On March 12th, international best-selling author and global fintech expert Richard Turrin joined the students of Dalhousie’s Fintech MBA course to discuss emerging trends in the cash and digital payments space. The insights he shared were many, each more thoughtful than the last. The following are three of the most valuable lessons for the non-technical yet still intrigued mind.
China: A Window into the Fintech Future
In real-estate the old adage “location-location-location” says it all, in fintech its China, China, China. With respect to digitizing payments (and by virtue much of the transactional economy), China is a global leader. And against all odds, too, with a population of over one billion people, ethnic and linguistic differences, and demographic challenges, they certainly aren’t who you’d anticipate as leaders in the digital payments domain. Why is China so far ahead of the curve? The answer is actually more straightforward to those who have been paying attention, it’s culture. Richard Turrin has spent the better part of the last decade studying and writing about China until he was inevitably thrust into the spotlight when China’s rapid growth became apparent to the world writ large.
A 2017 McKinsey discussion paper points out that internet usage in China has grown from 25 percent of the population in 2013, to 68 percent of the population in 2016. That rapid advancement in such a short period of time has deemed China a hotspot for investment and innovation. One in three of the worlds unicorns is Chinese, and the VC sector is now worth 19% of the worlds total. Although the United States still leads in many of these metrics, China’s rapid growth means that they could overtake the US sooner than people think.
Turrin describes China’s culture as being incredibly modern. He says, quite simply, China loves new things. This gives them an edge having a population that isn’t hesitant to listen, learn, and adapt. It’s useful here to think about the images that shocked the world on New Years’ Eve 2020 out of Wuhan, China, where life was seemingly totally back to normal while the rest of the world was still struggling with mask hesitancy. With respect to the pandemic, few countries have dealt with the recovery as efficiently as China, largely thanks to their willingness to adapt. That same willingness to adapt has fueled their rapid adaption to digital currencies and digital payments, making them the undisputed champions in that arena.
The Non-Zero-Sum Game
Picture yourself bag packing the world. One of the pinnacles of travel is indulging yourself in the unique cuisines the world has to offer. And where can you undeniably find the best food in a foreign country – street vendors. Most street vendors are stuck in their ways with good old fiat currency (cash and coins). Not in China; digital currencies are the catalyst driving financial inclusion and accessibility in China. Just as cash was replaced by cards, cards are being replaced by mobile devices. Street vendors in China have turned in their flimsy old cash registers for the much more glamorous piece of A4 paper with a QR code on it. Customers order, pay, and indulge without the hassle of paper money, and merchants don’t have to think twice.
It’s more convenient for both the merchant and the customer, so, what’s the kicker? According to Turrin, it truly is a win-win, because setting up a QR code costs next to nothing for the vendor, and all that’s required from the customer is a mobile phone and an app. The two industry leaders in China, Ant Financial and Tencent, share 1.5 billion active users between them. Most people have already gone digital, so it’s convenient for business owners to adapt and rid themselves of the headache that is cash. This phenomenon is known as financial inclusion, a scenario that creates equal opportunity of access to financial services. By housing bills, bank cards, loans and much more under the umbrella of one app, it allows people who otherwise wouldn’t have access to financial services the same access to the same services at their fingertips.
What about the rest of us?
Central banks have been venturing into the payments and digital currency space in the last few years, and you guessed it, China’s leading that venture as well. Central Bank Digital Currencies (CBDCs) are government-backed online currencies that will be entirely digital. Of course, that’s not all they are, they will mean many things, the least of which is that traditional fiat currencies will be entirely digital.
When will the world adapt to digital currencies in a large-scale sweeping fashion? Hopefully, within the next decade, according to Turrin. When will the world completely eliminate cash and fiat currency? Hopefully never, according to Turrin.
Although the topic may seem complex at the surface, what’s clear is that CBDCs are the future of banking and payments. While Canada has no plans on issuing a digital currency anytime soon, they are studying the matter for contingency planning. The Bank of Canada recently solicited four major Canadian universities to research the development of a digital currency. Their proposals were recently published, and while they all take a different approach to the matter, they are commonly based on the utilization of blockchain technology.
If you’d like to learn more about the talk, check out the eclectic discussion on all things digital by Richard Turrin below.