Global online payments platform Circle is making moves in China. Circle aims to connect renminbi to western countries and also service 120 million Chinese travellers heading overseas each year. The Circle mantra is to make payments as easy as sending email, which it does using its own internal treasuries within the app, and also using the Bitcoin blockchain as a settlement rail.
Circle China opened offices at the start of this year in Beijing and the $60m funding round was led by IDG Capital Partners, a prolific Beijing-based VC and a group of other strategic Chinese investors, including search giant Baidu.
China's digital platforms have gained a mythic status for their unbridled innovation and also sheer scale. IBTimes UK asked what can be learned from super-scale Chinese fintech platforms.
Circle CEO Jeremy Allaire said: "If you look at Alipay and WeChat's payment apps, what you see are full messaging apps that are integrated with your social graph. They have really strong integrated person to person payments, for instance, that are free.
"Over half a billion people use their apps. People don't use cash; people don't use cheques; people don't do bank wires. There is really a new kind of digital cash that people use.
"Businesses of every size, from conglomerate retailers all the way down to the guy with the stall selling food – they all take payments with these, all done with QR codes. They just use their phones. There isn't a complicated point of sale system; you just scan a QR code."
For many Chinese consumers mobile apps have replaced retail bank accounts. And that is only the beginning: the apps allow users to pay any public utility, pay for any transportation, donate to charity or split bills. Typically these apps offer savings accounts with high annual interest. They offer investment products and wealth management products. "You can use them to invest money into funds that invest in stock markets. And you can do this all seamlessly and instantly in these services. There's just nothing like that in the West," said Allaire.
China's financial platform innovation is best understood in terms of its lack of legacy systems. There was no 50-year legacy of big established retail bank brands that consumers used for a long time. Hundreds of millions of Chinese came out of poverty and into the middle class in the last 15 years. At the same time mobile phones were exploding, so a large segment of society kind of leapfrogged laptops and PCs.
Up until that point all banks were government-owned, state-run enterprises. Then the government decided to liberalise the banking sector to make it more competitive, allowing privately owned banks to exist in China. It's noteworthy that the first two banks to receive charters were Tencent and Alibaba.
Allaire added: "The Chinese government said the future of retail banking is internet companies. So that would be like the Federal Reserve saying we want to encourage fintech innovation and so we are going to give a bank charter to Facebook and Amazon and Apple."
So the crucial inflection point is essentially turns on regulation? "I think that in the US, to be a financial services provider, in a sense it pollutes the rest of your business because of the amount of regulatory oversight that goes on for you as a company. It's not something that many companies want to have impact the rest of their business."
Allaire said the standard approach has been to work with the financial system at the fringe, at its edges, and only touching upon its surface. An example of this is Apple Pay. In contrast to the Chinese fintech apps mentioned above, Apple Pay is just a user interface layer on top of the existing card networks, and nothing much more. Instead of storing your bank credentials on a mag stripe you store it on a hardware element on a phone and you transmit it over NFC instead of through a bank card reader.
"You maybe authenticate payments on your phone with an extra factor, with your finger, but it's just a UI on top; nothing has changed underneath. It's the exact same system underneath, with the exact same banks. It's a very modest innovation around the edges of the system.
"But in China pre-existing consumer behaviour and expectations just didn't exist for hundreds of millions of people. So now they can just create that from scratch," said Allaire.
Periodically large internet companies attempt a head on march into China; Google tried this some time ago, and Uber more recently. This is not a recommended strategy. Circle has taken care to align its goals with those of Chinese government, which is very focused on growing the role of RMB in the world economy and establishing it as one of the major reserve currencies.
Allaire said: "There are many components to that strategy that they are pursuing, everything from being part of the IMF's basket of reserve currencies to changes in how they manage their own currency." He points out that the Chinese middle classes have more savings than anywhere in the world, and its government now sees an opportunity for the Chinese consumer to play a bigger role in the global economy.
Interestingly, Allaire believes the benchmark for the future of internet banking and finance –Tencent and Alipay – maybe changing, as the West catches up. "We want learn from them. The more time we spent in China, the more we saw that they were years ahead in terms of behaviour, in particular in the sort of P2P payments and social payments arena. So the first product we are really focused on is this sort of person to person payment.
"We are not trying to enter the domestic market and compete with WeChat and Alipay. That would be suicide. But we can connect Chinese consumers and RMB to the West, to Europe and the US and to the rest of the world, and to the blockchain.
"That's something we can do uniquely because we've become licensed to operate these services in the US, UK and Europe, and through the blockchain, building to provide that rest of world coverage. So I think we bring something unique to the table in China that local Chinese companies don't do. It's a market entry strategy that's both aligned with the government of China's strategy, and that meets a market need that is not well met right now."
To that end Circle is patiently awaiting authorisation to operate in China, having opened the offices in Beijing in January. To put it in perspective, Allaire recounts how it took two and half years to become authorised to launch products in the US, and two years for Europe.
"We started Circle China and this effort seven months ago. And it is going to take us some time to do it right because our approach has always been to work with the government. We work with regulators and make sure they understand what we are trying to do. We make sure they understand how we manage the risk; that we do it in a top notch way. That ultimately leads to better outcomes."