Social commerce platforms in China to reinvent retail banking

One of the biggest challenges of the China economy is to sustain growth after import demand from the US and most particularly Europe has collapsed, and when the only alternative is to replace it with domestic consumption. China needs a minimum of 7 per cent growth year on year to integrate millions of migrants moving from west to east, give access to social security and retirement plans to its population and keep social peace.

This growth transfer will not be possible without fuelling the economy with the billions of Renminbi sitting idle under the mattresses of the Chinese population, recording the highest saving rates in the world.

To respond to that challenge in a conventional western way, the Chinese should call on their retail banking system, except that it is 20 years behind and only reaches 2 per cent of the population. Furthermore, Western banking history since the big bang in 1985 does not encourage them to follow our lead.

This is where the country's pragmatism and ability to leapfrog systems comes into play. It's e-commerce platforms, led by Taobao, transacted US$280 billion worth of goods with 270 million online shoppers in 2013, overtaking the US.

China's social media platforms are also ahead. Weibo and Weixin each claim 500 million subscribers, 80 per cent of which are massive creators of content, highly connected to brands, post comments and reviews, never make a purchase without first collecting all the existing information on the net plus the experience and opinions of their peers. That makessocial media platforms the backbone of any brand engagement in China.

In the largest market in the world, social media platforms are moving to e-commerce and e-commerce players are developing their own social platforms in what will result in a fierce battle between Alibaba and Tencent. They will reach more consumers than any other network. They will host on their platforms buyers and sellers, making them the most able to evaluate credit worthiness of the population. No wonder that in recent months, China’s web giants, Baidu, Alibaba and Tencent have been applying for financial services licenses to be issued by the government. It will allow them to offer the same services existing banks do: savings portfolios, loans, insurance, and payment methods. Using big data, brand-name credibility, and agility that can outpace the sluggish state-owned enterprises, the country’s internet behemoths rightly think they can best China’s “big four” state-run banks that have run the country’s finances for decades, along with the country’s many smaller commercial banks.

It is only China for the time being, but with the Renminbi likely to become a global currency in the next few years, how long will it take before the China internet behemoths take on the western banks? From recent conversations with several major bank CEOs in APAC, this is what keeps them awake at night.

China is 20 years behind in its banking system but 10 years ahead when it comes to use of social media, online and mobile shopping. Marketers and banks would be wise to anticipate this development, watching China’s trends, technology developments and user behaviour very closely. 

Vincent Digonnet is executive chairman of Asia-Pacific at Razorfish.