The Rise of FinTech in China.
While London, New York and Silicon Valley, compete to position themselves as the world’s ‘FinTech hub’, China has leapfrogged ahead to become the undoubted centre of global FinTech innovation and adoption – thanks to developments across multiple hubs, such as Shanghai, Hangzhou, Beijing, and Shenzhen. The speed, sophistication, and scale of development of China’s FinTech ecosystem have been at a level unmatched in more established markets. As banks and financial services institutions in the West look at ways to incrementally innovate, China’s technology leaders are revolutionising many aspects of financial services.
China’s FinTech revolution is a consequence of multiple factors – not least the scale of unmet needs being addressed by dominant technology leaders, combined with regulatory facilitation and easy access to capital. Underserved by China’s incumbent banking system, consumers and small-to-medium-sized enterprises (SMEs) are increasingly turning to alternative providers for access to payments, credit, investments, insurance, and even other non-financial service offerings.
The willingness of Chinese consumers to adopt FinTech services is just as striking. Forty percent of consumers in China are using new payment methods compared to 4% in Singapore. Thirty-five percent are using FinTech to access insurance products compared to 1-2% in many Southeast Asian markets. There are also significantly higher rates of FinTech participation in wealth management and lending.
Underpinning China’s FinTech dominance are leading domestic technology companies setting out to own entire customer journeys and consumption ecosystems across both financial and non-financial activities. ‘Platform effects’ enable them to capture data and use it to offer ever more services with significantly better and more comprehensive customer experiences than traditional financial services players. The relationship with Chinese
corporates and start-ups is also often very collaborative, helping to fuel the rapid innovation and expansion.
If FinTech in the West has reached the tipping point of inflection, China has moved beyond the point of disruption.
The Rise of FinTech in China lifts the lid on China’s unique, dynamic and rapidly evolving FinTech ecosystem. It examines the drivers behind the explosive growth of Chinese FinTech.
It looks at the FinTech ecosystem, the unique characteristics and development profiles of China’s FinTech giants, and assesses the implications both in Asia and internationally.
While there are lessons to be learned from the rise of FinTech in China – including from the response of regulators and incumbents – it is clear that not all products and services can simply be replicated in the West. China’s heady mix of rapid urbanisation, regulatory acquiescence, a massive and underserved SME market, escalating e-commerce growth, and explosion in online and mobile penetration, have created a fertile ground for innovation in commerce, banking and financial services more broadly.
Developments in China are also worth considering relative to other markets. For consumers and SMEs at least, it is in developing markets where FinTech will likely have the greatest impact. Markets in which the scale of unmet needs and leapfrogging technology combine to create “10x solutions” – that is, solutions that are an order-of-magnitude better than what they replace. This step-change in quality, efficiency, and user experience is necessary in order to achieve mass adoption – as what we have seen in China.
From an international perspective, the key question is whether these powerful domestic Chinese FinTech players will be able to replicate their success abroad – or whether they, ultimately, will prove unable to compete outside of their Galapagos-like protected market.
What will it take to build comparable platforms and ecosystems outside of China? Given the inherent platform effects and benefit of scale, will we see global ecosystem alliances between major Chinese and Western players – or international rivalries?
Only time will tell but what is clear is that we can expect that the next phase of development in FinTech innovation in China will have a major influence on the way global financial services are delivered in the future.
Neal Cross: Chief Innovation Officer DBS Innovation Group, DBS Bank.
James Lloyd: Asia-Pacific FinTech Leader EY.