Welcome back to our course on FinTech Disruptive Innovations: Implications for Society These are the implications of FinTech and how is it going to change our world In this module, we're going to be looking at diversity of impact and we're going to look at how is the impact of FinTech going to be different from market to market Today, we're going to talk about East versus West Now to some extent that feels like a natural distinction divide the world into East versus West, us versus them now the us is the West Europe and US or the us is Asia It feels like these are different parts of the world they are geographically different they are culturally different but yet although the West has a lot of similarities in terms of implications of FinTech So, you would say what happens in UK is going to influence France and Germany and the US and there's some differences but they're minor compared to differences between East versus West But the problem is the East is not at all homogeneous It feels very different So, the implications for Hong Kong may be very different than the implications from mainland China That is the same country Hong Kong is part of China but it doesn't feel like the same financial infrastructure the same culture or the same likely impact on institutions nor do we look and say that Korea is the same as China or Japan These countries feel very different India feels very different and so we can't just say East is like this because it isn't Whatever you've identified as East will not work in all of the East So, we have to look at country by country and say China is China Japan is Japan, Korea is Korea India is India, they are different markets So, let's take a look at China China has a very large market and some ways people say China is FinTech Now that's an overstatement and that's not really true but China is where FinTech has had the biggest implications for society So, when we look at implications for society it's natural to look at China and say what's happened in China and could that happen in the rest of the world What's happened in China we've got 63 percent of the population using digital wallets using payment systems where they use their smartphone to pay for their groceries their dinner or their rent To deposit their paycheck they may not even need a bank they may have no relationship with a bank Their money market fund, their wealth management all with their FinTech company all with Alibaba or with Tencent but it's all in this digital world So, they may have no more interactions with or need for traditional financial institutions, that is disrupted If you're in the finance industry and you've lost 63 percent of your payment systems cash is no longer dominant The dominant payment system is a digital wallet on your phone That's a big implication and that has big implications for banks Now, if your traditional bank in China you may say "Yeah, whatever, we weren't really dealing with those people that much they were paying in cash before, they didn't really have credit cards or debit cards, they weren't really going through the bank all that much. Mostly they were using cash. They moved some accounts from our bank over to Alibaba who became the largest money market fund in the world and one of the largest wealth management funds in the world and one of the 15 largest banks in the world over a period of about five years going from very little to very huge." But many of the banks in China will say you know where most of our customers are borrowing from us are large corporations state-owned enterprises, big business we haven't lost that many customers We haven't lost that much Most of our wealth was coming from wealthy investors They're still with us, they're not excited about using their phone They have massive amounts of money So, our capital source and our borrowing base are still there. What's happened? In China a huge part of society was not being served by the financial institutions and now it is by Alibaba and Tencent, two FinTech companies So, that has transformed society and banking partly because as is the nature with many disruptive innovations the market leaders, the powerful people in that industry pretty much said not our customers not our issue, not our target not worried about it But as Jack Ma founder of Alibaba, said we're not going for the whales we're going for the shrimp We're looking for the small guys the small players but he said the nature of fishing for shrimp is occasionally you will catch whales in your net occasionally you will go into the big side of the market and startups small companies borrowing from Alipay or Ant Financial Alibaba subsidiary in finance will over time become big and they'll be used to dealing with financial and that financial will get better So, as with many disruptive innovations in the society FinTech in China is clearly disruptive it's clearly a disruptive innovation it's going after an unserved market which was too expensive and unattractive to serve The banks weren't there, they're not interested Alibaba solved a payment problem for e-commerce e-commerce is now in China bigger than penetration than any other market in the world So, China big, China unique China huge in FinTech and transformative for society The West, is it going to go the way of China? I would argue no At least not to that degree and not at the speed because in the West we have credit cards we have debit cards we have other payment systems If you look at the progress of PayPal which is a little bit like Alipay although earlier and somewhat different in some features If you're an Alipay lover, you will say "No PayPal is not at all like it because my wallet does so much more or something else" But in many ways similar but its growth was much slower much easier to deal with It's still big, it's still huge PayPal is not a small corporation and not small in its impact but Visa MasterCard much bigger, much broader much more used in American society or in European society Disrupting or dislodging those alternative payment systems is going to be harder for FinTech to do it's a bigger step to overcome versus going from cash or no electronics at all to all electronics on your wallet The Visa, MasterCard is like an intermediary that becomes a great wall to overcome for FinTech companies, a barrier So, the West has their great wall of credit cards and comfort with many electronic applications digital banking et cetera that China didn't have What about other markets? Well, Japan is like the West in terms of its economic development wealth per capita et cetera but Japan is like China and that cash is king and most people pay with things with cash It's a very automated society it's a high-tech society but in terms of thin it's a very antiquated society Its adoption of credit debit cards is quite limited the focus of the banks is primarily on large business similar to China So, Japan looks like it could go the way of china If I was a bank in Japan I'd be worried about FinTech and about what Alibaba potentially or others like them could do and by the way major VC in Japan is SoftBank They are also a major investor in Alibaba They're also now a partner with Alibaba in Japan for helping FinTech to penetrate in Japan Some of the preconditions like Alibaba that's role in e-commerce and payments to help that aren't there in Japan So, Japan has some differences but I would be inclined to think Japan is more likely to go the way of China than are the US or Europe In terms of the speed and strength of financial payment systems, loans et cetera Now, we do see E-loans progressing in the West We do see a lot of FinTech startups in the West We do see a lot of payment alternatives We do see a lot of FinTech So, it's not like we don't have FinTech in the West but the degree to which China stands alone and stands unique was 63 percent of the nation using their digital wallets to pay for everything from groceries to taxis, to restaurants paying their rent, paying their utilities paying their taxes, everything through their digital wallet That's not as likely to happen in most western societies So, China is different India is also different India is a cash society it may go the way of China but it's challenging and it's some of the characteristics like logistics infrastructure, commonality not so great as China but Alipay is investing in India as well They haven't made as much progress as they have in some ways in Japan and they got a long ways to go but that could happen The rest of the world, harder to say FinTech matters, it could be pioneering it could be transformative of society Particularly Africa, FinTech is big deal If you want to learn more about Africa there's another course from University of Cape Town South Africa that I recommend that you view That's a competing course but it's also on the Coursera platform and I think it's a great overview of what's happening in Africa as well as developing economies in a different perspective on FinTech that might be worth watching. Thank you
