Promoting China’s Inclusive Finance Through Digital Financial Services

The terms Internet Finance, Financial Technology and Digital Finance are almost similar in meaning and are used interchangeably in China and around the world (Shen & Huang, 2016; World Bank Group, 2018; Xie, Zou, & Liu, 2016). Here the term digital financial service (DFS) is used to mean all the financial elements or services accomplished by technological innovation.

The use of only one term, such as FinTech, internet finance or digital finance, may limit the services, for that reason the word DFS is used here to cover wide range financial services and innovations. Gabor and Brooks (2017) stated that ‘If we solve these large problems of inclusive finance, it will be with new business models, technologies and innovations. Data allow us to know which innovations work and which don’t’.

Another study, Radcliffe and Voorhies (2012), identified DFS as ‘greases the wheels’ of the economic activity which makes the financial products and services cheap and easy to send and receive payments. After involving with the DFS, the poor people experience several benefits through several channels. These are including payment connections to peers, access to a basic store-of-value account, access to promoted financial services and payment connections to institutions, such as utility companies, enterprises and governments. Also, the rapid development of DFSs and major technological innovations are pushing China’s government towards the expansion of their inclusive finance (Zhou, Arner, & Buckley, 2015, 2018). G-24 (2018, p. 12) mentioned digital payment as a powerful tool of the solution to financial exclusion.

This report also stated that ‘A flourishing mobile money digital financial ecosystem is one contribution FinTech has made to inclusive finance in many countries, but new technologies and approaches focused on developing comprehensive digital financial ecosystems are emerging and offer significant promise’. Salampasis and Mention (2018) noted that financial innovations have a significant influence on sustainable economic development. It also works as a driver of economic inclusion.

Usually, formal financial institutions fail to meet the financial needs of SMEs, agricultural businesses and other financial needs of rural areas. Also, it fails to satisfy the financial access policies of the consumers. On the other hand, in any case, DFS can fulfil the financial needs of those financial areas and help to satisfy consumers’ financial access policies. Also, it can directly improve the well-being of its customers by enabling a broader ecosystem with much more significance. Karlan et al. (2016) indicated that DFS is using cost-effective cash transfers to provide different types of traditional and DFSs. It has had impacts on public expenditure management systems. In addition, it helps to reduce extra expenditure on projects funding and to get control over the expenditures. Additionally, it reduces corruption in traditional financial services.

Economic development is well linked to inclusive finance (Long, 2016; Mitra & Das, 2018; Zhou et al., 2015, 2018) and promoted inclusive finance is broadly linked to the sustainable development goals (SDGs) (Tomilova & Dashi, 2017). Also, Siddik and Kabiraj (2020) specified that inclusive finance is deeply connected to inclusive growth. Over the past decade, less developed, developing and even developed countries have started to improve their inclusive finance in their respective countries. Many organizations around the world have been working to promote inclusive finance by developing specific sectors, collecting experiences and guiding related parties (World Bank Group, 2016). In terms of GDP growth and purchasing power parity (PPP), China’s economy is considered as one of the largest economies in the world for falling poverty rates and improving inclusive finance (World Bank Group, 2018). Also, China is the first country that rapidly promotes its inclusive finance through financial technology. This development began with the rapid growth and high acceptance of payment technology.

More specifically, WeChat Pay and Alipay are the two biggest digital payment tools in China. Their rapid development was quite influential, referring to PayPal services in the United States. Although, PayPal started their journey years earlier compared to Alipay and WeChat pay, its development has not been as rapid as Alipay and WeChat Pay. Whatever, the revolution of the development of providing massive opportunity to financial access to rural people has been working as strong helping hand as their economic development. Now people have easy access to the formal financial systems. Even in the rural areas, access to finance is much easier than the earlier days. After joining the formal financial system, they are contributing significantly to the formal economic systems.

For these reasons, China has the opportunity to hold the market leader position in diversified sectors. Another influential tool for their massive development of inclusive finance is their online shopping. More specifically Taobao & JD.com are their most commonly used online markets. People from all around can easily start their business in the online marketplace and ship their products across the country. This is also considered one of the most vital forces for their rapid development of the rural economy. Their digitalization of payment systems is working behind their rapid development. These are the most influential debate China’s inclusive finance.

Whatever, not only China, also the United Kingdom, United States, Singapore, Malaysia and some other developed countries are very successful in using DFSs. Also, the digital payment system is used as a payment method in many other countries, such as Ghana, Kenya, Philippines, Uganda and some other underdeveloped countries, but the success pathway of their digital payment is not consistent (G-24, 2018). Therefore, China’s strategies and policies of DFSs revolution will work as a successful pathway to other countries whose inclusive finance is in the developing stage.

However, despite this rapid growth, still, large numbers of people remain uneducated, without having a bank account and without the touch of financial technologies, which are considered to be one of the most influential obstacles to China’s further development (Ding, Chong, LEE Kuo Chuen, & Cheng, 2018; Gabor & Brooks, 2017; Long, 2016). Despite this, China is regarded as the pioneer in digital inclusive finance and is introducing its best practices to other countries. Digital financial services is the main force behind this success history.

Many authors, such as Ding et al. (2018), Leong, Tan, Xiao, Tan, and Sun (2017), Milian, Spinola, and Carvalho (2019), Salampasis and Mention (2018), Sinha, Pandey, and Madan (2018), Sparreboom and Duflos (2012), Yang, Chen, Shi, and Wen (2017), Zhou et al. (2015) and Zhu, Zhai, and He (2018), have found out that the most influential forces of the development of inclusive finance is DFS.

From this perspective, the need for a review study has created. Whatever, this study contributes to the existing literature by showing the importance of DFS in the development of inclusive finance, presenting the influence of DFS for the development of China’s inclusive finance, focusing the ways or initiatives DFS leading to promote China’s inclusive finance through DFS and identifying the challenges in promoting inclusive finance. Also, this study shows some new research areas on this inclusive finance. Those issues also will have a significant impact on future research on this field.

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—Promoting China’s Inclusive Finance Through Digital Financial Services from Global Business Review