The everything app that could never be
With the introduction of credit scores, WeChat only furthers its integration into the lives of Chinese citizens. Could something like it ever exist in the west?
WeChat is the dominant smartphone application in China. More than 600 million Chinese citizens use the app to manage virtually every facet of their day-to-day lives. From messaging to shopping to travel, and everything in between, WeChat handles it all. Now, WeChat is going one step further in using all of that data to compile credit ratings for their users.
WeChat users will be assigned “payment points” based on personal records, habits, and various other factors, including comments made in group chats. An artificial intelligence system will determine whether a user can be considered “trustworthy” or not. Other institutions, such as banks, can then use these scores to make credit-issuing decisions. This is yet another step by WeChat and its parent company, Tencent, that cements the app’s preeminent status in Chinese society.
The envy of western tech companies
It is difficult to find a direct comparison for WeChat in other countries. There is no app in the United States or Europe that is so integral to daily life. WeChat is functionally a public utility for the Chinese people. If a person has a smartphone, they have WeChat installed on it. Without it, life is genuinely limited. A friend of mine visited China and was not able to buy a train ticket when he wanted because it was only available on WeChat. He also spoke of how many restaurants have completely eliminated cash and only accept WeChat as payment.
Facebook has long sought to become a sort of “WeChat of the West”. It is certainly the closest thing to a “public utility app” that exists in western countries. However, not having Facebook or Instagram on your smartphone doesn’t limit an American or European in any significant way. It may make it slightly harder to communicate with friends but it won’t prevent anyone from paying for a meal or buying a train ticket, much less affect their ability to obtain a loan from a bank.
Facebook would like to change that. This is evident in its various initiatives and actions geared toward gaining a greater share of your digital wallet. With its own currency still in development, Facebook/WhatsApp Pay, and Instagram Checkout, Facebook seeks to be an aggregator of dollars spent. Beyond that, they want a greater share of your life – both digital and physical. They would love to be the place people visit when they need to conduct any transaction, as is the case with WeChat.
Questions remain around how much data citizens of western countries would be willing to entrust to big tech companies. One simply needs to look at the discourse around the possible use of tracking apps to help manage the Covid-19 outbreak. There are major concerns about infringement of personal liberties in countries like the U.S., France, Germany, and the United Kingdom.
Credit scores are a sensitive topic and there is no universal, transnational agreement on how they should be determined. Every country has its own methods and processes to determine a person’s creditworthiness. It is hard to imagine a French citizen accepting that her comments in a group chat could be deemed “subversive” and result in account suspension and credit impairment, as is the case in China. Still, Facebook has created the closest thing to the WeChat ecosystem in the west and its ambitions are only growing.
A threat to FS providers?
As we witness digital trends accelerate in real time during this crisis, it might prove an opportunity for tech companies to capitalize on their inherent advantages over banks. Major tech companies have created entire ecosystems in which people spend their days doing all manner of activities: photo sharing, chatting, linking, liking, shopping. They own an incredible amount of data about their users, their habits, their transactions, and their lifestyles.
The user experience on social media platforms is typically superior. In discussing digital banking tools, user delight and convenience is always a major talking point. Certainly, every financial institution seeks to make smoother, easier-to-use applications for their customers. The problem is, big tech companies employ armies of engineers working to capture, hold, and monetize your attention. And they have become very good at it. People spend their days scrolling through Instagram, Facebook, and Snapchat.
But the super-app may ultimately turn out to be a China-specific phenomenon. Steep regulatory hurdles remain to tech companies looking to get into the financial services space. It is why Amazon abandoned their current accounts project last year. It is why Facebook’s Libra initiative lost many of its backers and continues to push back its launch date. Even with the obvious advantages these tech firms possess, the nature of financial regulations can prove to be too burdensome. Compounding the difficulties in increasing their prevalence is a general distrust of big tech companies and their data collection. The "big tech backlash" is a movement that continues to gain steam, notably in the halls of regulators on both sides of the Atlantic.
There has yet to be universal acceptance of a company becoming a one-stop shop for everything in the life of an American or European consumer. Social media apps are for sharing and liking photos and videos. Messaging apps are for messaging. Banking apps are for managing finances. Even if big tech companies are making some interesting forays into financial services with Apple's credit card release last year and Google currently working on a debit card, the landscape looks set to remain discordant.
The everything app that exists in China remains a remote possibility in the western world. This doesn’t mean financial services providers can rest on their laurels, as they certainly face competition from many directions, be it challenger banks with lower fees or tech companies creating financial products. But given the societal, cultural, and digital landscape in the west, FS providers will continue to be the primary institutions that people turn to for financial matters.
The challenge for financial institutions is to take their core competency of soundly managing finances and align it with the new way people interact with brands: digitally. With better digital offerings and innovative tools, financial institutions can leverage their strong reputations into lifelong relationships with their customers. They may not become “do-everything” apps, but FS providers can remain important players in the digital space for years to come.