FinTech innovation and scale in China
A new research report done by McKinsey & Company shows that China’s FinTech companies are significantly outpacing their Western counterparts when it comes to innovation and achieving scale. Chinese firms have long since stopped re-creating Western business models or firms. Instead, they are now leading the way.
The report “Synergy & Disruption: Ten trends shaping FinTech” shows that there are significant structural differences between Chinese and Western FinTech ecosystems. Western and European startups typically focus on one vertical, such as payments, lending or banking, before slowly expanding their geographic reach. For example, firms such as PayPal and Stripe are almost completely focused on online payments, other firms such as Betterment and Wealthfront are solely concentrated on wealth management.
Chinese FinTech firms have taken a very different approach. Most of the successful FinTechs in China are technological behemoths that have developed their financial ecosystems on top of their high-engagement customer platforms. Two best examples are Tencent which provides a great range of fully digital financial services on top of its social platform and Alibaba with their e-commerce platform. With products such as Yu´e bao for investments and Alipay for online payments, Alibaba’s platform has become a one-stop-shop for B2C FinTech solutions.
Source: McKinsey & Company
Largest Chinese FinTech companies are mostly part of an ecosystem that spans across the full FinTech spectrum.
And they continue to grow. With their strong parent companies watching their backs and providing them with financial security, they continue to innovate and scale rapidly because of their “free” access to enormous amounts of data. Companies like MYbank can use Alibaba´s customer data on lifestyle and habits, to tailor their services in a more efficient and personalized way. Similarly, WeBank has been able to significantly improve their risk assessment efforts by using data from their customers’ social media profiles derived from WeChat — Tencent’s Instant Messaging application.
Although the number of standalone FinTech players in China is relatively smaller, those that are successful are massive even by global standards. Financing and lending companies, such as Qudian, consumer credit provider company, and PPdai, a Chinese online platform for peer-to-peer small unsecured loans, are now public and are listed at $7.9 and $3.9 billion market cap respectively. During Qudian’s 2017 NYork Stock Exchange IPO it raised over $900 million.
There are three predictions which will shape China’s financial landscape. Firstly, the big players will continue to use technology and available data to provide tailor-made services. They will do this by either going directly to the customer or by offering their services as a white-label FaaS (Fintech-as-a-Service) to financial institutions.
Secondly, traditional financial institutions will increase their investments in various digital offerings. This is in order to leverage their brand and their existing customer relationships so they could be more efficient in fighting against pure digital FinTech players. We are already seeing plenty of that within the West.
Lastly, the increasing amount of government regulations will clear the field of non-compliant and all those “doomed to failure” players. As the amount of control in payments and P2P lending continues to grow, it is safe to expect that the market will continue to consolidate in the coming years – really good news for all those large technology companies striving to dominate across the whole landscape.