Discover more from Cashless: Central Bank Digital Currency and China in Perspective
A lost economic decade?; Winter is here for fintech; China’s mobile is a GDP booster; Asia’s banks first on the metaverse?
Winter is here for fintech.
1. A lost economic decade?
2. Winter is here: fintech needs efficiency over growth
3. China’s mobile is a GDP booster
4. Asia’s banks first on the metaverse?
Claude Monet, Grainstacks at Giverny; the Evening Sun 1889. With the substantial grainstacks at the center, the artist brilliantly captures the incessantly changing world of flowing air and infiltrating light. Enwrapped in dense air and light, everything seems to be leisurely in motion.
The key to tonight’s art is that it is “leisurely” and captures a decidedly European scene that matches how I feel in Leuven, Belgium.
I am proud to be the No. 4 global fintech influencer on the prestigious Onalytica influencer list. I got there by writing solid articles that people like you want to read. If you want crystal clear, hype-free discussion on all CBDCs, fintech, crypto, and China’s tech scene, this is the place. All my writing is backed up by curating the best educational PDFs. Subscribe, and you’ll be glad you did!
Please do me a solid and share this on Twitter even though they now block retweets and comments on substack links! The social media wars are heating up!
1. A lost economic decade?
Brace for impact: A lost economic decade is in the making, with digital as a bright spot but no savior for the economy.
Download “overview section” here
The World Bank’s Book “Falling Long Term Groth Prospects” has a title that is not just sobering but makes it clear that the good times are behind us.
Perhaps this is no surprise to anyone, given bank and tech crashes and an ongoing war that is cleaving the world into two or more pieces. Let’s face it these are historic times.
I have attached the “Overview Section,” around 40 pages, that will give you the condensed version of what’s inside, including key findings of each section. That will be more than enough for most of us to understand our changing world.
So here are two short passages that sum up our global predicament. I recommend preparing a stiff shot of whisky, grappa, or ouzo before reading them:
“Today, nearly all the economic forces that drove economic progress are in retreat. In the decade before COVID-19, a global slowdown in productivity—which is essential for income growth and higher wages—was already adding to concerns about long-term economic prospects. In this decade, total factor productivity is expected to grow at its slowest clip since 2000.”
“The result could be a lost decade in the making—not just for some countries or regions as has occurred in the past—but for the whole world.”
“Without a big and broad policy push to rejuvenate it, the global average potential GDP growth rate—the theoretical growth rate an economy can sustain over the medium term based on investment and productivity rates without risking excess inflation—is expected to fall to a three-decade low of 2.2 percent a year between now and 2030, down from 2.6 percent in 2011-21. That’s a steep drop of nearly a third from the 3.5 percent rate that prevailed in the first decade of this century.“
Drink whisky, grappa or ouzo now.
Digital can’t save us
Digital isn’t a savior, but a bright spot in an otherwise bleak economy:
"Exports of digitally delivered professional services related to information and communications technology climbed to more than 50 percent of total service exports in 2021, up from 40 percent in 2019."
Digital's contribution to growth is welcome but insufficient to offset more significant losses. Its biggest impact will be in emerging economies.
So let this sink in; booming growth is behind us, and the next decade will be very different.
—“A lost decade” is in the making, and growth is no longer a given.
—Look for GDP growth to drop by a third.
—Digital won’t be the economy's savior but it can help blunt the pain.
—Digital’s role will be felt most in emerging markets, and EM’s will account for much global growth.
2. Winter is here: fintech needs efficiency over growth
Winter is here for fintech companies who must now learn “efficiency.”
Great read by Flagship Advisory Partners, who do a great job of pointing out the obvious, and I can't help but use a reference to Game of Thrones: Winter is Here.
That isn’t to say that fintech is dead; it just now has to contend with the nasty reality that investor capital is limited and, in a grand reversal, profits matter more than growth.
Flagship’s analysis is spot on, dividing companies into three cohorts (see graph above):
The Good: 13 companies in our total sample (50) delivered a Gross Profit Growth / Opex Growth ratio greater than 2
The Bad: 4 companies in our total sample (50) delivered an Opex Growth / Gross Profit Growth ratio between 1.5 and 2.0
The Ugly: 3 companies in our total sample (50) delivered negative gross profit growth and 7 companies in our total sample delivered an Opex Growth / Gross Profit Growth ratio greater than 2.0.
The cure is worse than the disease?
Now what I find interesting is that Flagship’s solution for efficiency will continue to decimate US tech employees:
“U.S. fintech companies in particular should be focused on establishing substantive offshoring or nearshoring operations as an operating model.”
Offshoring may make these companies more efficient but it will only further decimate jobs. Perhaps even reducing the need for many fintech apps?
“2022 produced a reversal of fortune of sorts in fintech. High-growth fintechs focused on digital commerce and embedded finance, the darlings of pandemic investing, experienced surprising pressure on top-line growth.”
This isn’t the end of the story!
Just to ensure some good news, let’s turn to the Financial Times! (here) The Financial Times boldly proclaims: “Asian fintech rises above global investment dip. Young, growing and increasingly tech-savvy populations help drive rapid expansion.”
The article says Asia’s fintechs bucked the trend experienced in the West with “investment reached a record high of $50.5bn last year, data from consultancy group KPMG shows.”
So while Fintech in the West is searching for its path to efficiency, in Asia, conditions are better based on the raw demand of a south-east Asian population that is 70% unbanked or underbanked.
—Winter is here for fintech as efficiency and profits trump growth.
—Growth-to-profit ratios at least in part, reveal the winners and losers.
—Asia’s fintechs are not immune, but due to vast unbanked populations, they are still in high growth mode.
—Perhaps some newly offshored jobs from US fintechs will head to Asia?
3. China’s 5G is a GDP booster
China’s game-changing adoption of 5G is a GDP booster and underpins fintech, AI, and the metaverse.
The GSMA report on China’s mobile economy reveals something far more profound than stunning mobile use in China, its fantastic boost to GDP.
It also illustrates China’s breathtakingly simple approach to technology development by doubling down on tech that lifts GDP. Many who see 5G and CBDC as part of nefarious gov’t plots seem to miss this logical strategy.
Take WeChat and Alipay mobile payments as an example. They clearly increased GDP, so doubling down and giving people more of a good thing through a CBDC would only seem logical.
Why should mobile be any different?
🔹 Here’s the GDP impact of mobile:
“In 2022, mobile technologies and services generated 5.5% of China’s GDP – a contribution that amounted to $1.1 trillion of economic value added.“
Does a 5.5% GDP contribution sound like something worth promoting? Doubling down on these gains by rolling out 5G with 6G coming soon just makes sense!
🔹 Here are the projections for 5G GDP contributions:
“By 2030, 5G connections in China will reach 1.6 billion, accounting for nearly a third of the global total. The technology will add $290 billion to the Chinese economy in 2030, spreading benefits across industries.” In 2022 terms, 5G will add another 1.4% to GDP
So while the West see CBDCs and 5G as frivolous or optional, China sees them in terms of GDP growth. A big difference in how they view their world!
🔹 Let’s look at China’s impressive 5G stats:
-Mainland China is the largest 5G market in the world, accounting for more than 60% of global 5G connections at the end of 2022
-The number of 5G base stations in China exceeded 2.3 million at the end of 2022, including approximately 887,000 built during the year. China will be the first market with 1 billion 5G connections by 2025.
-By 2030, 5G connections in China will reach 1.6 billion, accounting for nearly a third of the global total.
—China’s sees 5G as underpinning broader plans to integrate digital technologies into society
—The boost to GDP from existing mobile services is impressive and shows WHY China is pushing 5G so hard
—China’s 5G push is logical considering the GDP gains.
—The industrial use of 5G is already evident in China’s breathtaking fully automated ports.
—5G is not optional or frivolity. The nations that master this tech will have a real strategic advantage.
4. Asia’s banks first on the metaverse?
Asia will lead in putting financial services on the METAVERSE! Surprised? Don't be!
A fun read by Capco that looks at the adoption of financial services on the Metaverse and makes it clear that APAC will lead!
Capco’s take on how there will be no “big bang” for financial services on the metaverse is perfect and sets the tone:
"Financial institutions need to start seriously considering the metaverse in their omnichannel strategies. However, far from being a single ‘big bang’ revolution, the metaverse will go through a long period of multi-stranded evolution, including commercial dead-ends – not unlike the early internet. The rate of progress may be fast, but it will also be uneven, and the end goal, in terms of what the metaverse will eventually look and feel like, remains very uncertain."
🔹So what makes APAC special?
–"Consumer attitudes towards the concept of banking in the metaverse tend to be open-minded or enthusiastic, according to Capco’s Asia- Pacific focused Bank of the Future survey of almost 5000 consumers."
–"It’s important to consider the metaverse in the context of Asia’s AR/VR gaming and eSports market, for which continuing phenomenal growth is expected. According to Juniper, 50% of the over 1 billion eSports and games viewers in 2025 will be from the region."
–"China is fast becoming a dominant player in the gaming and eSports market, with both government and tech giant support."
–"Tech centers in APAC including Hong Kong, Singapore and Thailand have been working hard to attract the talent and startups to build key components of the metaverse."
🔹What should banks do now?
–"Banks will need to begin educating their workforce and customers on metaverse technology to enable adoption and ensure safety and security in this new world. They will have to demonstrate how the metaverse connects the virtual and real worlds, and showcase how it can encourage a sense of both freedom and belonging."
–"Banks and financial institutions need to prepare for the future in terms of their technology platforms and partnership strategies. They will need to grapple with issues such as how to proto-type metaverse business models, design metaverse products, handle advances in the use of blockchain."
—Look for Asia to lead in putting financial services on the metaverse.
—A tech-hungry population, gaming communities, and major tech centers in China, Hong Kong, and Singapore will drive the transition.
—Do not expect a "big bang."
—Banks need to start the transition and training employees now.
If you’ve read this far, subscribing is the only logical course of action.
And share on Twitter because:
"The needs of the many outweigh the needs of the few or the one."
My work is entirely supported by reader gratitude, so if you enjoyed this newsletter, please do both of us a favor and subscribe or share it with someone. You can also follow me on Twitter, or Linkedin for more. The best way to ensure you see the stuff I publish is to subscribe to the mailing list here on Substack, which will get you an email notification for everything I post.
Everyone, including platforms that disagree with me, has my permission to republish, use or translate any part of this work or anything else I’ve written (except my books) with credit given to me and this site (richturrin.substack.com) free of charge. For more info on who I am, what I do, and where I’m going, check out richturrin.com
Rich Turrin is the international best-selling author of "Cashless - China's Digital Currency Revolution" and "Innovation Lab Excellence." He is number 4 on Onalytica's prestigious Top 50 Fintech Influencer list and an award-winning executive previously heading fintech teams at IBM following a twenty-year career in investment banking. Living in Shanghai for the last decade, Rich experienced China going cashless first-hand. Rich is an independent consultant whose views on China's astounding fintech developments are widely sought by international media and private clients.
Please check out my books on Amazon:
Innovation Lab Excellence: HERE