Financial innovation

Recent Financial Innovations in China in the 2020s

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Recent Financial Innovations in China in the 2020s

Samia DARMELLAH

In this article, Samia DARMELLAH (ESSEC Business School, Global BBA, 2020-2024) present recent financial innovations in China in the 2020s.

Introduction

During my academic exchange at Fudan University in China, I was captivated by the innovation and dynamism of the financial sector. In 2024, China is considerably ahead of other countries in terms of financial progress, reshaping the services landscape with revolutionary technologies. In this article, we will explore some of the most striking developments, including the rise of digital payments, blockchain integration, Intelligence Artificial in China, robo-advisors and the launch of the Digital Yuan.

By diving into these innovations, the aim is to show how they are improving the efficiency of financial services while creating new opportunities for businesses and consumers, providing a glimpse into the trends shaping the future of finance.

Digital Payments via QR Codes

Digital payments have become a revolution in China, especially those made using QR codes. Whether shopping or paying for a cab, scanning a QR code is the most common method. This trend was driven primarily by Covid-19 and has since multiplied across the country. By June 2024, over 969 million users were actively making payments via applications such as WeChat Pay and Alipay, according to Statista’s report on mobile payment users in China, published in 2024. What’s fascinating is the extent to which this practice has become ingrained in everyday life: almost 72% of consumers will regularly use mobile payments by early 2024.

Payment via QR Code.
Payment via QR Code
Source: Google Image.

Although mobile payments in physical stores have fluctuated, reaching almost 84% in the second third quarter of 2024 before dropping and rising again to 72% in the first quarter of 2024 according to Statista. Digital transaction trends remain strong and dominant across China, facilitating billions of transactions seamlessly and securely.

Blockchain for Security and Transparency

Blockchain is a technology that allows a database to be shared in a decentralized manner, that is, between actors who do not necessarily trust each other and without a central controlling entity. In China, blockchain technology has become an essential pillar of financial security and transparency. It has enormous potential, according to a study carried out by Statista between 2017 and 2022, the market size is expected to reach more than 27 billion yuan by 2025 and nearly 69 billion yuan by 2030.

One of the growing sectors that benefits from blockchain in China is logistics. Companies like Alibaba are using this technology to track goods at every stage of their shipment, from manufacturing to delivery. Thanks to blockchain, data on the origin, quality and transport conditions of products are recorded transparently and securely. This not only helps to strengthen consumer confidence, but also to combat counterfeiting, a major challenge for companies operating in China.

AI-Powered Lending

Artificial intelligence (AI) plays a major role in China, with the market reaching around 70 billion yuan in 2020. Forecasts indicate that it could reach nearly 170 billion yuan by 2026. The technology is being integrated into a variety of sectors, including healthcare, financial services, and retail. Companies like Alibaba and Baidu are investing heavily in the development of AI solutions, driving growth, and transforming the way businesses operate. China’s dominance in this field could position it as a global leader in AI in the years to come.

Size of China’s artificial intelligence economy in 2020
Size of China's artificial intelligence economy in 2020, with forecasts until 2026, by segment (in billion yuan)
Source: Statista.

Size of China’s artificial intelligence economy in 2020, with forecasts until 2026, by segment (in billion yuan)

Robo-Advisors in Wealth Management

In China, innovation in wealth management is booming thanks to robo-advisors. These automated platforms use artificial intelligence to provide personalized investment advice, tailored to each user’s financial goals. The Chinese robo-advisor market is expected to reach $2.67 billion by 2024, with annual growth of 10% to 2027 according to Statista.

According to a BlueWeave Consulting report on artificial intelligence in China in 2024, this expansion is fueled by the growth of the middle class, which will number over 400 million people in 2020. Robo-advisors are making it easier and cheaper to access financial services.

Today, many financial companies are adopting these technologies to attract younger customers. For example, the MyBank platform, a digital bank affiliated to Ant Financial (Alibaba) uses AI algorithms to offer automated, personalized financial services. This model has transformed the way financial services are offered, making wealth management more accessible for the new generation. Robo-advisors are no longer reserved for high-net-worth investors but have also become accessible to ordinary customers. This phenomenon illustrates how China’s innovations are transforming the wealth management landscape.

The Digital Yuan and Cryptocurrencies

The digital yuan, or “e-CNY” as it is also known, is a digital version of China’s currency launched in a test phase in 2020 by the People’s Bank of China. Unlike decentralized crypto-currencies, the digital yuan is fully state-controlled, enabling secure and traceable transactions. It has revolutionized the payments market in China, offering an alternative to platforms such as Alipay and WeChat Pay. By facilitating instant payments, even offline, it has improved financial inclusion, particularly for unbanked populations.

The e-CNY also enables the government to strengthen economic surveillance and stimulate the growth of digital commerce. As the digital yuan develops, it could potentially influence the dynamics of digital currencies worldwide.

Conclusion

In summary, China’s financial sector is evolving rapidly thanks to innovative technologies that are making services more accessible and efficient. The rise of digital payments, the use of blockchain, artificial intelligence, robo-advisors and the launch of the digital yuan show how China is transforming its financial landscape. These changes are opening up new opportunities for consumers and businesses and paving the way for the future of financial services, both in China and internationally.

Related posts on the SimTrade blog

   ▶Nithisha CHALLA Top financial innovations in the 21st century

   ▶Nithisha CHALLA Top 5 companies by market capitalization in China

Useful resources

BlueWeave Consulting (2024) China Artificial Intelligence Market

Fullerton, E. J. (2022) The People’s Republic of China’s Digital Yuan: Its environment, design, and implications. Asian Development Bank

Marin-Dagannaud, G. (2017) Le fonctionnement de la blockchain. Annales Des Mines – Réalités Industrielles

Shen, K., Tong, X., Wu, T., & Zhang, F. (2022) The next frontier for AI in China could add $600 billion to its economy

Statista (2024) Number of mobile payment users in China from 2024 to June 2024

Statista (2018-2024) Mobile payments adoption in POS in China from 2018 to 2024

Statista (2017-2022) Blockchain market size in China from 2017 to 2022

Statista (2019-2026) Scale of AI industry in China by segment from 2019 to 2026

Statista (2017-2027) Robo-advisors market in China from 2017 to 2027

About the author

The article was written in October 2024 by Samia DARMELLAH (ESSEC Business School, Global BBA, 2020-2024).

Top financial innovations in the 21st century

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Top financial innovations in the 21st century

Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents top financial innovations of 21st century that have brought significant changes in people’s life.

Introduction

The 21st century has seen remarkable financial innovations that have transformed the way people interact with financial services. Innovations like blockchain, quantum computing, artificial neural networks, digital transactions, crowdfunding, and Apple Pay have not only increased convenience and accessibility but also enhanced security and efficiency in financial markets. Understanding these innovations’ history, impact, and statistics highlights their significance in shaping the future of finance. The 20th and 21st centuries, in particular, have seen rapid advancements due to technology, leading to groundbreaking changes in financial services.

Top Financial Innovations that Changed People’s Life in the 21st century

Our selection of financial innovations is based on their wide adoption by firms and individuals (usage in many countries around the world).

  • Mobile Banking: Services like Apple Pay and Google Wallet have allowed consumers to make payments using their smartphones, enhancing convenience and security.
  • Blockchain Technology: Beyond cryptocurrencies, blockchain offers secure, transparent record-keeping for various financial transactions and contracts.
  • Quantum computing: Quantum computing leverages the principles of quantum mechanics to perform complex computations at unprecedented speeds, promising to revolutionize fields such as cryptography, financial modeling, and optimization.
  • Artificial Neural Networks: Artificial neural networks, inspired by the human brain, are a subset of machine learning that excel in pattern recognition, data classification, and predictive analytics.
  • Digital Transactions: Digital transactions refer to the electronic transfer of money or assets between parties, facilitated by technologies such as online banking, mobile payments, and digital wallets.
  • Crowdfunding: Platforms like Kickstarter and GoFundMe allow individuals to raise funds for projects, businesses, or personal causes from a large number of people.
  • Apple Pay: Apple Pay, introduced by Apple Inc. in 2014, is a mobile payment and digital wallet service that allows users to make secure, contactless payments using their Apple devices.

We explain below how these financial innovations impacted people’s lives and companies. We also give some statistics to measure the impact.

Mobile Banking

The first mobile banking services were introduced in Europe and Asia in the early 2000s. Banks like Wells Fargo and Bank of America first introduced it. And M-Pesa, a mobile phone-based money transfer and micro-financing service was launched by Vodafone in Kenya in 2007. Later on, PayPal expanded into mobile banking with its app in the early 2010s.

This innovation has allowed customers to conduct banking transactions anytime, anywhere using their mobile devices. This significantly increased financial inclusion, especially in developing countries where traditional banking infrastructure is lacking. Mobile banking enables real-time transactions and instant access to financial services.

According to an article posted on Business Wire, the global mobile banking market was valued at $715.3 million in 2018 and is expected to reach $1,824.7 million by 2026, registering a CAGR of 12.2% from 2019-2026. As of 2020, over 1.75 billion people worldwide were using mobile banking services. In 2020, mobile banking transactions accounted for 42% of all online banking transactions.

Blockchain Technology

In 2008, Satoshi Nakamoto (pseudonym) introduced blockchain technology with the creation of Bitcoin. IBM implemented blockchain solutions for supply chain management for the first time and Ripple used blockchain for cross-border payments and remittances.

Blockchain Technology provided consumers with increased transparency and security in financial transactions. It allowed for the development of reduced costs and time for cross-border payments. Which also helped customers with enhanced privacy and control over personal financial data.

To speak on how much these innovations affected people, the source cited is Yahoo Finance, as of 2021, the global blockchain market was valued at $4.93 billion and is projected to reach $227.99 billion by 2028. And over 46 million Americans owned Bitcoin as of 2021.

Block Chain technology ecosystem
Block Chain technology ecosystem
Source: Analytics Vidhya

Evolution of number of Block Chain wallet users
Evolution of number of Block Chain wallet users
Source: Demand Stage

Quantum Computing

Various contributors, including IBM, Google, and D-Wave Systems, have significantly advanced quantum computing. Its first development idea commenced in the early 2000s (concept development), with significant advancements in the 2010s. JP Morgan Chase initially explored quantum computing for financial modeling and risk analysis. Later on, Goldman Sachs researched quantum algorithms for trading and portfolio optimization.

This technology, developed by companies like IBM and Google, offers potential breakthroughs in solving problems that are currently intractable for classical computers.
Quantum computing provided customers with enhanced computational power that led to more accurate financial predictions and better investment strategies. It showed the potential to revolutionize financial modeling, risk assessment, and encryption.

To speak on how much these innovations affected people, Quantum computing could potentially break current encryption methods, necessitating new security protocols. According to NASDAQ, the global quantum computing market size was valued at $472 million in 2021 and is projected to reach $1.76 billion by 2026.

Global Quantum computing market revenue
Global Quantum computing market revenue
Source: Market.us scoop

Artificial Neural Networks

Initially conceptualized by Warren McCulloch and Walter Pitts, modern advancements were made by researchers and companies like Google and IBM. The approximate date of innovation was in the early 1940s (initial concept), with significant advancements in the 21st century. Blackrock uses neural networks for asset management and financial forecasting. Whereas JPMorgan Chase employs neural networks for fraud detection and algorithmic trading.

These networks, utilized by companies such as Google and BlackRock, have significantly advanced capabilities in areas like fraud detection, financial forecasting, and personalized financial services. This innovation enhanced fraud detection and prevention, leading to greater financial security. Provided personalized financial services and products based on user behavior analysis.

To speak on how much these innovations affected people, neural networks have significantly improved fraud detection rates, reducing financial losses for institutions and customers. According to Allied Market Research, The global neural network market was valued at $14.35 billion in 2020 and is projected to reach $152.61 billion by 2030

Digital Transactions

PayPal (founded by Elon Musk, Peter Thiel, and Max Levchin) popularized digital transactions in the early 2000s. PayPal with digital transactions revolutionized online payments and money transfers. Square, another company provided digital payment solutions for small businesses and individuals in the early 2000s.

This innovation has provided enhanced accessibility to financial services for unbanked populations. It reduced the dependency on physical cash and increased the convenience and speed of financial transactions.

To speak on how much these innovations affected people, according to Forbes, 53% Of Americans Use Digital Wallets More Than Traditional Payment Methods. The global digital payment market size was valued at $58.30 billion in 2020 and is projected to reach $180.23 billion by 2026.

How does Digital transaction work?
Digital transaction example
Source: Forbes

Crowdfunding

In the mid-2000s, platforms like Indiegogo (2008) and Kickstarter (2009) popularized crowdfunding. Kickstarter facilitated funding for creative projects and startups. Indiegogo enabled a wide range of campaigns from personal causes to tech innovations.

This innovation has provided entrepreneurs and creators with access to capital without traditional funding sources especially in developing countries where traditional banking infrastructure is lacking. Enabled community participation and support for innovative projects, lowering entry barriers for new businesses and ideas.

To speak on how much these innovations affected people, over $5.7 billion has been pledged to Kickstarter projects since its launch. According to Aimlon CPA, the global crowdfunding market was valued at $12.27 billion in 2020 and is expected to reach $25.80 billion by 2027.

Apple Pay

Apple Inc., led by CEO Tim Cook, introduced Apple Pay in 2014. Initially, ApplePay integrated with Visa and Mastercard for contactless payments. Later retailers like Walmart and Target adapted to accept Apple Pay for customer convenience.

This innovation has transformed the payment landscape, offering enhanced convenience and security for consumers and businesses alike. This significantly promoted the adoption of contactless payment methods and reduced the need to carry physical wallets.

To speak on how much these innovations affected people, mobile payments use Apple Pay and similar services accounted for 25% of global point-of-sale transactions in 2020. According to Apple, as of 2021, Apple Pay had over 507 million users worldwide.

Conclusion

Financial innovations have profoundly transformed the way individuals and businesses interact with money. From the widespread adoption of crowdfunding to digital transactions and Apple Pay, these innovations have made financial services more accessible, efficient, and secure. As technology continues to advance, the financial landscape will undoubtedly see further changes, continuing to shape and improve people’s lives worldwide.

Why should I be interested in this post?

Management students, as future leaders and decision-makers, should understand financial innovations for several compelling reasons. These innovations not only influence the financial landscape but also have significant implications for strategic decision-making, operational efficiency, and competitive advantage.

Related posts on the SimTrade blog

   ▶ Aamey MEHTA Market efficiency: the case study of Yes bank in India

   ▶ Louis DETALLE The importance of data in finance

   ▶ Bijal GANDHI Earnings per share

Useful resources

Wikipedia Financial Innovations

McCulloch, W. S., Pitts, W., A Logical Calculus of the Ideas Immanent in Nervous Activity, Bulletin of Mathematical Biophysics, (5) 115-133, 1943.

Retail technology innovation hub How Apple Pay has revolutionised payment processing

Allied market research Mobile Payment Market Expected to Reach $12.06 Trillion by 2027

GoFundMe What is Crowdfunding?The Clear and Simple Answer

Go Cardless Digital transactions: what are they?

Aspire Systems Financial Applications of Neural Networks

IBM What is quantum computing

About the author

The article was written in September 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Top financial innovations in the 20th century

by

Top financial innovations in the 20th century

Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents top financial innovations of the 20th century that have brought significant changes in people’s life.

Introduction

Financial innovations have significantly transformed how people make transactions and manage money like saving and investing. These innovations have increased accessibility, convenience, and security in financial activities, benefiting individuals and companies alike. From the introduction of paper money in ancient China to modern-day digital banking, each era has brought new ways to manage finances. The 20th century has seen rapid advancements due to technology, leading to groundbreaking changes in financial services.

Top Financial Innovations that Changed People’s Life in the 20th century

Our selection of financial innovations is based on their wide adoption by firms and individuals (usage in many countries worldwide).

  • Credit Cards and Debit Cards: Introduced in the 1950s, credit and debit cards provided a convenient way for consumers to make purchases without cash, leading to a shift towards a cashless society.
  • Automated Teller Machines (ATMs): ATMs revolutionized banking by allowing customers to perform transactions anytime, anywhere, without needing to visit a bank branch.
  • Telephone Banking: The rise of the internet in the 1980s enabled banks to allow customers to perform basic banking transactions, such as checking account balances and transferring funds, via phone.
  • Online Banking: The rise of the internet in the 1990s enabled banks to offer online services, making it easier for customers to manage accounts, pay bills, and transfer money.

We explain below how these financial innovations impacted people’s lives and companies. We also give some statistics to measure the impact.

Credit Cards and Debit Cards

The Diners Club card, introduced by Frank McNamara card in 1950, is considered the first credit. Later, Bank of America launched the BankAmericard (now Visa) in 1958. Later, Visa became one of the largest credit card issuers globally. MasterCard, originally Interbank Card Association, formed in 1966, is another major player in the credit card industry. The concept of a debit card was first introduced by the First National Bank of Seattle in 1966. The first debit card was issued by Barclays in the UK in 1966.

These Credit and Debit cards provided consumers a convenient and secure way to purchase without carrying cash. It allowed for the development of the credit industry, enabling consumers to borrow funds for purchases and pay them back over time. Which also helped customers make larger purchases thus improving purchasing power.

To speak on how much these innovations affected people, by the end of the 20th century, there were over 1 billion credit cards in use globally. And in 2019, Visa and MasterCard together processed over 171 billion transactions worldwide. In terms of debit card transactions, it recorded over 100 billion debit card transactions globally in 2020.

First ever credit card picture
First ever credit card picture
Source: Time news letter

Figure 1 below presents the evolution of the size of the credit card industry in the United States from 2013 to 2023.

Figure 1. The market size of the US credit card industry
US market evolution of Credit cards industry
Source: Time news letter

Automated Teller Machines (ATMs)

John Shepherd-Barron is credited with inventing the first ATM, which was installed by Barclays Bank in London in 1967. Later, Diebold Nixdorf and NCR Corporation became the major manufacturers of ATMs in the 1980s.

These ATMs provided 24/7 access to banking services, allowing customers to withdraw cash, check balances, and perform other transactions without needing to visit a bank branch. Hence, it enhanced convenience and reduced the need for in-person banking services. Helping reduce queues at banks and improve transaction speed. Overall, this innovation has increased accessibility, convenience, and efficiency both for banks and consumers.

To speak on how much these innovations affected people, by 1990, there were around 100,000 ATMs worldwide. As of 2020, there are approximately 3.2 million ATMs globally. The global ATM market was valued at around $18.4 billion in 2019.

First ever ATM picture
First ever ATM picture
Source: Time news letter

Figure 2 below presents the evolution of the globally installed ATM bases in the period of 2009 to 2020.

Figure 2. ATM global evolution

Source: Time news letter

Telephone Banking

Midland Bank (now part of HSBC) launched the first telephone banking service in the UK in 1989. HSBC pioneered telephone banking services and Citibank also offered telephone banking as part of its service portfolio being one of the early adopters of telephone banking. This is considered the innovation of the 1980-1990 decade.

This innovation has allowed customers to perform basic banking transactions, such as checking account balances and transferring funds, via phone. Provided a convenient alternative to visiting a bank branch, especially for those without internet access, and reduced risks associated with carrying cash or checks.

To speak on how much these innovations affected people, by the late 1990s, telephone banking was widely adopted, with millions of users globally. Despite the rise of online and mobile banking in the 21st century, telephone banking remains a valuable service for many customers, particularly the elderly and those in rural areas. In 2019, an estimated 5% of U.S. adults still used telephone banking. And by 2000, more than 50% of U.S. banks offered telephone banking services.

Figure 1 shows what the first-ever telephone banking machine looked like in 1973.

First ever touch-tone telephone banking machine in 1973.
First ever telephone banking machine picture
Source: ZB Media

Online Banking

The concept of online baking was developed by banks like Stanford Federal Credit Union, which offered the first online banking services in 1994. Bank of America was one of the early adopters of online banking and Wells Fargo Launched its first Internet banking service in 1995.

This innovation has provided customers with the ability to manage their accounts, pay bills, transfer funds, and perform other banking activities from the comfort of their homes. It reduced the need for physical bank branches and made banking services more accessible.

To speak on how much these innovations affected people, by 2019, 76% of U.S. adults used online banking. The global online banking market was valued at $9.2 billion US dollars in 2019. And global online banking users are expected to reach 2.5 billion by 2024.

First ever Online banking machine in 1980.
First ever Online banking machine picture
Source: Fintech Magazine

Figure 1 shows what the first-ever Online banking machine looked like in 1980.

Conclusion

Financial innovations have profoundly transformed the way individuals and businesses interact with money. From the widespread adoption of credit cards to mobile payments these innovations have made financial services more accessible, efficient, and secure. As technology continues to advance, the financial landscape will undoubtedly see further changes, continuing to shape and improve people’s lives worldwide.

Why should I be interested in this post?

Management students, as future leaders and decision-makers, should understand financial innovations for several compelling reasons. These innovations not only influence the financial landscape but also have significant implications for strategic decision-making, operational efficiency, and competitive advantage.

Related posts on the SimTrade blog

   ▶ Nithisha CHALLA Top financial innovations in the 21st century

Useful resources

Wikipedia Financial Innovation

Fintech Magazine Online Banking 1973 – History of Computers

ZB Media Technology in Fintech and the story of Online Banking

Research gate The emergence of financial innovation and its governance – a historical literature review

Axis bank Credit card: A cashless surge

Cambridge University Press Banking and Finance in the Twentieth Century

About the author

The article was written in August 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).