China-based investment expert Edward Tse, CEO of Gao Feng, says financial technology companies are thriving in China
With the Chinese government keen to encourage innovation the fintech revolution is quickly gaining pace. Financial technologies companies backed by Chinese venture capital raised $2.4 billion in the first quarter of 2016, according to accounting firm KPMG.
This represented a 49 per cent share of global fintech investment in the period, bigger than that of North America and Europe combined.
Ant Financial Services Group, Alibaba Group Holding’s fintech affiliate, itself raised $4.5 billion in April, making it the largest round of funding for a fintech company in the world.
Four out of the five largest fintech companies in the world by valuation are now in China, according to Jason Jones, chief executive of lending industry events group LendIt:
- Ant Financial;
- Shanghai Lujiazui International Financial Asset Exchange, or Lufax, which operates as Lu.com;
- Zhong, an online property and casualty insurance; and
- JD.com’s JD Finance.
And this market is only set to grow.
Chinese entrepreneurs’ willingness to experiment means products and services hit the market quickly and evolve quickly. Initially, AliPay, Ant Financial’s payment service, was used only as a payment method for Alibaba’s e-commerce platform. Now, AliPay can be used at brick-and-mortar stores, for utility bills and even for overseas shopping.
China has become a fertile ground for fintech solutions. Online wealth management has gained traction among young middle-class consumers. As more risk-tolerant investors, they tend to favor equities and mutual funds over traditional savings accounts.
At $66.9 billion in 2015, China’s peer-to-peer lending market is now the world’s largest and more than four times the size of its US counterpart.
However, the p2p market has been plagued by inadequate regulation and hence, a high frequency of frauds and scams such as the $7.6 billion Ezubao Ponzi scheme uncovered last year. Regulators have since started to get a grip on the sector.
Chinese fintech players are also moving into the nascent blockchain industry. Ping, an insurance group, one of China’s largest insurers and the owner of Lufax, in May became the first Chinese entity in a global blockchain consortium with Goldman Sachs and Barclays.
China’s internet giants have some of the most sophisticated fintech ecosystems. Chinese fintech companies are now starting to expand overseas. China’s fintech revolution is already making waves. Opportunities exist for those able to provide innovative solutions to address critical consumer needs.
Edward Tse is founder and CEO, Gao Feng Advisory Company, a global strategy and management consulting firm with roots in China. A pioneer in China’s management consulting profession, he led the Greater China operations for two major international management consulting firms for 20 years and is widely known as China’s leading global business strategist. He is author of The China Strategy (2010) and China’s Disruptors (2015).
Read Edward Tse’s commentary on Nikkei Asian Review