Michael Sainsbury
June 5, 2016

China’s surprising FinTech boom

FinTech

China’s surprising FinTech boom

China boom: FinTech innovation is the surprise offspring of mainland internet giants

For all the Chinese government’s grand plans to bring the country charging into the 21st Century as a powerhouse of science and technology the truth is, like its North Asian neighbours Japan, Taiwan and South Korea before it China is still very much a copier and follower of technology.

China is struggling to make its mark as an innovator, which was the point of the grand announcement’s earlier this week by its top two leaders: President Xi Jinping and Premier Li Keqiang.

Yet there is one exception – which is on the surface surprising – and that is FinTech.

It’s initially surprising because FinTech is the new black of technology. There has been billions in startup and further funding for Fintech wannabes and big banks all around the world have now joined the party – so more billions will ensue.

It was the first sub-sector that Malcolm “Mr Innovation” Turnbull singled out for excellence in Australia, with his really quite ridiculous goal of making Sydney the FinTech hub of Asia. (This spurious designation of either Sydney or Melbourne – or indeed any other Australian city as the king of this, or king of that, really has to stop. Australia and its small population must compete with other nations as a cohesive entity, not as this city or that city. But that is another story.)

On the face of things, China’s financial system is controlled by an authoritarian government that owns all the big banks and regularly directs them, and its reserve bank – the People’s Bank of China – to do the bidding of its leaders.

This was seen most recently in the latest stimulus splurge that almost certainly sealed the country’s fate of facing a significant recession within the next half decade, as the government and corporate debt unstitches the final threads that are holding its fragile economy together.

Yet in despite this environment, China has quietly emerged as the world leader in financial innovation.

Its big four internet company’s, the so-called BATs – Baidu (China’s Google) Alibaba (its eBay and Amazon and emerging media giant rolled in to one), and Tencent (games, and the pervasive national chat application WeChat or Weixin) have all dived into a range of online finance businesses and applications. And they have the imprimatur of Beijing.

While InnovationAus.com has been laying out the success that Singapore has had in reshaping itself as a self-styled ‘Smart Nation,’ in FinTech the main game remains in China.

This has been laid out in a report by research analysts at Japanese investment bank Nomura titled: China FinTech, how technology will reshape the financial industry.

“We think the financial industry is at the beginning of a new cycle of business innovation driven by the adoption of new technologies such as artificial intelligence, block chain, smart devices, autonomous driving and Big Data analytics, the analysts wrote.

They added that innovations such as robo-advisors may completely replace traditional fund managers and financial analysts and that others such as block chain may improve “the efficiency of the existing global transaction system.

They highlight peer-to-peer lending, a cultural institution in China that compliments commercial banks in servicing the originally-underfunded Chinese household sector, or even open a new markets, such as usage- based insurance measured by smart devices.

It highlights seven top business opportunities identified as: block-chain in financial transitions; robo-advisors in fund management; internet of vehicles (IoV) in car insurance risk pricing; robo analysts in the equity research business; cloud computing in financial IT infrastructure; P2P bank lending; and smart devices in mobile payment.

“We believe China has developed one of the largest FinTech user bases globally, driven by the business model innovation from internet giants (such as Alibaba and Tencent) and leading financial institutions (e.g. the giant Ping An insurance group),” the bank said.

According to Nomura’s research, China already leads the world in mobile payments and P2P lending.

“We also see rapid adoption of internet insurance and brokerage, while the development of internet banking is much slower because of strict regulatory requirements. We believe these developments have laid a solid foundation for China to compete in global FinTech innovations.”

In China, the internet channel has already achieved structural growth in China’s insurance, brokerage and non-banking payment (third-party) sectors, Nomura notes.

This is reflected in the statistics that show a weighted 9 per cent of total life and P&C (Property and Casualty) insurance premiums, 84 per cent of total trading turnover and 49 per cent of total non-banking payments are now done online.

Just how much of China’s FinTech innovation and technology with be exportable is for another day – or indeed how much Australia’s regulators would leave alone – but what the report does do is put to bed, once and for all, any notion that Sydney will be the Asian FinTech hub. (And this is before considering Singapore and Hong Kong).

For sure, Australian companies with good ideas should pursue their FinTech dreams. But why has the government not yet turned its innovation focus to AgTech, MiningTech, healthcare and other sectors in which it is actually a world leader and has a strategic advantage?

China’s experience shows that FinTech advances are being driven by significant internet companies with large customer bases who use their products every day. And that is an area where Australia is sorely lacking.

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