invested in its branch system and electronic banking will cause a major contraction of physical assets. The primary focus of American banking over the past sixty years or so has been to build up its branch system so as to be close to the customer. This attachment to bank branches has carried over even into the era where hardly any customers come into more remotely located branches. This will be hard to give up.
Third, over the past fifty years, banks exerted more and more resources into the creation of financial innovations, hiring mathematicians and physicists and other highly educated sources to produce financial vehicles to take advantage of the credit inflation that was a constant part of the environment.
If the banks had put as much effort into the develop of the new, electronically-based financial system, things would have been substantially different today.
China is, obviously, putting major resources into an electronically-based financial system. In today's world where globalization is the norm, it is only a matter of time before this competition spreads.
This means that the US banking system must step up its efforts. However, the concern here has been stated by Steve Case, co-founder of AOL and chairman and CEO if Revolution LLC. Mr. Chase believes that, in terms of technology innovation, "the big banks are too clumsy to innovate."
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