Fintech sector of China dominating the global market

China is one of the evolving landscapes for fintech as there are around 3.4 billion third party payments account in the country. The total loan balance online grew at a rate of 36 times within three years and total third party payment value grew 74 times in the same period.

  • Definition / Scope
  • Market Overview
  • Market Risks
  • Top Market Opportunities
  • Market Drivers
  • Market Restraints
  • Industry Challenges
  • Technology Trends
  • Regulatory Trends
  • Other Key Market Trends
  • Market Outlook
  • Technology Roadmap
  • Distribution Chain Analysis
  • Competitive Landscape
  • Competitive Factors
  • Strategic Conclusion
  • References

Definition / Scope

Fin tech which is also an abbreviation of ‘financial technology,’ is a term used to define upcoming technologies that aim to improve and automate the delivery and use of financial services. ​​The use of technology in companies help both the managers of the organization and customers to manage their financial operations and lives by the aid of specialised software and algorithms used in computers or at present times in the smartphones.

The advances of technology is further utilized in several arenas of financial sector such as financial literacy, advice and education, as well as streamlining of wealth management, lending and borrowing, retail banking, fundraising, money transfers/payments, investment management and many more. Some of the major upcoming trends in this sector include advances in following technologies:

  1. Cryptocurrency and digital cash which is in the rise and conducts trade of most valued commodity in the world-bitcoin
  2. Block chain technology is that which allows to maintain records on a network of computers, but has no central ledger.
  3. Open banking is a concept that permits third-parties should have access to bank data to build applications that create a connected network of financial institutions and third-party providers.
  4. Insurtech seeks to utilize technology to simplify and streamline the insurance industry.
  5. Regtech which seeks to provide best protocols for AML and KYC issues for the financial companies and help to prevent fraudulent activities.
  6. Cybersecurity is an issue due to the increasing prevalence of cyber crime and the decentralized storage of data, fin-tech companies aim to provide solutions to these issues as well.

Market Overview

China is one of the evolving landscapes for fintech as there are around 3.4 billion third party payments account in the country. The total loan balance online grew at a rate of 36 times within three years and total third party payment value grew 74 times in the same period.

In the global fintech scenario, five Chinese fintech companies have secured a successful spot within the top 10 in the globe. By doing so they have also been able to entirely dominate the fintech space.

The valuation of some of the Chinese fintech such as Ant Financial is valued at more than $100 billion in comparison to long established financial companies like Goldman Sachs whose market capitalization is only $94 billion. China is also leading the global online market lending grabbing more than 75% of market share in the world.

The VC investments or venture capital is one of the most evolving space within the China Fintech landscape with a CAGR of more than 300%. In 2016, China surpassed USA by becoming the leader in fintech VC owning 47% of the global market share in this particular area.

Market Risks

As the government regulation for the fintech sector was not stringent especially between 2013 to 2015 there were cases of fraud that were encountered within the sector.

For instance, Ezubao which was a P2P fund transfer company operating in China was successful in raising substantial amount of money within 1.5 years from its launch. Later, the scheme was proved to be a scam and this incident was also recorded as the biggest financial fraud that ever happened in China.

The repercussions of this event was that within a few months 60% of the total 5890 enterprises running similar platform closed down. Thus, the biggest risk in fintech led companies are concerns related to security and trust which can never be compromised by the consumers.

Top Market Opportunities

The debit card penetration in China is highest, however the credit card penetration stands at 0.3 cards/person which stands on the low side. The low penetration also suggests that there are high number of consumers in China who are in requirement of credit and the fintech companies in China have the opportunity to serve these unexploited market by providing fintech services in credit space.

The low pricing strategy and effective operation will help the fintech companies in China to attract more customers to use them in comparison to existing financial solutions provider.

Although, the potential for the fintech to thrive in the country is huge, many customer segments are under served such as rural segment, large corporations, SMEs and other wealthy class people in urban areas.

Among the types of services that these firms provide, payments and credit have highly flourished whereas student loans, personal finance and wealth management are few areas in which the fintech can venture for future success.

Market Drivers

Government regulation – China has proved to be an extraordinary economy and always centrally planned. The industries are driven by investment and supported by State-owned enterprises. But, as the trends in western countries like USA where businesses are unable to serve to the changing needs of consumers was identified by the Chinese government, they decided to change the economy to make consumption led rather than investment led.

The government has been understanding the need of innovation and mostly supported in development of inclusive finance and helped introduce technology in this area to drive consumption. One of the major reasons that the fintech space was able to evolve in China was due to the soft regulation and high incentives provided by the government to this sector.

For instance, as of 2017 Central bank set up a fintech commission to act as overall coordinator of all fintech efforts and policies which was previously evaded by the companies. however this regulatory oversight has been enabled to prevent any kind of fraudulent activities in the sector and shield the consumer confidence.

Financial infrastructure – China is a laggard in terms of the adoption of latest technologies like digitization because cash was the most dominant means of payment up until 2000’s where other economies in Asia pacific like Korea had already moved to cashless payment methods. But, China was able to leapfrog into digital payments from cash era skipping the need of debit/credit cards.

And this was led by the rise of e-commerce, smartphones and internet penetration among the public. Another important factor is the debit card penetration of China i.e. 3.6 cards per person which is also highest in the world and this figure was recorded in 2015 which is the year when fintech were actually in a growth phase in China.

Since each digital payment account has to be ultimately linked to a bank card in order to work the ready debit card infrastructure enabled rapid fintech expansion.

Similarly, lack of infrastructure is one of the surprising factors to benefit the China’s payment space in Fintech as the absence of traditional POS terminals led the QR code based payment to takeoff in the country in huge. It is also one of the most convenient methods of payment using a digital wallet.

Rise in E-commerce and social media use– Combined rise of e-commerce, social media use and internet availability boomed the internet technology in China. This led consumers to begin shopping online and shift from the traditional offline retail shopping.

Upsurge of e-commerce in China led the fintech firms to emerge in the third-party remittance and payments space. Also, Wechat one of the most popular chat app in China launched its own digital wallet called Wechat pay in 2013 and introduced the trend of gamification to increase the user base.

Since 2014, the user base is growing by 1000 folds every year and users are spending about an hour on the app every day. The need to socially interact among people in China is increasing which is supporting the growth of fintech related activities.

Market Restraints

The biggest barrier for the Fintech to thrive in China is the regulatory obstruction because there are various areas in which the regulatory authority steps in to keep the Fintech companies controlled which discourages the companies to innovate.

For instance, the recent scandal of P2p followed by huge protests of the public investors compelled the authorities to intervene but crowd funding is one of the areas of innovation in fintech and heavy regulation in these platforms will restrict such to deliver services effectively.

Thus, the government has planned to sanction full guidelines upon the various areas in fintech such as KYC/AML, data protection, use of new technology, digital identity authentication and new business models. Most of the guidelines are targeted at the new business models which is likely to hinder creativity and advances within the sector.

Industry Challenges

Fintech Sector of China faces two major challenges which are:

First, the skilled workforce of China is not able to cope up to the rapid rise of fintech sector. There are certain designations such as software developers and product managers which are having problems of being filled due to constraint in super-fast growing young industry which is why more investment in advance training is required for the labors to match the job.

Secondly, regulatory restrictions have been imposed on fintech lending area and particularly p2p transfers due to past poor performance and fraud cases. Recently, a guideline has been published by the Central Bank on online lending capital management which required that funds need to be deposited in commercial banks and funds need to be both approved by borrower and lenders.

The mandate is pragmatic however it is expected that 60% of all the 5,000 companies involved in particular business are likely to non-comply with the regulation and shut down. Many more regulations are under pipeline and as regulation gets more stringent, the companies in fintech have to go through a tough transition period.

Technology Trends

AI is controlled in fintech sector of China and is becoming used widely which is expected to bring a new wave of technological development, with many industries actively incorporating it into their products and services.

For instance, some banks are adopting video recognition technology to monitor designated locations additionally, some organizations have installed physical robots equipped with speech recognition technology to identify frequent customers and provide them with information about the organization and its business.

Technologies such as biometric and big data are also widely prevalent and are the core technologies of many fintech companies that has successfully opened up the possibility of establishing a public credit services system. For example, a unique identification number for individual users can be generated using cross-bio-metric identification technology and encryption algorithms.

Blockchain and smart contracts can assert the secure reading of information related to individual. By integrating individual consumer behavior records with public credit platforms, a more comprehensive and secure credit reference database system can be built.

This can be a viable solution for micro-level credit assessment and provide regulators with tools for real-time data collection, abnormal transaction analysis and efficient macro-level control over a wide range of data platforms.

Regulatory Trends

In China there are basically four committees also known as CSRC, CBRC, CIRC and PBOC which are established by the government to prepare measures for supervision of online payments, insurance, lending and crowd funding respectively. Various updates that falls under the scope of fintech in China that were recently promulgated were follows:


  • November-Risk Warning on Preventing Illegal Financial Trading Activities via Web Platform
  • September-Notice of the Ministry of Industry and Information Technology on Issuing the Three-year Action Plan on the Development of Industrial E-commerce
  • July- Notice of the State Council on Issuing the Development Plan on the New Generation of Artificial Intelligence
  • April-Notice on Issuing the 13th Five year Plan on National Technological Innovation Projects
  • January-Opinions on Promoting the Sound and Orderly Development of Mobile Internet
  • Notice of the General Office of the People’s Bank of China on Matters concerning Implementing the Centralized Deposit of the Funds of Pending Payments of Clients of Payment Institutions


  • August- Provisional Measures for the Administration of Business Activities of Internet Lending Information Intermediaries
  • June-Provisions on the Administration of Mobile Internet Applications Information Services
  • Standard System for Non-banking Payment Institutions
  • Guidelines on IT Risk Management of Non-banking Payment Institutions
  • Guidelines on the Technologies for the Protection of Personal Information
  • April-Notice on Issuing the Implementation Plan for the Special Rectification of P2P Lending Risks

Other Key Market Trends

Some of the traditional financial institutions are actively partnering or establishing their own line of fintech services to stay up in competition. These technologies that they are focusing include mobile finance, location-based marketing, big data-based antifraud solutions and customer insights generated through deep learning technologies.

Since the commencement of 2017, many companies are entering into this sector for instance, CITIC partnered Baidu to establish the first independent legal entity direct bank.

A new fintech ecosystem is being created with collaboration and integration between traditional financial institutions, venture capital funds and fintech startups which is also enabling a highly efficient and innovative operating system.

Together a synergy effect is created through these strategic alliances which is causing transformation in individual businesses of these companies through improved market insights, capital allocation capabilities and innovative technologies. 

The 19th National Congress of the Communist Party of China underlined that priority would be given to strengthen financial reforms, improve the regulatory regime and guard against systemic risks in order to improve the contribution of the sector to the real GDP.

As the sector is moving into growth phase and fintech is gradually picking up within the country, it is still exposed to seven major risks – credit, operational, market, liquidity, compliance, reputation and systemic – adding to the uncertainty and volatility of the market environment. Thus, fintech should have consideration to these risks and create an digitalized risk management system.

Market Outlook

Over the upcoming 5 years, the Chinese fintech sector is going to disrupt multiple other sectors such as the consumer banking with 79% of commotion which is very substantial followed by wealth management which is going to face 51% and Fund transfer and payments sector with 47% disruption respectively.

Besides these other financial institutions such as fund operators, life and non-life insurers, brokerage services and investment banking industry are also likely to encounter the interference of fintech in near future.

Within next 5 years, 75% of internal changes within the fintech companies is expected to take up positively followed by 68% rise in fintech partnerships and 46% likelihood of fintech acquisitions to take place in China.

The average return from the investment in fintech is highest in China with up to 38% followed by 25% in whole APAC region and 23% in North America. It is higher than the global average of 20%.

At present 40% of people in China use online payments method. By 2020, the online payment of Fintech is going to rise by four folds and companies involved with online payments such as Alibaba and Tencent are going to realize a rise in profits by 55% and 33% respectively.

Technology Roadmap

Fintech companies in China are more focused on the experience related features rather than product related because these are the factor which entice consumers to use the services provided by the companies. Some of the features that these companies are successfully providing is 24/7 accessibility, ease of use and faster service.

These are also the core competencies of the fintech and it is enabled by the technology. Product related features such as loyalties, cost and product design are of less importance from consumer as well as firm’s point of view.In future, the fintech have to also integrate technologies into their application system that will address to the issues of security which will help them to gain public trust.

32% of the fintech companies in China are willing to invest in upcoming technologies in comparison to the average 15% similar companies in the globe willing to do the same which also means the Chinese fintech will become more technology savvy in their product and services.83% fintech companies in China are looking to invest in data analytics followed by 50% in artificial intelligence and 45% in mobile applications.

Distribution Chain Analysis

The channels through which the financial & professional related services were provided to the clients at past have also changed. The change is led by the growth of the fintech companies.

The interaction channels in next five years is expected to be upside down. At present, the dominating channel is branch but it will be overtaken by mobile applications in five years’ time.

Competitive Landscape

There are 50 fintech companies in China which are equally competent and have potential to penetrate into the global fintech space. Among the 50 companies, 18 are involved with data analytics, 11 with consumer finance and lending services, 6 with payment technology, other 6 with integrated finance technology, 5 with wealth management, 2 with insurance technology and finally 2 with block chain technology respectively.

About 80% of the staffs involved with fintech in China are related to the technical field. About 32% of the companies have been established since past 3-5 years while only 8% of the companies age back to 10 years. Majority of the companies involved where 45% have a market size of around $4 billion whereas only 9% companies have a market capitalization of more than 28 billion.

Venture cpaital investment in the sector has surpassed $6.7 billion in 2016 where three major companies invovled in Fintech which are Ant financial, Lufax, JD Finance and Qufenqui have market capitaliazation of over $1 billion where Ant financial alone has market value of $4.5 billion respectively.

Competitive Factors

Within 4 years from its launch money market fund fintech led by Alibaba called Yu’E and Bao have acquired the JP Morgan’s US government money market fund in 2017. After doing so, they have successfully become the world’s biggest money market fund management companies and are growing aggressively.

Baidu’s is a top fintech company in China whose aim is to initiate into integrated financial services, Baidu Financial Services Group was formed by embracing a variety of services, including consumer finance, financial management, e-wallet payment, internet banking as well as insurance.

Baifendian Group focuses on providing big data and AI solutions. It has been successful in creating a special library that focuses on industrial application model library and industrial knowledge graph library in China.

The product and services aid variety of industries such as finance, manufacturing, public affairs and publishing. It is also among the first to begin a nationwide big data and AI system.

100Credit is an integrated platform provider that connects AI, big data, cloud computing and other innovative technologies. The company receives competitive edge because of its big data processing and modelling capabilities.

Ice Kredit focuses on using AI technology to provide third-party big data risk management services for financial institutions. It serves to meet the credit needs of SMEs and create financial services that are more comprehensive.

Bubi Chain is a fintech company that specializes in block chain. The company owns a number of original technologies, which allow it to develop a accessible, productive and manageable block chain-based service platform.

Dianrong provides innovative fintech solutions, such as online intermediary lending services platform, which helps individuals and companies obtain funding through the internet. It has facilitated many borrowers obtain financial support from investors across the country. Due to low marketing and operational costs the company is able to provide loan products with lower interest rates.

Riskstorm is another fintech solution that excels in a different arena which is risk management. It uses information for corporate due diligence, risk control, compliance audits, judicial inquiries, industry research and to screen for business and investment opportunities.

Futu Securities is a new business model which attempts to provide the best user experience in financial services like account opening, capital flows update, market price data, trading and settlement.

Huize works with a number of insurers to provide a wide range of insurance products. Its products include accident insurance, health insurance, life insurance, corporate insurance, auto insurance and home insurance. Integrating these financial product and its core technologies it is also able to provide insurance consultation, risk assessment and customized insurance plans to its clients.

Strategic Conclusion

The fintech are getting good momentum not only in China but worldwide however there are few challenges such as latest IT related investments and security systems that these companies need to strengthen in order to gain public trust.

However, the opportunity that lies ahead of them is that they can collaborate with the existing financial institutions as they can lend out capital funds to get which can ensure the growth and also establish startup programs that will incubate the fintech companies.

The synergy effect will be created with the blend of the expertise and access of established legacy institutions & the creativity and enthusiasm of the fintech companies.



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