China’s FinTech model and why the West won’t catch up

China has embraced FinTech solutions as ways to make their lives easier, with one-stop shop apps allowing nearly half a billion people to access a dizzying array of financial services. Meanwhile, the West seems relatively stuck in a world of plastic and paper. Here are five reasons why FinTech solutions have become so popular in China and why the West isn’t likely to adopt this model:

  1. China was ripe for a payment revolution. Prior to the launch of Alipay in 2004, Chinese financing was extremely low-tech and based out of brick-and-mortar locations. Moreover, savings interest rates were set below inflation, and only a very few could get a credit card. So when something new came along, there were few competitors – even legacy ones.
  2. The innovations that sparked Chinese FinTech were nothing new outside China. Many of China’s highly-touted FinTech “innovations” were in fact adaptations, combinations and/or more successful uses of technology and models pioneered by others. For all the hype, they are mostly digital versions of old-fashioned concepts.
  3. The Chinese system is a hacker’s dream and a privacy nightmare. The convenience of sharing your account data only once with only one app not only gives the payment platforms enormous power, it also makes them gigantic honeypots for hackers. Moreover, they have far more control to see into their users’ lives and use that information to consumers pay more.
  4. Chinese FinTech got a major helping hand from the government. The Chinese government gave tech giants far more leeway to innovate than Western regulators did. China left the online payments market virtually unregulated for years, and the Central Bank explicitly stated that it would allow unregulated tech firms to enter spaces that were previously off limits to anyone without a financial license, giving those companies freedom to grow before any rules were imposed.
  5. FinTech shuts out many users. Many are finding cash unwelcome all over the China. This makes life difficult if you are a tourist, from rural China, older and/or less tech-savvy.