October 17, 2019
FinTech has become a reality of the financial services industry in almost all developing and developed countries. When you look at the top FinTech companies in the world, it is no surprise that companies from China and the US emerge as two leading countries in terms of the number of FinTech startups. The much-discussed US FinTech landscape is great, no question about that – however, a study into China’s chasmic FinTech landscape will reveal some interesting FinTech stories that make it stand out from the rest of the world. Many factors such as high smartphone adoption, being home to some of the world’s largest FinTech unicorns, globalization, and more set China’s FinTech story apart from the others, including this astounding statistic:
China had a reported record of $12.8 trillion in mobile payment transactions within a period of 10 months, surpassing the United States, which was at $49.3 billion at the time.
Let’s have a closer look at such five amazing things that happen only in China:
Deemed as one of the greatest achievements of the Middle Kingdom, a crackdown was launched by the government of Beijing to curb the systemic financial risks posed due to mismanagement of funds and defaults in the P2P lending sector. At least 1000 P2P lending firms, including big names such as Tuandai.com and Hongling Capital, were shut down subsequently. The not-so-surprising outcome of this situation is that managers of these companies literally fled the scene and left investors high and dry, with no expectable returns. While the actual filtering is in progress and is said to leave very few suspicious firms afloat, it has paved a path for other legitimate firms.
In our recent article, we discussed how the Chinese government is developing a social credit scoring system, which monitors the social behavior of each individual, including his/her daily activities and transactions. The system actually encourages mindful social behavior and in return, gives access to benefits such as easier access to loans and consumer credit, easier school admissions for children, tax breaks, etc. The pilot for this system was launched in 2015, with the People’s Bank of China enlisting help from the most major tech companies in China, namely Tencent, Alibaba, and Pengyuan Credit Services. This has made it easier for FinTech companies in China to target financially responsible customers who pose minimal default risks. Through private scoring credit systems such as Sesame Credit or Zhima Credit (AliPay), and Tencent Credit (WeChat Pay), companies assign credit scores to individuals using their digital payment platforms. Based on these credit scores, these companies offer individuals with numerous benefits and privileges, including loans and financing. These companies collect a lot of data regarding each user, including their behavioral patterns on social media and their purchase patterns, which have to be then shared with the government under the Data Regulatory Act in the country.
In September 2019, China’s National Development and Reform Commission (NDRC) announced that it is pushing ahead with a corporate ranking system, part of its larger social credit system, which will affect 33 million companies. Reports suggest that this part of the rating system would include court rulings, licensing, tax records, product quality and punishments by market regulators, and other dimensions to decide if a company is trustworthy.
The Chinese may tend to stick to their roots, but that doesn’t stop them from going global. Some major Chinese FinTech companies are taking over the world, one investment at a time. Ant Financial, an affiliate of e-commerce giant Alibaba, has demonstrated this by being a leading investor in the major mobile wallet companies emerging out of developing countries. The interesting part about these investments is that they are not limited to just monetary investments but also a considerable amount of technology transfer, including access to Aliyun, Alibaba’s cloud infrastructure. At present, hundreds of Chinese FinTech firms looking for new avenues to go global and expand the business, and the next stop after Southeast Asia is said to be Africa.
Alipay and WeChat’s strategy to actively follow the Chinese diaspora and foreign travelers has led them to establish multiple partnerships and investments across the globe.
Looking at smartphone penetration, it does not come as a surprise that payment modes from early movers and now established companies, such as Tenpay and AliPay, presently control somewhere between 84% to 93% of the mobile payments taking place in China. These assessment numbers wary from report to report, but we get the point about the dominance of these two players.
Other mobile payment players such as Union Pay, JD Pay, Yizhifu, Baidu, ApplePay, and others also exist in China’s payments landscape. However, none of these players even cross over 20% user penetration in mainland China. Alipay claims to reach over one billion users across the globe on the back of its own market penetration, as well as its partnerships with other payment solution providers across the globe.
Click farms – a cottage industry where fake engagement specialists agencies stack up hundreds or thousands of smartphones to generate fake clicks on the content. These phones are programmed to view articles or ads for their customers. One can simply go to Taobao and a similar website that offers click farm service available to hire. According to a South China Morning Post report, “Click farms are capable of creating as many as 10,000 fake views for video sites for prices ranging from $0.47 to $1.”
Image source: SCMP.tv
The promised value add by these click farms to its clients is that they can help to sell the goods and services overseas. It is hard to comment on and validate the impact of these click farms on the FinTech market, but these click farms are estimated to generate one-third of all advertisement traffic in the 50-billion-dollar plus online advertising market (2017 estimates). To be fair, it is important to mention that China has amended its Anti-unfair competition law and made this fraud a punishable offense. But such cases influence analysts’ views who have been saying that it is hard to trust any industry data coming from China.
China never ceases to amaze us, and the Chinese FinTech landscape is shaped by its uniqueness and is boosted by quirky ideas and the technological adaptability of its people. The rapid growth of FinTech in China has been immortalized through collaborations and partnerships that the FinTech companies have been able to create with banks and government agencies. We expect a lot more interesting stories from this country in the near future.
Observed anything strange worth mentioning about China? Do share it with us!