Widespread data collection, a large customer base and comprehensive online platforms sets China’s fintech landscape apart. The country’s fintech sector attracted 47% of global fintech investments, or $6.4bn, in 2016, according to the report.
China already has heavyweight players. Ant Financial, a part of the Alibaba Group, operates Alipay, the world’s largest online and mobile payment platform, as well as Yuebao, the world’s largest money-market fund.
Total investible assets by individuals in China are estimated to reach RMB 200trn by 2020, according to the firm. Cliff Cheng, a partner and the report’s author, estimates that if the asset management industry uses fintech opportunities well, it could be managing 2.5% of Chinese investors’ total assets, representing RMB 5 trn in 2020.
Regulatory scrutiny
By using the “fintech” label, entities such as peer-to-peer lending or crowdfunding platforms benefited from looser regulation and thus had competitive advantage over established financial institutions, Cheng noted.
The lax regulations helped to fuel the fintech trend, resulting in fintech companies with more hype than substance.
Business models of many Chinese fintech companies “represent a shift of channels from offline to online without true technology innovation,” Cheng said.
The fintech trend has also led to incidents of fraud and failure, particularly notable among peer-to-peer lending companies. Of nearly 5900 such companies that have been registered in China, 60% are now out of business, according to the report. Some have turned out to be Ponzi schemes.
Most recently, Chinese media reported last week the arrests of executives linked to a company called Shanxinhui, which ran a pyramid scheme under the guise of a charity.
Incidents of selling investment products without adequate transparency have prompted regulators to incorporate fintech companies into their framework.
Recently introduced regulations prohibit misrepresentation of investment products in prospectuses. They also limit asset securitisation, raising equity and selling private funds by fintech companies.
Data and wealth management
While Chinese investors historically tend to prefer a self-directed approach to wealth management, many got burned on the volatile stock market in 2015 and are now more aware of the benefits of professional, long-term investment advice.
The wide acceptance of multi-purpose online platforms, such as Tencent’s Wechat, creates a unique opportunity for their operators to start offering financial advice and investment services in partnership with financial institutions, the report said.
The biggest opportunities lie in client acquisition, investment planning and portfolio management, notes the report.
The operators of the online and mobile ecosystems (Alibaba, Tencent and Baidu are the largest) have access to vast treasure troves of customer data, which can be mined using big-data analytics to identify individuals likely in need of financial advice.
Analysis of data from sources beyond the traditional customer profile can improve a firm’s understanding of its clients’ wealth management needs and risk profile. Such enhanced know-your-customer (KYC) process promises a better tailoring of solutions offered to clients, the report said.
Cheng believes three technology areas hold the most promise in China. In addition to big-data analytics, which already plays a big role in client acquisition and investment management, the “internet of things” and blockchain are likely to impact the industry most in the future.
The “internet of things” – a network of connected devices and sensors constantly gathering data – “alleviates the information asymmetry between fintech players and their customers,” states the report, “as valuable information can be gathered and analysed in real time.”
Although blockchain technology is still nascent, it has the potential to become “a bedrock of a safer, faster transaction architecture for the financial industry,” the report states.
