Markets & Investments

China’s fintechs disrupt the world

by Sachin Mittal

Reigning supreme with the biggest fintech market in Asia Pacific and beyond, how has China managed to come thus far?

When it comes to the financial technology (fintech) scene in Asia Pacific, it goes without saying that China is ahead of the pack and has gone on to outperform everyone else on the global fintech stage. Last year, Chinese fintech investments accounted for 45% of the US$9.5 billion in global portfolio. In this year’s first quarter alone, the country attracted US$2.4 billion in venture capital for nine deals, making up 49% of US$4.9 billion in aggregate fintech investment in the world. With 36 unicorn tech companies valued at more than US$1 billion under its belt, what exactly drives China’s fintech boom?

In this year’s first quarter alone, the country attracted US$2.4 billion in venture capital for nine deals, making up 49% of US$4.9 billion in aggregate global fintech investment.

Firstly, China has a resilient economy that continues to outpace most other countries. At US$10.9 trillion in 2015, China’s gross domestic product (GDP) is already close to the total sum of the GDP figures for the next 10 largest emerging markets. A strong economy and a swelling middle class have seen an increased demand for more financial services in China. Traditional banks that are used to being sheltered by regulations and bumper results now have to operate in unpredictable waters. Conservative operatoins and lack of innovation amongst traditional banks has allowed fintech firms to penetrate the financial services market.

Secondly, China’s fintechs focus on untapped customer segments and have risen to fulfil unmet customer needs. The country’s state-owned banks have largely neglected the small medium enterprises (SME) and retail customer segments. SMEs that are stuck with unfavourable financing requirements from traditional banks have turned to non-traditional lenders for funding. China’s under-developed consumer banking system has led to a huge unbanked population seeking better product offerings elsewhere.

In addition to this, the country’s innovation hubs such as Beijing, Shenzhen, and Shanghai continuously invest to cultivate favourable conditions for fintech firms to thrive. These fintech hubs are strategically located near top universities to give fintechs an edge when sourcing for talent. Shenzhen, China’s Silicon Valley, alone is expected to spend about US$680 million this year to attract professionals and academics from around the world.

Thirdly, China’s own technology infrastructure has provided a conducive environment for fintech firms to flourish. Ubiquitous connectivity in major cities has translated to a mature digital penetration of 710 million internet users (as of June 2016), more than the internet users in United States and Europe combined. In a country where cash is preferred, China has bypassed an era of payment cards and gone straight to digital wallets like Alipay. With Alipay now China’s largest online payment gateway, and Tencent’s WeChat an indispensable social media platform with in app payment services, fintech firms have led the way in retail disruption.

As China spearheads the world of retail e-commerce, with projected sales at US$899 billion this year – equating to 47% of global digital retail sales, domestic online marketplaces such as Alibaba and Tmall have taken advantage of the ‘Great Firewall of China’ to expand their presence while global competition have remained blocked off.

Last but not least, the Chinese consumer’s readiness in fintech adoption has offered disruptors the opportunity to gain scale. Digital native Gen Y and millennials, which account for 45% of domestic consumption, are not only spurring the e-commerce market but also leading the charge in China’s mobile payments adoption. The tech-savvy consumer is open to new technologies and and aren’t hesitant in engaging fintech disruptors to deliver better services.

With a huge amount of white space open to disruptive and innovative models, backed by hefty investments, China’s fintech industry has gone past the inflection point and is reshaping the financial landscape.


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