For the third year in a row, Ant Financial ranks first among 100 worldwide fintech innovators. With three companies in the Top 5, China dominates the financial technology sector in the world
In recent years, in China, the fintech industry is experiencing an unprecedented boom, becoming the most extensive market on an international scale. The early adoption of this type of economy by Chinese consumers has made the Middle Kingdom a world leader in this sector, and other countries can not but follow in its wake.
But what is fintech? The financial technology – also known as fintech – is a multi-billion dollar industry that is changing the way people shop, get loans, save money and the way people deal with banks. The term generally refers to any technological innovation in financial services where industry players develop new technologies to revolutionize the world of financial markets, traditional banks, and insurance companies.
© Unsplash. Ke Yuan Nan Lu, Shenzhen. Beijing, Shanghai, Shenzhen, and Hangzhou have emerged as China’s leading hubs for the fintech sector.
For what concerns the penetration of these technological innovations in our daily life, according to the Fintech Adoption Index of Ernst and Young, a third of consumers worldwide use two or more financial technology services.
Alipay, a mobile and online payment platform, has 870 million active users, with 600 million in China and 270 million in the rest of the world. These numbers prove how fast Chinese consumers have overtaken all other countries in the use of fintech.
The EY study also reveals that 69% of Chinese consumers have used at least two fintech services in the last six months. In particular, the 83% used these services to make payments or money transfers, 58% for savings and investments and 46% to borrow money. The research shows the high use of financial technology in the country that is now become the most important hub for fintech.
Beijing, Shanghai, Shenzhen, and Hangzhou have emerged as China’s leading hubs for the sector. However, while Beijing hosts 37 of the country’s top fintech firms, with a significant number of internet giants, big data and risk control service companies, Shanghai’s 33 enterprises focus on the banking sector and online wealth management. Guangzhou, Nanjing, and Chongqing have also emerged as home to many new financial technology companies.
Since 2014, the Fintech100 research lists the ranking of the 50 leading Fintech companies active all over the world and the 50 emerging enterprises with disruptive and potentially revolutionary business ideas.
According to the report published by KPMG and H2 Ventures, which collects information on the most innovative fintech players in the world, 5 Chinese fintech companies rank among the top 10 in the world rankings.
Compared to the first edition, when just one Chinese company was on the list, the Dragon now ranks third for the number of enterprises in the research, following the US and the United Kingdom.
“China continues to dominate the fintech landscape. These firms are continuing a trend that is several years in the making and highlights the extraordinary rise of the fintech industry in China,” said H2 Ventures partner Ben Heap.
© Unsplash. With 800 million smartphone users, China’s per capital mobile payments rate is 70 times that of the US. The mobile phone is now considered both a bank and an insurance company.
In recent years the PRC has, in fact, experienced an explosion in the fintech sector, thanks to the best companies in the country, which actually dominate the sector worldwide. The main players in the Chinese industry are the internet giants, such as Alibaba, Baidu, and Tencent, which have benefited from the small number of competitors on the market.
These companies are responsible for leading innovations in China that on one hand have upset the traditional financial industry, but on the other hand, they have received great public approval. In fact, every day, millions of people make payments to third parties via their mobile phones using the services offered by Tencent-owned Wechat Pay or Alipay.
At the end of 2015, the volume of transactions to third parties in China amounted to more than $ 1.56 trillion surpassing American and European leaders such as Paypal.
Through their vast ecosystems able to penetrate the lives of consumers, these companies have the power to collect huge amounts of data, which can represent a competitive advantage as they help to predict consumer behavior in order to offer them more personalized and innovative products.
Alibaba and Tencent lead the digital payments sector collecting large amounts of investments and expanding into areas with high levels of demand. During a slowdown of the Chinese economy, these companies were able to meet people’s demand for digital payment services. For Alipay and WeChat Pay the demand was massive, as Chinese consumers required faster and safer transactions.
In addition, the peer-to-peer loan, meanwhile, has exploded into a $ 190 billion business serving millions of families in need of credit and small businesses. Through Alipay, users now can obtain consumer or seller loans, credit that is often not available through banks, while through WeChat Pay, users can send money to each other, even if they do not have a bank account.
© 123rf. In 2018 Chinese New Year’s Eve, 688 million people used WeChat Red Envelope (hongbao) to send money to family and friends, 15% more compared to the previous year.
In 2013, Alibaba has extended its activities to the management of financial assets through Yu’e Bao, whose capital managed in just two years reached $ 109.34 billion, thus becoming the second largest fund in the market monetary level globally. In 2014, Tencent also launched Licaitong, an online funds platform linked to WeChat, and within a year, it had over $ 14 billion under management.
Nowadays, thanks to its affiliate Ant Financial, Alibaba not only is the largest e-commerce company in the world but it is also confirmed as the largest company in the world of fintech.
Even traditional financial institutions are growing impatient to benefit from the advantages of techno-financial innovations and they do not want to miss out on the opportunities that might arise. The Industrial and Commercial Bank of China has published its digital financial strategy “e-ICBC“, which offers a wide range of products and services in the fields of payments, financing, and administration of financial activities.
Instead, other Chinese banks preferred to collaborate with the giants rather than competing such as the China International Trust and Investment Company that founded the Baixin Bank with Baidu or the Beijing Bank, which opted for collaborating with Tencent.
In recent years, fintech has therefore grown rapidly in the big Asian country following the quick Chinese technological growth. The Dragon is facing a real financial revolution but how did fintech become so big in China? The simple answer is that everything happened in the right place at the right time.
In the last ten years, China has become the country with more users connected to the web. The signs for a potential digital revolution were in the air, but the large state-owned banks were slow to respond. The result is that today, technology is reforming the national banking system from its foundations.
Consumers of the Chinese middle class have always been inclined to shop online, making the Middle Kingdom one of the first countries to adopt digital payments. This digital leap has been accelerated with the arrival of smartphones, bought by many Chinese people who had never owned a computer before. To date, 95% of Chinese Internet users are online via mobile devices and Alipay, as well as Wechat Pay, have become their personal “wallets”.
© 123rf. Researches expect AI, as well as new technologies such as deep learning, will serve as a driver for innovation in banking services.
Nevertheless, PRC banks remained remarkably unsophisticated for a high-speed economy. People have rediscovered a renewed well-being, however, although great spending opportunities and entrepreneurs with lots of ideas, obtaining loans is still considered a very complicated and time-consuming process.
Hand in hand with online payments, fintech in China has thus increasingly become innovative also in the online loans sector. Now, online shopping platforms provide lending services to their users based on their transactions and personal data, which are also transformed into credit points. Moreover, online sellers can lend small amounts of money without supervision by the authorities.
As a result, China is inevitably turning into a cashless society. Its transition into a consumer-centric economy, as well as the growth in the use of smart devices, have helped fintech to grow quickly in the country that counts more citizens who own a smartphone than those who hold credit or debit cards.
For years, the PRC has been looking for ideas on how to manage its financial system in developed countries but when it comes to fintech, it is the rest of the world that has to learn from the Chinese experience.
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