China is now beginning to profile itself as a player to be reckoned with on both sides of the dividing line in the FinTech market.
China is in pole position in several areas of the digital economy, including the use of social networks, with a whole range of services on WeChat (which has 805 million active users); mobile commerce; and Online-to-Offline (O2O) business, of which the thriving ride-sharing provider Didi Chuxing is a shining example. Little is known about Didi Chuxing outside China, but the firm’s comprehensive approach to transportation – embracing taxis, private drivers, car-pooling, etc. – is working so well that in August US-based competitor Uber was forced to withdraw from the Chinese market. However, China is also proving remarkably attractive to FinTech companies.
When you look closely at the FinTech sector, the Asian mountain has two distinct faces. To a certain extent, we see the same type of separation between the more consumer-based FinTech companies in Silicon Valley and those in New York, where the financial giants are now attracting specialised FinTech companies to work with them.
One side of the mountain: lending & payments
So, on one side of the mountain, which today appears to be the sunnier, we find Retail-oriented FinTech firms. Here mainland China currently has the upper hand with peer-to-peer lending platforms and mobile payment solutions. Quite apart from the proven Chinese skills in developing digital services – a transactions platform can be created there in just six months – there are a number of other reasons for the recent surge in lending platforms, the field in which most of the FinTech players in the Chinese market are operating.
Firstly, the market is both immense and rich in potential: 47% of the Chinese population live in rural areas and very few of those people make use of the formal banking system. Lending platforms enable providers to get around the restrictions of the country’s vast geography. Meanwhile, on the borrowing side, pressure on would-be borrowers to ensure they provide correct information makes it easier to rely on credit scoring techniques.
Alibaba group subsidiary Ant Financial has already reaped rewards by providing finance to over four million small and medium-sized companies online. A key factor here is that personal honesty is a core plank of the Confucian tradition in China. Going forward, the Chinese authorities are planning to introduce in 2020 a Social Credit System covering the country’s 700 million Internet users.
As regards mobile payments, the spectacular increase in smartphone use, coupled with the development of mobile payment solutions integrated into the most popular apps – including WeChat and Alibaba – is nowadays encouraging the connected urban class to pay for almost all their shopping via their phones. Alipay, Alibaba’s payments solution, today boasts over 400 million active users.
The other slope of the mountain: investment & asset management
On the other side of the mountain we find FinTech companies working in investment banking, asset management, and related fields. Today Singapore and Hong Kong are the leaders here, especially because the majority of their clients are locally-based. Startups working with blockchain technology – such as Otonomos, a Singaporean startup specialising in ‘smart’ contracts – and with Robo Advisors for financial investments are seeing strong development in this part of Asia.
Despite this current regional split, it would be a mistake to believe that China is not seeing any further innovation in the FinTech field. For instance, Ping’An, a traditional player in insurance, banking and investment, has pulled off a spectacular transition to digital technology. This has led Ping’An to set up spinoff companies such as the brilliantly successful Lufax, an online investment platform which already manages funds on behalf of over 260 million investors.
Meanwhile, the Chinese Internet giants, such as Baidu – which invests 15% of its annual revenues in R&D – are not resting on their laurels either. They are especially involved in Artificial Intelligence technology. AI, together with the progress made in China in the field of voice recognition – a key area for development in a country whose written language is based on some 15,000 ideograms – will help to create the next decision-making aids for those who are keen to invest their money. And it is safe to say that, going forward, history will be made on this side of the mountain.