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China's Fintech Sector Leads Through Innovation

Almost 15% of Financial Tech Consumers in China Accessed Online Loans

Chinese companies have already shown themselves to be innovators in the mobile space. Now a November 2016 report from Singapore bank DBS and EY, "The Rise of Fintech in China," challenges the notion that the West leads the world in financial technology services. According to DBS and EY, China has leapfrogged ahead of cities such as New York and London to become the leading global financial tech hub.

Digital Banking/Fintech* Services Used by Banking Customers in Select Countries in Asia-Pacific, 2016 (% of respondents)

DBS Bank found that 40% of China's banking and financial services customers had made digital payments or remittances in 2016, far outpacing India (20%), Singapore (4%), Indonesia (1%), Malaysia (1%) and Thailand (1%). In addition, 14% of customers in China had taken out loans through the internet, while 5% conducted personal wealth management online.

The DBS/EY report credited financial tech growth in China to a swelling middle-class with a propensity for adopting new technology that's also been underserved by traditional financial institutions. A high percentage of consumers in China still face challenges securing a loan or credit card, with an underdeveloped credit score system exacerbating the problem, especially in rural areas.

According to the report, consumers in China have simply bypassed payment cards in favor of digital payment services such as payment service Alipay and messaging app WeChat's in-app payment offering, WeChat Pay.

Alibaba and its financial services arm, Ant Financial, has offered digital adopters more attractive rates, a better online experience, and an easy account set-up process—things that were often unmet by traditional banking institutions. In addition, it introduced the interest-generating Yu'e Bao money market account service back in June 2013.

Ant Financial also backed online bank MYbank, which launched in June 2015 and provides many services that traditional banks offer. MYbank reviews the financial history of individuals and small and midsized businesses on Alipay and other Alibaba ecommerce platforms when deciding whether to issue them loans.

WeChat Pay, for its part, makes it easy to execute a variety of payment transactions within the WeChat app, such as allowing users to make peer-to-peer (P2P) transfers and QR-code-based proximity payments.

The country's financial tech sector will be influenced by the "social credit system" that the government plans to put in place by 2020. In theory, the system would assign every citizen and business with a credit score based on their online behavior, purchases and other financial history.

Chinese companies face headwinds in exporting their services to Western markets, however. In an interview with the South China Morning Post, James Lloyd, Asia-Pacific financial tech leader for EY, noted that they will have to compete with better established financial service firms like PayPal and Visa in the US and Western Europe. Lloyd added that Chinese financial tech firms have a better chance of gaining traction in other Asian countries where conditions are more akin to those in China.

—Man Chung Cheung

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