Learning From China’s Digital Disrupters

Digital newcomers who understand their consumers can change the economic status quo.

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Alibaba, a relative newcomer to financial services, has seen its small and medium-size enterprise (SME) lending business grow rapidly in the last four years, making it one of the leading lenders in China. Western banks should take note. Such explosive growth is a harbinger for an unfamiliar kind of competition — legacy business incumbents pitted against new digital giants.

In 2017, Alibaba issued SME loans worth 446 billion China Yuan Renminbi (RMB) (about $63.4 billion U.S.), amounting to 30% of the loans issued by the Industrial and Commercial Bank of China, the top SME lender in the country. Alipay, Alibaba’s payment wallet app, and Mybank, its internet bank, attracted deposits of 1.6 trillion RMB, matching 89% of the total value of deposits attracted by Bank of China.

These results mirror the competitive threats Amazon, Facebook, and Google pose to incumbents in the retail, health care, insurance, music, entertainment, and automobile sectors. Such digital giants, whether from China or the United States, are poised to unleash a new category of digital disruptions powered by their digital ecosystems.

We looked at recent events in the Chinese banking industry to highlight how these massive digital newcomers gain powerful consumer experience insights from their digital ecosystems and how this changed the nature of competition for incumbents.

Chinese Digital Giants Forge Into Banking

From its early days in Chinese e-commerce, Alibaba saw the need for digital money to alleviate the inconveniences of collecting cash on delivery, because credit card penetration was poor. Alibaba’s solution: a digital wallet, Alipay. The wallet allowed customers to deposit money in lump sums, then use that balance for the real-time purchases needed for seamless e-commerce.

Soon, Alibaba expanded this service outside its own e-commerce platforms, letting other retailers and small businesses use Alipay. Quick response (QR) codes, bar codes readable by cellphones, allowed millions of mom-and-pop merchants to begin using Alipay, without expensive credit card readers and with dramatically reduced fees. With Alipay, small businesses built digital storefronts, transforming them into online businesses. By adding a vast range of services such as booking taxis, hotels, and airlines, the company transformed into an omni-service platform.

Tencent, one of the world’s most valuable technology companies, followed a similar pattern. Its WeChat messaging platform attracted millions of users through services such as curated content, gaming, social networks, chat, and search.

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An MIT SMR initiative exploring how technology is reshaping the practice of management.
More in this series


We gratefully acknowledge the assistance of Padmanabh Munje, Yiqun Zhang, and Hanying Liu of Virtusa and their China Insights Group in this paper. We also thank V.G. Narayanan, Jay Patel, Anu Chitrapu, Abhilasha Mehta, and Jay Tuli.

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