What’s Up with FinTech in China?

 

When thinking about as such,we often imagine Western economies at the heart of it, mainly putting our focus on Europe or United States. However, such a position is very misleading and rather biased. There is one economy that can soon outperform all the others. And it is .

Chine can soon become the superpower in FinTech.

Numbers speak for themselves – for the period July 2015 to June 2016, Chinese FinTech investments in the market surged to about $9 billion, making it the largest share of global investment in the named sector. To put it in perspective, this is equivalent to an increase of 252% since 2010. Now this is truly amazing (!). If this exponential growth will continue, China will soon become the superpower in FinTech.

Below you see a very good graph illustrating the Chinese preferences for using FinTech services instead of traditional banking/financial services in comparison to other Asia-Pacific nations. It is obvious that China is leading in all fronts, and customers are very positive in using FinTech (later we will see what drives such decisions).

When talking about FinTech in China, we can name 7 different markets that concentrate all the activity. These are the following:

  1. Payments. Here most of the focus should go on mobile payments ecosystem. In essence, it is facilitated by e-commerce and social media players such as Alipay or Tenpay, which in turn dominate the market.
  2. Consumer finance & supply chain. E-commerce players lend to underbanked or unbanked individuals, as well as small and medium enterprises (SMEs) by leveraging users’ merchant data on the platform. Key participants here include Ant Financial and MyBank (Alibaba), WeBank with WeChat (Tencent), and JD Finance (JD.com).
  3. P2P lending. Similarly to the consumer finance sector, P2P platforms create a marketplace for peers to lend to individuals and SMEs that are underserved by the conventional lending sector. Market leaders in China are Lufax (Ping An Insurance), Yirendai (CreditEase), Rendai, and Zhai Cai Bao (Alibaba).
  4. Online funds. Funds related to payment platforms that offer ease of access and more competitive returns than the historically low deposit rates are popular among Chinese. Primary players in this market are Yu’e Bao of Ant Financial, Li Cai Tong (Tencent) and Baifa (Baidu).
  5. Online insurance. E-insurance is sold through e-commerce and online wealth management (WM) platforms. Notable brands are platforms by the People’s Insurance Company of China (PICC), Ping An, and Zhong An (in partnership with Ping An).
  6. Personal finance management. These are recently developed mobile-centric finance solutions providing access to mutual funds though stock trading apps. These platforms offer offline-to-online activity, with online brokers accounting for over 92% of new clients. Key players are Ant Financial (Alibaba), Li Cai Tong (Tencent), and Baifa (Baidu).
  7. Online brokerage. These are investment, social network and information portals for investors in China, providing thematic investing via websites and mobile apps, and are offered by FinTech firms such as Snowball Finance, Xianrenzhang and Yiqiniu.

Having grasped the idea of what it is all about, one should undoubtedly question what drives the development of FinTech in China. Basically, there are 3 KEY drivers.

Financial Needs. Or to be more precise – unmet financial needs. Exponentially growing Chinese economy (which is almost equal to the next 10 largest markets by GDP) with emerging middle class has raised the demand for financial services. Since traditional cannot satisfy all that is demanded, or it fails to satisfy it in the best way, FinTech players are taking their share from the pie. The core reasons behind going forFinTech, instead of choosing traditional providers are rather obvious: more attractive rates/fees, better online experience and functionality, better quality of service, and more innovative products than available from an old-fashioned bank.

Abundant Connectivity. Although China’s physical banking infrastructure is less developed than in Europe or US, its digital set-up is far more mature. Online penetration rate in China should be the highest in the world within several years (it has grown from 8.5% in 2005 to 51.7% in mid-2016). To add, smartphones are becoming the universal internet access device having nearly 700 million users (which is more than 90% of overall internet users). It is important to stress that people are using smartphones not only for access, but also for conducting real financial activity. In fact, 1 out of 2 persons are using their smartphone to perform financial transactions primarily through Alibaba’s Alipay or WeChat’s payment service.

E-Commerce Maturity. China has become the world’s largest and most developed retail e-commerce market. E-commerce sales in China account for nearly half of global digital retail sales. Hence, such a mature market drives the growth in mobile and digital payments. It is not surprising though that mobile payment platforms such as Alipay are now used by more than 80% of the users as the most frequent payment method. In fact, according to one survey, Alipay is more popular than cash or credit card in China.

For more insights read a comprehensive report by EY.


is Foreign Business Development & Sales at Paysera and this article was originally published on linkedin.