Chinese fintechs have flourished at home but are faltering abroad. Following on from my last post on building products in China, I take a look at how Chinese fintechs can expand past their borders.

“We should not develop a habit of retreating to the harbour whenever we encounter a storm, for this will never get us to the other side of the ocean.”

So said China’s strongman Xi Jinping at Davos in 2017, with the metaphorical flair that is embedded within the Chinese storytelling tradition. What he meant, though, was that China is not content with the insularity that its name suggests (the pinyin Zhōngguó is used to denote the insularity of political and cultural ‘Chineseness’ – ‘middle kingdom’ is the transliteral exchange at play here). Xi intends to open China’s mainsails and face the choppy waters that lie ahead.

With this statement in mind, Xi’s note that “The Fourth Industrial Revolution is unfolding at an exponential rather than a linear pace.” is particularly striking, and betrays an awareness of technological innovation that his country is spearheading. In the fintech context, this manifests most intensely in the success of Ant Financial, who raised $14 billion from Series C funding in Q2 of this year – a record-breaking amount. I would posit, from that figure, that fintech forms a considerable part of the architecture of Xi’s boat.

Domestic Success


Finding the middle ground between these two statements from Xi, it stands to reason that translating the domestic success of Ant Financial and Tencent – China’s two main fintech players – into the international arena, has become a priority. Overtures in this space have already started, with the aim of catering to China’s expanding middle class, who are travelling abroad in large numbers.

According to statistics from the China National Tourism Administration, Chinese tourists travelled overseas on 131 million occasions in 2017. This number is set to grow, with projections that Chinese citizens will account for a quarter of all international tourism by 2030 as the country begins to cater to larger swathes of society, 90% of whom have previously had only limited access to passports.

The preferred method of payment in China – QR code scanning via WeChat Pay and Alipay – is so far being underutilised in the international market, especially with what we know about the enormous potential of Chinese tourism. These services have so far been unable to penetrate far beyond China’s borders.

However, steps are being taken by the two tech giants to change this outlook. And they have good reason to! Chinese tourists spend an average of $762 per person on shopping (compared with non-Chinese tourists, who spend $486 per trip). Further, 65% of Chinese tourists paid via mobile payment, compared with 11% of their non-Chinese counterparts. Clearly, partnerships to enable that Chinese consumers streamline spending abroad will be beneficial to both a destination fintech and the Chinese payments players.

Chinese Success Abroad


There’s been some friction in rolling out this process, the US Government blocked the sale of MoneyGram to Ant Financial in January on “security grounds” – this would have been a huge coup for Alibaba’s Jack Ma, as the US is a travel destination for 24.8% of China’s tourists. Quite how this will unfold further down the line remains to be seen, but the US is not the only target for Alibaba and Tencent. One destination stands out in particular, Germany.

A partnership with German challenger bank N26 looks to be on the horizon for Tencent, who contributed heavily to their round C funding.

The idea is that an N26 partnership with WeChat Pay could facilitate QR code scanning. If N26 were to be built into WeChat’s Wallet, a major friction point for their retail business would be removed, who would not have to open accounts with Chinese banks and deal with Chinese government restrictions on transactions.

WeChat’s QR code and bar scanner and N26’s main method of payment

So how could this work? Well, the Netherlands’ Bunq could provide a hint, with QR codes seamlessly integrated into the platform. This proves that there is an appetite in Europe for this sort of payment functionality. That said, the functionality to make payments will be embedded within the WeChat Wallet, and N26 could see its SME market increase as a result. With the fintech projected to secure five million customers by 2020, this looks to be a great time for the Chinese giant to invest, especially considering – in the wake of the MoneyGram incident – that the German challenger looks set to expand to the UK and US this year.

What’s Next?


Catering to China’s middle classes, who are keen to spend their money abroad in familiar ways, would seem to be the next big play for the Chinese fintech players. But a desire to partner up with native services represents a huge opportunity for the rest of the market to get a slice of the action.

Legislative barriers, such as those which prevented the MoneyGram sale, mean that Chinese companies have some way to go to make their services more universally acceptable – but this is a relatively small hurdle for Alibaba and Tencent to overcome. The real challenge will come when integrating international products into their own, and ensuring that the natural friction, owing to the behaviours of these very different users, does not overcomplicate the product.

As China’s ship sails westwards, international materials will no doubt be used to ensure it stays afloat, so it becomes inherently clear why Xi defends globalism so staunchly. Collaboration, for the strongman, opens up many currents flowing towards the rest of the world.

James Safford is a Market Research Analyst at 11:FS You can discover James’ content on 11:FS Pulse and keep an eye out for research reports coming from him very soon.