Who Dominates the Fintech Battlefield in the East: China vs India

Two of the fastest growing economies are now playing to win in the disruptive Fintech field. But they both have stark differences in their strategies to succeed in the Fintech ecosystem. So, who’s taking the lead? Are they playing in the same league? Which country has the greatest potential? That’s what we’re here to find out.

The Centre for Finance, Technology and Entrepreneurship (CFTE) was delighted to host an engaging discussion centred around ‘Fintech in China vs India’ on Clubhouse last month with some of Asia’s leading fintech voices. The discussion aimed to deconstruct the developments and shortcomings of two massive markets  in the booming Fintech ecosystem. 

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Syed Musheer Ahmed, the Founder & MD of FinStep Asia, a leading business advisory first in Asia, Yassine Regragui, ex-Alipay and ex-Alibaba Group, along with CFTE’s co-founders Huy Nguyen Trieu and Tram Anh Nguyen, joined in the session. This blog recounts some of the thought provoking discussions that ensued to give you a bird’s eye view of the shapeshifting fintech landscape in two of the world’s largest economies – China and India.

China: The Fintech Dragon

“What we can see is that AliPay and WeChat Pay have taken over 90% of the mobile payments in China, so they are really dominating the market” - Yassine Regragui, ex-Alipay and ex-Alibaba Group

Over the past few years, China has transcended to become a predominantly cashless society, says Yassine (ex-Alipay and ex-Alibaba Group). Mobile payments have trumped cards and cash as the dominant mode to transact, underpinned by the payments duopoly formed by the tech giants – WeChat Pay and AliPay who have captured over 90% of the mobile payments market.

Musheer (Founder & MD of FinStep Asia) highlighted that the stratospheric growth witnessed by these behemoths can be attributed to the lower regulatory boundaries that existed at the time these companies entered the market, allowing the fintechs to grow untethered.

But this regulatory freedom was not going to last forever. Musheer added that the landscape is changing as ‘antitrust regulations’ come into play and the nation tightens their regulatory grip on the micro-lending sector as well. He states that this new environment bestowed with challenges will compel startups to innovate and put forward better solutions to give way to a new era of fintechs.

Complexity Entangles the Indian Fintech Market

Shifting the lens from China, to the neighbouring Indian market we see a completely different picture. Musheer states that one major differentiating factor in India from the Chinese market is homogeneity. The Indian market is complex with different income groups spread over 3 major segments:

Tier 1: Urban India, that constitutes about 100-120 million people, who have a per capita income of 10,000 million USD.

Tier 2: The middle-class, that is made up of around 300 million people with a per capita income of 3000-4000 USD.

Tier 3: The final tier includes the rest of the population with a per capita income of 1000 USD.

With such a broad customer base, needs and affordability vary vastly. Fintechs need to recognise this and create products and services considering this complexity. Bearing this in mind, there has been a shift in the value proposition of fintechs in India. While the fintech market initially took flight with the ‘Payments’ sector, the current fintech space is witnessing seismic shifts as it embraces new revenue models like ‘Lending’, ‘Buy Now Pay Later (BNPL)’ and ‘WealthTech’.

“One major infrastructure that India is very proud of is - ‘IndiaStack’, which is built using the biometric data of 1.2 billion people - that has enabled a lot of applications to be built on top of it” - Musheer Ahmed, Founder & MD of FinStep Asia

Despite the deterrents to the exponential growth of fintech in India as compared to China, the nation has one strong advantage according to Musheer, and this is – “IndiaStack”. This technological infrastructure stores the biometrics of 1.2 billion people, creating a massive opportunity for applications built on top of its foundations.

The Winning Business Models in Financial Services: Traditional Players, E-commerce or Gaming?

“Fintech in China has been mainly led by private companies that grew very quickly based on being able to capture an underbanked or unbanked market, together with the fact that regulation was very easy for those players. Whereas in India, it has been much more policy and regulator driven.” - Huy Nguyen Trieu, CFTE’s co-founder

The defining factor of the Chinese fintech ecosystem is that the biggest companies in the sector are private companies that were not traditionally financial institutions, stated Yassine and Huy, CFTE’s co-founder. Alibaba, an e-commerce giant, launched AliPay as a way to connect buyers and sellers, but has now grown into a full blown payments app, says Yassine. The same was seen for Tencent, that has its foundations grounded in the gaming industry and now dominates financial services. Huy added that these tech giant’s robust growth can be attributed to a combined effect of; capitalising on the unbanked market, and entering a space that was not heavily regulated.

Yassine highlighted that looking into the Indian Fintech market, we see that Big Techs were not the primary drivers of growth, but rather more traditional financial companies. The market was also highly regulator driven, which is why  the country has not seen exponential growth in industry yet. However, there is a sizable opportunity to leverage on in the future with  infrastructure like Aadhaar and APIs that exist in the Indian subcontinent, stated Huy.

The Secret to Big Techs’ Fintech Success in China

“There are two ingredients for the success of Big Techs in Fintech; one is user trust and the other side is the value” - Yassine Regragui, ex-Alipay and ex-Alibaba Group

It’s clear that Big Techs are leading the way in the Chinese market. The underlying reason for this is that these companies are centered around the ‘User Experience’,  a unique aspect says Yassine. He states that in addition to this, the main factors that drove these companies to command a position of dominance in the market was ‘Trust’ and ‘Value’. In Alibaba’s case, the company had already built an ecommerce ecosystem, through their B2B, B2C or C2C platforms, they also had a travel platform and video streaming platform. These platforms helped garner trust from a large user base. Alibaba also spent billions of dollars creating a product that creates real value for its users, which contributed to the company’s fintech success.

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Is E-commerce the Future of Fintech in India?

The analysis of the Chinese Fintech players raises an important question according to Huy. He stated that e-commerce players dominate the Chinese market, but the same cannot be seen in India, does that mean the evolution of fintech is different?

The Indian e-commerce market is a drop in the ocean compared to the big waves crashing in China. In India, e-commerce has just begun harnessing the power of the internet with the number of internet users jumping to 100 mil to 200 mil very recently, says Musheer. He said that the need for fintech in the Indian market sprouted from the need for financial inclusion with primary focus on the payments space. But the winds of change are fast approaching.

Reliance Jio, one of the largest Indian telecoms is getting into a conversation with WhatsApp to launch an e-commerce integration – ‘JioMart’, which is essentially adding a retail layer for WhatsApp chats. This could be a game changer for the market, says Musheer, as the company has the network and distribution to squeeze players on price, something that e-commerce companies like Amazon or Flipkart are currently offering but at the cost of low profitability.

Which Country Bears the Golden Opportunity in Fintech?

To understand where the opportunity lies it is essential to nail down – What is opportunity? Musseer breaks down opportunities into those for Forieign players, Local Fintechs and VCs looking for investments.

In terms of foregin blood having the opportunity to flourish abroad, the Chinese market is a better bet as the company is opening up to foreign players. American giants like PayPal are using this to their advantage to make a big push in the market as well. The main benefits that foreign players can get from a market like China is a mass affluent market, that is mobile savvy and has a higher per capita income.

Local fintechs in India on the other hand have a major opportunity to capitalise on with internet users continuing to go up and the landscape maturing over the next few years.

“On average, American unicorns take 7 years to reach their unicorn status, Indian unicorns take 5-6 years, in China unicorns take 4 years, with 50% of those unicorns reaching their status in 2 years” - Musheer Ahmed, Founder & MD of FinStep Asia

For VCs, there is great potential to make big bucks from early stage investments in Chinese Fintechs. This is because Chinese Fintechs list their companies very early and grow significantly after, giving investors an early exit. To put the startup growth rate in perspective, Musheer states that “on average American Unicorns take 7 years to reach the Unicorn stage, Indian unicorns take 5-6 years, in China unicorns take 4 years, with 50% of those unicorns reaching that status in 2 years”.

Huy adds in opportunities like ‘Incremental opportunity’ and ‘disruptive opportunities’ that can be capitalised on as well in different markets. In terms of incremental opportunity, India has a lot of untapped potential and underserved markets and will benefit from a strong foundational infrastructure. We will see big changes in the long run, says Huy. In terms of ‘disruptive opportunities’, China is the way to  go. The initiation of big disruptive projects like CBDCs puts into perspective the speculation that the nation will soon be completely cashless, creating numerous avenues for growth for fintechs.

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