Today, China is widely recognized as the leader in FinTech. This statement is supported by statistics on FinTech utilization at up to 69% of users via the digital platform. These transactions are not limited to transfers or payments but include loans, investments, and insurance services via mobile phones. China has become the largest market when compared to 20 other countries in the world. What are the key elements of this leaping development?
Non-bank players are large Chinese enterprises who drives FinTech
The leaping development of China FinTech is much depended on the IT giants who have become the optimum drivers. Familiar names such as Baidu, Alibaba, and Tencent or BAT are the 3 most influential organizations in China’s internet industry who are not banking businesses. Moreover, these 3 players are not looking to only develop the industry domestically but are moving towards the global market. They are expanding the product line and investing in Chinese startups, especially in FinTech. This is why startups in the industry have such speedy advancements.
Baidu is the largest search engine service in China. It was established by Robin Li as a website for searching information, music, and images. It holds a market share for search engines in China of up to 79% (Q2/2016) exceeding Google which is the number 1 search engine in the world who has only 16% market share in China. In terms of FinTech, Baidu together with PayPal launched the “Baidu Wallet”, an online financial service which offers international remittance. The tool allows Chinese residence to conveniently purchase products from international websites. At present, there are over 100 million users which rank 3rd from WeChat by Tencent and Alipay by Ant Financial in the Alibaba group.
Alibaba is the largest e-commerce enterprise in China. It was established by Jack Ma, the richest billionaire in China. Alibaba is an online B2B (Business to Business) marketplace. It is a platform where buyers and sellers meet to trade. The highly successful Alibaba became the largest wholesale website in the world. At present, 86% of the revenue derives from purchases within China. However, Alibaba aims for more than half of the revenue to come from outside China. Aside from the main website, Alibaba has several subsidiaries. For instance, Ant Financial is the largest FinTech in the world. It is a platform for online payment like Alipay which offers a one-stop online financial service. Today, it facilitates over 450 million users with a business value of 75 billion USD or around 2 trillion THB.
Tencent began as a web portal for Chinese users and developed their first product, a chatting program called QQ which quickly gained recognition for the company. Afterward, Tencent expanded to online games with both owned and bought items. Today, Tencent has become the largest online gaming service provider in the world. They didn’t stop there, in the smartphone era, Tencent developed WeChat, a greatly successful chatting platform. Today, WeChat has over 800 million users and is moving into the international market. Recently, WeChat launched WeChat pay, a financial service on WeChat that has become Alipay’s competitor.
FinTech diversity in China
FinTech in China is remarkable due to the diversity of FinTech startups which strengthens the ecosystem in China. Aside from the service provided by the giant BAT, other FinTech include the following.
Peer-to-Peer Lending (P2P)
P2P Lending is a platform build to provide loans between individuals without the need to go through banks. The trending P2P lending scheme consists of interesting companies like “Lufax” which is China’s largest and most successful platform for P2P lending. It is supported by the China Ping An Group, the first holding company regarding insurance in China. Established in 2011, Lufax connects borrowers and lender with a processing fee at 4% of the loaning amount.
Today, Lufax has over 5 million credible customers and expanding the business to funds and insurances. However, it must be noted that it was P2P lending that caused the biggest fraud incident in China. Ezubao claimed to provide P2P lending service when in fact it was a Ponzi scheme. 20 employees were arrested for embezzling over 7.6 billion USD or around 2 hundred billion THB. Moreover, authorities found that 95% of the transactions from the company’s services was a fraud. This has become one of the largest financial fraud in the history of China.
This service manages funds and connects with a payment platform for user convenience. Also, the service offers higher interest rates compared to the bank’s low rates in the past. Leading companies in the sector are Yu’E Bao by Ant Financial, a subsidiary of Alibaba group, Li Cai Tong by Tencent, and Baifa by Baidu.
This offers planning and management of personal finances. It is operated via mobile phones with a variety of transaction options including stocks purchases. The leading personal finance platforms in China are Li Cai Tong by Tencent, Baifa by Baidu, Wacai, many others.
Regulators support and encourage FinTech in China to progress swiftly and solidly.
The Chinese government announced the country’s development plan to improve the financial sector. They aim to develop the basic IT infrastructure for industries and financial services in China as these IT developments encourage financial innovations. Also, with the determination to bring industries and financial services in China to international standards, the government announced the following plans to reinforce and support financial innovation.
Enhance basic IT infrastructure for industries and financial services.
Enhance security of the networks.
Support new technology to further develop financial innovation.
Increase standards for financial strategies.
Enhance the efficiency of IT management systems to uplift IT services for industries and financial services.
Moreover, a key player such, the People’s Bank of China (PBOC), who is the financial monitoring sector of the country, has stepped in to drive FinTech. PBOC appointed a committee to exclusively monitor FinTech, uses AI to scrutinize FinTech users, and has many other initiatives. This has become a great challenge for a risk monitoring and scrutinizing entity which involves the use of disruptive innovation in the financial sector.
Considering the thriving ecosystem in China, it becomes clear to why FinTech in China has quickly and firmly developed. The core reason is the support from the government, constant product and technology development from the private sector as well as the determination and endeavor to become number one in the global market. Find out more about FinTech, here, at the DV Blog.