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What are the latest trends in China relating to fin-tech?

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【Summary】According to a recent report by consulting firm Accenture, the value of fin-tech investments in the Asia-Pacific region leapt to $9.6 billion in the first half of 2016, which is more than the total investments made in the six years between January 2010 and the end of 2015. And mainland China and Hong Kong contribute 90 percent of this giant number. Moreover, the top 10 fin-tech investments in Asia-Pacific were all made in these two regions.

Original Lydia    Sep 27, 2016 11:00 PM PT
What are the latest trends in China relating to fin-tech?
Claire Pu

By Claire Pu

According to a recent report by consulting firm Accenture, the value of fin-tech investments in the Asia-Pacific region leapt to $9.6 billion in the first half of 2016, which is more than the total investments made in the six years between January 2010 and the end of 2015.

And mainland China and Hong Kong contribute 90 percent of this giant number. Moreover, the top 10 fin-tech investments in Asia-Pacific were all made in these two regions.

That's not surprising, as fin-tech has now become the hottest trend in China. With 52.2% of the population ( over 700 million) surfing the Internet and over 30 percent already using Internet payment systems. China is now the hotbed for fin-tech.

A few examples may let you get a clear idea of what's going on in China. Let's start out with the Internet Payment Rave.

Alibaba, the e-commerce mogul behind China's largest online shopping platform Taobao, has opened a financial arm called Ant Financial. It released a bunch of interesting data on Alipay, Alibaba's online payment platform, throughout 2015. A full 65 per cent of the money exchanged on Alipay in 2015 was sent via mobile means and devices. Shanghai's Alipay users spent a whopping 104,155 yuan (US$15,839) per capita.

Another Chinese tech giant — Tencent also boasts a lot on internet payments.  Its star product WeChat, a chatting tool that almost every Chinese uses nowadays, (no matter what age they are)  has launched its payment system as well.

Tencent previously disclosed that 200 million user cards were attached to the payment service as of November 2015, thanks to a genius campaign that taps into China's tradition of sending red envelopes during the New Year, but now it said the figure is "safely more than 300 million" while it also gave us clues as to how large its volumes could become.

Tencent also mentioned that it banked over RMB300 million ($46 million) from bank transfer fees from WeChatPay, almost all of which came from China. (The service did recently go live in South Africa via its first international expansion, while Tencent is offering it globally to merchants who can use it to take payment from Chinese tourists.)

Reuters reported that Pony Ma, Tencent CEO, told reporters at a Hong Kong press conference that the company took 0.1 percent on transactions, which means the service saw close to $50 billion in bank transfers that month. At that same pace, that would mean close to $550 billion in payments processed per year — that's close to double the $282 billion that PayPal processes in a year.

Now if you walk randomly into any restaurant in Beijing, or urban cities in China, there's a great chance that you could use WeChatPay to finish payment with just one click on your phone. A large population, a need for payments carried out in an instant, and rapid economic growth are the reasons for mobile payment's success.

Secondly, China's P2P lending boom is probably hindered by tightening government regulations.

The peer-to-peer lending marketplace in China is always in fierce competition. Not long ago, Ezubao, the biggest P2P ponzi scheme, was still on the tip of everybody's tongue. Based in eastern cities of Anhui province, the P2P lending company attracted funds of 50 billion RMB from 900,000 investors since 2014, yet ceased to trade in December 2015. Claiming it could pay investors around seven times the interest rates that could be obtained by depositing the money with a bank in a normal way, with interest rates of between 9 and 14.6 percent, Ezubao is simply borrowing money from new investors to pay moneys due to earlier investors. If it sounds too good to be true, then it probably is.

Despite the scandal, Yirendai, listed on the New York Stock Exchange under the tag YRD, and raised 75 million US Dollars at the end of last year. Just as the company listed, it demonstrated that it passed muster with stringent US Securities and Exchange Commission regulations. In mid August this year, Yirendai's stock price soared to $37.5, yet quickly plummeted to around $20 when Chinese government announced tightening regulations on the country's $60 billion P2P market.

So whether P2P will continue prospering remains a real question. Yet the public could have an optimistic anticipation of a better and robust P2P market in the future.

Third, let's take a look at nline consumers and SME finance. According to a report by McKinsey, small and medium-sized enterprises in China contribute a significant share of GDP and employment, (nearly 80 percent and 60 percent respectively) yet their development has often been beset by a shortage of funds. As the country's economy slows, banks are becoming more reluctant to address this issue—presenting a huge opportunity for the highly efficient, low-cost fin-tech sector. For online consumers, a large portion are young people who are more open to online personal-finance products, and have both a higher propensity to spend and a higher tolerance for financial risk.

Fourth, we see that in China, bank and Fintech partnerships will continue to evolve. As fin-tech becomes the hottest trend, traditional banks will definitely do something to react to the disruption by Fintech companies. Are they going to innovate and are they going to change? A safe bet is that they will not stay out of the game and just watch, but rather change their business model and try to shape the Fintech industry themselves. The largest banks already started using venture capital arms to back Fintech startups and they will only continue to do so. Once the idea is off the ground and its potential has been proven, they are more than likely to acquire the start-up and make it an in-house product. Will there be more acquisitions and investments? Well we'll have to stay tuned on that one and offer you salient advice in the coming weeks and months.

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