Cities like Shanghai, Beijing and Shenzhen are challenging traditional financial centres as China’s FinTech sector continues to boom.
An increasingly tech-savvy and digitally connected population, an underdeveloped traditional banking industry, and an initially relaxed regulatory environment has backed the boom. China went largely from a cash society to a digital banking one, skipping the card phase. Piggybacking its e-commerce boom, China is now a world leader in third party payments, through giants such as Tencent’s WeChat Pay and Alibaba’s Alipay. China’s Total Third-Party Payment Value grew 74 times from 2010 to 2016, with 2017 figures showing there are more than 3.4 billion third-party payment accounts in China (Paypal has 227 million users globally).
FinTech is also changing the way the Chinese buy insurance, lend money, and invest capital. China had 724 million mobile internet users last year and the 2017 EY FinTech Adoption Index suggests 69 per cent of China’s digitally active users have adopted fintech solutions, compared with 33 per cent in the US. Brookings Institution statistics show China accounts for three-quarters of the global market in online and peer-to-peer lending. There is a huge demand for financial services and wealth management, with Alibaba’s money market fund Yu’E Bao overtaking JP Morgan’s US government money market fund to become the world’s biggest money market fund in 2017.
Innovation and investment continue, with KPMG figures showing venture capital investments in China Fintech grew at a compound annual growth rate of 300 per cent from 2014–2017. In 2016, China overtook the USA as the global leader in FinTech VC activities, owning 47 per cent of global FinTech investments. Chinese companies dominated the KPMG/H2 ranking of the top FinTech firms globally in 2017, taking five out of 10 places. “The FinTech market in China is at least one generation ahead of the US, if not two,” said Schulte Research founder Paul Schulte.
Chinese FinTech is also tapping new technology including artificial intelligence (AI), such as Baidu’s stock trading app, StockMaster, which already uses AI to predict share price changes.
Chinese FinTech, therefore is a realm of opportunity, but it is not without its challenges. There are positive signs for job creation, with demand for candidates with both technological and financial expertise.
Investment opportunities have largely been limited to domestic funds to date, given government restrictions on foreign investors. But a number of companies are growing outside China. Lufax has launched Lu International in Singapore, providing a wealth management platform that provides a 100 per cent mobile, facial recognition account opening and investment process.
With the launch of the multi-billion dollar China-Pakistan Economic Corridor (CPEC), Chinese companies are fast moving to Pakistan to capitalise on the huge business opportunities. One example is Webull, which has provided an advanced global financial information service to the Pakistan Stock Exchange (PSX) since September 2017; as many as 153,000 Pakistanis have registered themselves with the app.
A number of start-ups have listed on international stock exchanges, providing high-growth investment opportunities. In 2017, China Rapid Finance Ltd, Qudian Inc, Hexindai Inc, Jianpu Technology and PPDAI Group Inc went public in the US. For investors however, there is some ambiguity around appropriate valuations, with current valuations very high.
Chinese regulatory authorities have also been forced to crackdown on the industry following fraud cases, such as the E’Zubao peer-to-peer (P2P) lending scheme, a Ponzi scheme which had nearly one million victims. Increased regulation may stifle the rampant growth, at least initially. Consumer privacy has been another concern as multi-platform businesses mine databases across customers’ consumption habits, personal, and professional lives to offer financial products.
Yet JPMorgan research suggests China’s FinTech market could grow 44 per cent annually, with the industry’s total revenue in 2020 reaching Rmb460bn.
As a 2016 collaborative report by DBS Bank and EY, ‘The Rise of Fintech in China’, states: “China’s market is too big, too valuable, and has too much untapped potential for international players to ignore.”
(via ChinaBriefing, Wharton FinTech, FinancialTimes, Daily Times)