Fin­techs in China .........................................

Sym­bol­ize Chi­nese fin­techs

Banking Frontiers - - Contents -

China is way ahead in cre­at­ing and pro­mot­ing fin­tech ecosys­tem:

When the topic is fin­techs in China, the dis­cus­sion in­vari­ably cen­ters around two mega plat­forms - Ali­pay and WeChat. These two are syn­ony­mous with China’s fin­tech growth. An es­ti­mate puts the value of mo­bile trans­ac­tions on these 2 plat­forms at $12.8 tril­lion dur­ing Jan­uary-Oc­to­ber 2018 pe­riod, which is way above the $49.3 bil­lion worth of trans­ac­tions in the US dur­ing this pe­riod. Ali­pay and WeChat, owned by Chi­nese in­ter­net be­he­moths Alibaba and Ten­cent re­spec­tively, to­gether ac­count for 93% of China’s mo­bile pay­ments mar­ket. Ali­pay claims it has the abil­ity to process 256,000 trans­ac­tions a sec­ond. The fraud loss rate on Ali­pay plat­form is less than 0.01 BPS as op­posed to 3 BPS at one of the world’s leading on­line pay­ment com­pany in the US. And on Ali­pay plat­form, it takes just 3 min­utes for a bor­rower to fill out a loan ap­pli­ca­tion and the loan is ap­proved in one sec­ond and with zero man­ual in­ter­ven­tion. The com­pany claims it is us­ing big data and AI al­go­rithms to achieve what is called the ‘310’ model - 3 min­utes to ap­ply for credit, 1 sec­ond to ap­prove, and 0 peo­ple in­volved in the de­ci­sion.

Ali­pay and WeChat have changed the way Chi­nese peo­ple live their fi­nan­cial lives. They are one-stop shops that en­able half a bil­lion Chi­nese to ac­cess an ar­ray of ser­vices - from pay­ments, loans, in­vest­ments and credit scores to taxi rides, travel book­ings and so­cial me­dia. In con­trast, Alibaba and Ten­cent know the health (or lack thereof ) of small busi­nesses across China and they have loan prod­ucts for com­pa­nies that banks might con­sider risky. Sim­i­larly, peo­ple with no tra­di­tional credit score can get cheap loans be­cause Alibaba and Ten­cent have their pay­ment and pur­chase his­tory.


Both Ali­pay’s and WeChat’s reach is now not con­fined to China as both the en­ti­ties have de­signs for shap­ing the global fin­tech mar­ket as the in­ten­tion is not just pro­vide Chi­nese-de­vel­oped tech­nol­ogy for the coun­tries in South East Asia and Africa as well as In­dia to run the mo­bile fi­nance sys­tems there but also to be par­tic­i­pants in busi­nesses there. Alibaba’s af­fil­i­ate Ant Fi­nan­cial has al­ready reached sev­eral coun­tries in Asia and is ma­jor in­vestor in sev­eral wal­let com­pa­nies in the de­vel­op­ing world. To name a few are Easy­paisa in Pak­istan, BCash in Bangladesh, TOUCHNGO in Malaysia, Kakao­pay in South Korea, GCASH in the Philip­pines, As­cend in Thai­land and Emtek in In­done­sia. And, of course, Paytm in In­dia.


Chi­nese fin­techs do not suf­fer for want of funds. A KPMG re­port in July 2018 men­tions that in ad­di­tion to Ant Fi­nan­cials’ $14 bil­lion fundraise, there were 4 other $100 mil­lion-plus mega rounds in­clud­ing $290 mil­lion to Dian­rong, an on­line lend­ing mar­ket­place; $160 mil­lion to WeCash, an­other credit as­sess­ment and lend­ing plat­form and $130 mil­lion to Meili Jin­rong, a peer to peer lend­ing player in the first half of 2018 alone.

Be­sides Asia, Chi­nese fin­techs are also ac­tive in Africa. Ant Fi­nan­cial, for ex­am­ple, has part­nered with the United Na­tions Eco­nomic Com­mis­sion for Africa and the In­ter­na­tional Fi­nan­cial Cor­po­ra­tion to pro­mote dig­i­tal fi­nan­cial in­clu­sion. The com­pany will make in­vest­ments as also tech­no­log­i­cal ca­pac­ity building in the con­ti­nent.


In­dia too is a tar­get mar­ket for Chi­nese fin­techs. Ant Fi­nan­cial has al­ready made its pres­ence felt in the coun­try through its in­vest­ment and tech­no­log­i­cal sup­port for Paytm. It is also ex­pected that more Chi­nese in­vestors and en­trepreneur­s will en­ter the coun­try as they are wait­ing for reg­u­la­tory ap­provals. Some are al­ready in the coun­try. For ex­am­ple. Chi­nese mi­cro-lend­ing com­pany Fen­qile and smart­phone maker Xiaomi have in­vested in stu­dent lend­ing plat­form KrazyBee. Xiaomi has also in­vested in ZestMoney, a dig­i­tal lend­ing plat­form. It has al­ready be­come the largest smart­phone

seller in the coun­try in just three years and is test­ing fea­tures such as Mi Cred­its.

Ac­cord­ing to Chi­nese gov­ern­ment sta­tis­tics as much as $37.5 bil­lion has been raised by fin­tech com­pa­nies in China be­tween 2014 and the first half of 2018 and the prospects are very en­cour­ag­ing as the in­creas­ing tech­nol­ogy adoption rates and the scope for growth from serv­ing the large un­der­banked pop­u­la­tion in the coun­try. Many banks in the coun­try are in­creas­ing their fo­cus on dig­i­ti­za­tion and de­vel­op­ing trans­for­ma­tion strate­gies, of­fer­ing op­por­tu­ni­ties for B2B-focused fin­techs to en­able bank­ing trans­for­ma­tion. Two such fin­tech en­ti­ties are OneCon­nect, a plat­form provider for smaller banks and a sub­sidiary of Ping An, and CGTZ, a Hangzhou-based on­line lend­ing plat­form, which has a fo­cus on ex­tend­ing its ser­vices to pro­vid­ing ru­ral fi­nanc­ing so­lu­tion.


China’s com­mer­cial banks are boost­ing their fin­tech in­vest­ments and ca­pa­bil­ity to counter com­pe­ti­tion from in­ter­net giants. Some banks are re­spond­ing to the fin­techs in a big way. For ex­am­ple, China Con­struc­tion Bank has its own wholly-owned fin­tech unit join­ing Ping An Bank, China Mer­chants Bank, China Ever­bright Bank, In­dus­trial Bank, and China Min­sheng Bank. The bank’s in­vest­ment in fin­tech de­vel­op­ment in 2018 reached 2.2% of its op­er­at­ing in­come, 22% higher than in 2017. China Mer­chants Bank, which is striv­ing to trans­form itself into a dig­i­tal bank, has participat­ed in the de­vel­op­ment of the Peo­ple’s Bank of Chi­naled trade fi­nance blockchain plat­form in the GBA. Some of the banks that have set up their ded­i­cated fin­tech units have also cho­sen to part­ner with leading Chi­nese in­ter­net giants to tap their tech­nol­ogy and build their in-house ser­vices. Ant Fi­nan­cial has a co­op­er­a­tion agree­ment with China Ever­bright Bank to help the bank’s dig­i­tal trans­for­ma­tion ef­fort.


Hav­ing said this, the ri­valry be­tween fin­techs and tra­di­tional banks ex­ist. A Chi­nese re­search firm has come out sta­tis­tics to say that fin­tech firms will take more than 40% of China’s po­ten­tial pay­ment-card fees by 2020, an an­nual loss of about $60 bil­lion for banks. The fin­tech firms’ move into re­tail bank­ing is even more alarm­ing and tra­di­tional banks do not want this to hap­pen. And their tac­tics are yield­ing re­sults. Ant Fi­nan­cial was forced to cap the amount of cash users can in­vest or with­draw in a day. WEBANK and MYBANK, on­line banks launched by Ten­cent and Ant Fi­nan­cial, are governed by de­posit caps. And the cen­tral bank halted a trial in which Ant Fi­nan­cial and Ten­cent were de­vel­op­ing credit scores on in­di­vid­u­als.

One glar­ing proof of the suc­cess of fin­techs in China is ev­i­dent from the fact that while the U.S. and Europe pro­moted card pay­ments by al­low­ing com­pa­nies like Amer­i­can Express, Master­Card and Visa to ex­pand ter­ri­to­ri­ally, in­clud­ing in China, Chi­nese con­sumers are in­creas­ingly us­ing their mo­bile phones to buy goods and ser­vices, by­pass­ing the pay­ment cards sys­tem and go­ing from cash to mo­bile pay­ments di­rectly.

Apart from mo­bile pay­ments, fin­techs in China have also con­trib­uted to the de­vel­op­ment of other key mar­kets like on­line lend­ing, con­sumer fi­nance, on­line money-mar­ket funds, on­line in­sur­ance, per­sonal fi­nan­cial man­age­ment and on­line bro­ker­age. Of the 27 fin­tech ‘uni­corns’ in the world, 9 are Chi­nese (in­clud­ing one from Hong Kong) and 12 are Amer­i­can.


China today is the global leader in on­line lend­ing, ac­count­ing for three-quar­ters of the global mar­ket. The ma­jor­ity of China’s on­line lend­ing is peer-to-peer and P2P lend­ing plat­forms grew from 200 in 2012 to more than 3000 in 2015 while P2P loans reached RMB 252.8 bil­lion by the end of 2014, then quadru­pled to RMB 982.3 bil­lion in 2015.


As re­gards reg­u­lat­ing fin­techs, China’s cen­tral bank, the Peo­ple’s Bank of China re­cently an­nounced that it is plan­ning to steadily de­velop a sys­tem of rules in this re­gard. In fact, way back in July 2015, the cen­tral bank, the min­istry of in­dus­try and in­for­ma­tion tech­nol­ogy and 8 other author­i­ties had jointly brought out a doc­u­ment, ‘the Guid­ing Opin­ions on Pro­mot­ing the South De­vel­op­ment of In­ter­net Fi­nance’, which is not act­ing as the con­sti­tu­tion for in­ter­net fi­nance busi­nesses in the coun­try. As per this guid­ance, the cen­tral bank reg­u­lates on­line pay­ments, the China Bank­ing Reg­u­la­tory Com­mis­sion reg­u­lates on­line lend­ing, on­line trust and on­line con­sumer fi­nance, the CSRC reg­u­lates eq­uity crowd­fund­ing and on­line funds sales and the China In­sur­ance Reg­u­la­tory Com­mis­sion reg­u­lates in­ter­net in­sur­ance.

Apart from the pol­icy frame­work to reg­u­late the in­ter­net fi­nance across all ver­ti­cals, the gov­ern­ment has also set up a cen­tral­ized clear­ing house (Wan­glian) for all third-party pay­ments, en­abling reg­u­la­tory over­sight on fund flows, which were pre­vi­ously cir­cum­vented by fin­tech play­ers. Ant Fi­nan­cial and Ten­cent each own 9.61% of Wan­glian. Re­cently the cen­tral bank has also set up a fin­tech com­mit­tee to act as over­all co­or­di­na­tor of all fin­tech ef­forts and poli­cies.

Ant Fi­nan­cial is trans­form­ing how the Chi­nese run their daily fi­nances

WeChat is vir­tu­ally a way of life for the Chi­nese

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