China Innovations (and other hacks!)#1 : Finance Tech in China

10 years ago I got my first bank account in China. No problems. Fill out a couple of forms, sign a few papers and deposit a few RMB and away we go. As we were nearing the final stages of the process at the bank branch, I was expecting to see some details on my login and website details where I could do my online banking. After asking the question and a bit of scurry, the bank manager handed me a USB dongle. Hmmm I wondered what is this for?  Many many many minutes later I realized that online banking was pretty much nonexistent in China. This dongle was to be used as an encryption key when accessing my account online but only to view account details, no transactions were possible.  I also realized that banking in China was the equivalent of taking a couple of hours out your day to stand in line and push lots of paper, signatures, approvals and stamps around.  Doing anything in the archaic Chinese banking system was the equivalent of walking in molasses or really thick Canadian Maple Syrup.

Fast forward to today and China boasts over 2500 internet and App companies exploring crowdfunding. Compare that to the 150 that are based in the USA.  Finance Technology (fintech) in China is leapfrogging the western world’s traditional online banking infrastructure and coming up a whole new paradigm in mobile banking that can be arguably be the most innovative on the planet. Like African countries that never had traditional phone infrastructure and are adopting mobile phones first, starting from a clean slate without the burden of existing online banking infrastructure has many advantages in experimenting with innovations faster on the mobile platform.  Here is a sampling of some of these small innovations in the China fintech industry:

  1. A typical keyboard on a smart phone has the QWERTY format. To combat some of the issues around login security, China Construction Bank’s app has a randomized configuration of the keyboard characters. Why? So the swipe pattern of the password is never replicated the same way. If anybody is looking at your typing they wont be able to figure out your password which could be important if you are a “one password” type of gal.
  2. Wechat Pay and Alipay are the two leading mobile app platforms in China now competing for the mobile banking mindshare of the Chinese consumer. Wechat Pay has a fascinating way to interweave the very specific Chinese culture with features that resonate with the China consumer. The “Red Packet” feature is a great way to feel good about yourself by distributing small amounts money to people in your chat circle. Talk about response rate when one of these packets get sent out!
  3. M09 is a China internet company solving the credit card issuing process which has typically existed in the USA. People in China that don’t have credit cards don’t want to provide the normal credit card information to the bank. MO9 just asks for their mobile phone number and instantly approves microcredit.

Now I wouldn’t do justice to the China banking system if I didn’t comment on the clever ways that the traditional banks (like China Construction Bank) are fighting back.  Now, I could still put out my dongle and do a lot more than I did 10 years ago online with my Bank Account but there are fees associated with it.  But do this on my China Construction Bank app and there are ZERO fees and NO dongle. A good way to incentivize everybody to start adopting the App.  Kudos to that!

If you like this post, then please check out our other thoughts at www.impact10x.com/blog or email us at info@impact10x.com.

The Good, Bad and Ugly of Chinese Corporate Presentations

Would Walt Disney be rolling over in his grave at the sight of Disneyland Shanghai? When Walt created the first Disneyland theme park in California he would kneel down at various spots to understand what it would look like from a child’s perspective…he wanted to make sure that even the kids had a great view.  Disneyland Shanghai has taken that to the next level by making everything substantially larger than any other of their theme parks. The Shanghai Disney castle is now the largest actual castle in the world. Scale and bigness is everything in China.

Unlike the ever growing popularity of western style TED talks which emphasize gripping storyline and vivid visual presentations Chinese presentations tend to emphasize sterile facts and numbers. The bigger those facts and numbers that describe the company the better.  A typical presentation sequence would look like:

  1. 40 engineers with 5 PHDS and 10 Master degrees
  2. R&D floor space of 3000 m2 and factory capacity of X widgets per hour
  3. 100 product lines with X and Y performance specifications
  4. In business for 10 years

If you were to walk into the office or factory of most traditional businesses in China you could find a very very large room full of 100’s of their products lined up on their walls.  Bigness and numbers establish the message that the company has the capability to do anything that the customer requires whether it might be relevant to their business or not.

As consumers and business customers (both in China and America) get more sophisticated and have less patience to set these requirements, Chinese businesses that are winning are going from a “here is what we have” personality to “here are the problems we can solve for you” personality.  Although bigness and scale might never really go away because of its embedded meaning of credibility in Chinese culture, you can be sure even the Chinese consumer likes to save time and are looking for new products that help to solve their everyday problems.

If you like this post, then please check out our other thoughts at www.impact10x.com/blog or email us at info@impact10x.com.

Will Amazon Succeed In China Where Google Failed?

By some measures the Chinese government budget for internal security exceeds that of their armed forces. This security budget includes such things as electronic information monitoring in addition to the use of security forces to manage the internal safety of their citizens.  One common view of Google’s pullout of China was primarily due to Chinese regulations and restrictions around information flow which is a central foundation to Google’s search business.  While not as important to Amazon’s business, information and data is still central to many decisions to the value of their online shopping platform. So will Amazon succeed in navigating the online terrain in China where Google did not?  So far, they seem to be doing a good job.

In a recent presentation to a Tech incubator called DreamT located in downtown Shanghai and in suburban Jiading, I had the opportunity to understand more deeply how Amazon’s EC2 Cloud infrastructure is being deployed.  The incubator does specific cash and in-kind investments to tech companies who are deploying apps or websites that need access to fast, secure and reliable cloud infrastructure. One of the main in-kind investments is access to EC2 servers for one year which is funded entirely by the China based Amazon cloud business.   Although not a significant investment to the startups this does provide some great benefits to Amazon including exposure to start-ups, china based tech entrepreneurs and goodwill to the government.  The Amazon EC2 infrastructure allows internet based companies to bypass the 8 firewall points that regulate internet traffic in and out of China. This allows a better consumer experience for any foreign based companies that want to setup a ecommerce, app or website to access the Chinese consumer.

It remains to be seen how the online shopping platform of Amazon in China will do as they compete head on with local favorites Taobao.com and Alibaba.com but this strategy of co-investments, co-branding and partnerships with local incubators seems to be a good long term bet in the world of Chinese cloud infrastructure.

Taking a Closer Look at Shanghai’s Unique Tech Approach

Shenzhen was the Chinese epicenter of a massive economic shift to manufacturing in the early 1980s and the attraction to most foreign manufacturing companies setting up there was the promise of inexpensive labor.  On a visit to Shenzhen City (near Hong Kong) a couple of years ago I was surprised to learn how much that is changed when a large US optical manufacturing customer was in the process of moving its operations to Vietnam due to the rising cost of labor in China. The shift of manufacturing from China to other countries has also signaled a shift of Chinese companies focusing more on technology and business innovation. Nowhere is that  more obvious than in Shanghai where smaller districts are all setting up innovation hubs and incubators to build the foundation for this innovation economy.

Impact10x had a recent opportunity to speak at one technology park called Keiji50 in the Jiading area of Shanghai. The main focus of this park was  IOT/wearable devices and housed probably 10-20 companies on its campus.  Companies building versions of Google glass, Smart Mirrors and even Smart Coffee machines adorned its demonstration room. Especially interesting was the fact that the center also did China based VC investments through a quasi-government funded organization. We had an opportunity to talk to their Partners to find out a little more about how their VC investments worked in China. It seems most investments were made after a working prototype had been demonstrated and with maximum investments of 3M RMB (approximately $500K USD).  Seed capital financing did not seem to be something that they were particularly comfortable with as some of the frameworks/tools they used to evaluate innovations were based on mass appeal to a broad consumer audience. Most true breakthroughs start with a small core of leading edge customers which then lead to growth.

Another piece of their investment approach was the emphasis on patents or other more basic scientific intellectual property which could be a competitive barrier to entry.  Although this has traditionally made sense 5-10 years ago, with the massive shift to more open source platforms, crowd sourcing and any new innovation being circulated around the planet at light-speed…basing your competitive advantage solely on protection of information is quickly being eroded. As Bill Gates recently said “intellectual property has the shelf life of a banana”.

Stay tuned for the next couple of blog posts as we will be posting some more of our discoveries on China and Shanghai based incubators and technology parks.