40% of China’s payments market and 35% of its insurance industry use fintech service providers, according to new research which demonstrates the extraordinary growth of China’s fintech sector.
The study shows how fintech is revolutionising borrowing and financial services for small businesses in China, with 12% of the lending market now using technology to borrow money.
Singapore has been billed as a “fintech hub”, with its monetary authority being praised for creating a regulatory sandbox that will allow the sector to thrive.
However, in Singapore just 4% of payments are done using fintech. For insurance and lending, that figure falls to just 2%. China’s fintech market is, by comparison, mature, pervasive and penetrative.
Researchers from DBS Bank and Ernst & Young studied fintech sectors around Asia finding that while fintech is voguish, complimentary and peripheral elsewhere in the region, in China it is fast becoming the way small businesses access financial services.
“I think sandboxes are a good idea but we should maybe call them play pits. We’re children compared to what’s happening up there. Nobody’s been aware of it. We talk about what an amazing job these new leading edge fintech companies are doing, not realising the big show has been happening for some time in China,” Neal Cross, the chief innovation officer at DBS tells GTR.
Eight of the world’s 27 fintech “unicorns” – those companies investors value at more than US$1bn – are Chinese. These are led by the three Chinese tech giants Baidu, Alibaba and Tencent, which themselves have spawned a number of huge and successful offshoots.
In the payments space, the dominant parties are Alipay and Tenpay, whose parent companies are Ant Financial (itself an offshoot of Alibaba) and TenCent, respectively.
In the supplier and consumer finance space, the pace is set by Ant Financial and MyBank (Alibaba), WeBank with WeChat (TenCent), JD Finance and Gome Electronic Appliance. In this space, e-commerce players lend to underbanked or unbanked individuals and SMEs by leveraging users’ merchant data on the platform.
There is no need for a comprehensive credit history: lenders can check your orders books, past and present, to see if they will get their money back. The P2P lending and online insurance markets follow similar models: indeed, much of the success of China’s fintech sector can be traced back to the country’s embrace of e-commerce.
“It’s changing the nature of small business lending,” Cross says. “Look at Alibaba: the fact that these small businesses are selling and distributing product through the platform, that relationship means they have a much better understanding of the business health and growth potential. They lend directly to them, not based on credit score but history of product sales.”
Another reason for the exponential growth of China’s fintech is the lack of access small businesses there (as with elsewhere) have to the mainstream financial sector.
The deficit can be clearly seen in the fact that in China there are just 8.1 commercial banking branches per 100,000 people, compared to 28.2 in the US and Canada and 28 in Europe. For every 100,000 Chinese citizen there are 55 ATMs, compared to 222 in the US and 81 in Europe.
One in five Chinese adults is unbanked, while SMEs receive less than one-quarter of all bank loans, yet account for 60% of national GDP and 80% of employment in urban areas.
The scale is certainly vast in China, but underbanked SMEs is not an indigenously Chinese problem. Speak to small business owners anywhere in the world and they’ll likely tell you they can’t get a bank loan. Why, then, has fintech moved to fill the void in China and not elsewhere in the world?
The technology clearly exists, and Cross at DBS does not view regulation as an obstacle. Yet the likes of Paypal, Google or Facebook have failed to turn there massive reach and resources to other financial streams. Instead, he says, “there is always an excuse not to innovate”, suggesting that if fintech is to become less marginal it needs to learn from the mindset in China.
“I just think that in China, tech companies are hungrier, more ambitious and don’t have a lot of legacy: they’re trying to reinvent things. Innovation happens a lot quicker,” he says.
“In China it’s about wanting to make a lot of money, then working out how to do it. A lot of companies after their first innovation they haven’t made significant money in other areas. Amazon is an exception. Whereas the Chinese ones are constantly entering new industries, pivoting, changing and reinventing themselves.”
To read the full report on China’s fintech growth, click here.