China's fintechs to grow on different paths

China's financial technology industry will maintain its growth momentum in 2019 while undergoing accelerated consolidation, according to reports.

China’s financial technology industry will maintain its good momentum in 2019, and undergo accelerated consolidation as participants explore different growth paths, according to recent reports.

Geopolitical instability and worries about Sino-US trade relations might cast a shadow on the fintech space this year, but promising areas like regulatory technology and insurance technology will help relevant investment grow continuously, a bimonthly study from the Bank of Communications predicts.

In a recent report, auditing and consulting firm KPMG said the outlook for fintech investment this year will be "positive."

Globally, fintech investment increased substantially in the past year. Data from KPMG showed that money poured into the sector throughout the world doubled to US$111.8 billion in 2018, driven by mega deals.

At a technology level, BoComm believes that artificial intelligence (AI) and automation will enjoy sustained favor from investors throughout the year while KPMG expects blockchain technology to attract more capital on its execution over experimentation.

The fintech sector is also expected to see further consolidation as competition will become more intense, industry watchers have warned.

Bank of Communications research noted that fewer new entrants joined the sector from 2016, with the number of newly registered companies dropping to 370, half of that in the peak year of 2015.

The growing partnerships between banks and fintech firms will also lead to more competition among fintech companies, according to industry watchers.

To extend financial ecosystems and the “touch points” with their customers, lenders such as Shanghai Pudong Development Bank, China Construction Bank and China Merchants Bank announced plans to develop open banking by working together with fintech allies.

Last year, a number of fintech firms recognized the opportunity of helping banks to comply and get ready for data sharing as well as customer acquisition and scaling.

Established participants will endeavor to become more competitive while new entrants will be looking to enter the lucrative market.

KPMG expects collaboration between fintechs and banks to grow further in a wider Asian region, particularly in areas such as "Know-Your-Customer," anti money laundering and digital identity management, including facial recognition and voice recognition.

The mass user traffic owned by Chinese Internet majors has become increasingly attractive to commercial banks and reports from 21st Century Business Herald said some credit card segments would pay as much as 400 yuan (US$59.6) to acquire a potential card-holder from those giants.

Fintech companies are expected to allocate more resources to serve corporate clients. And there will be two main types of such service providers.

Companies such as Ant Financial, Tencent Holdings and Du Xiaoman Financial, a financial service unit split off from the search behemoth Baidu Inc, will function more like “ecosystem platforms,” which will offer financial institutions comprehensive services including technological enablement as well as sharing their massive user traffic and rich business scenarios.

The other way out for fintech firms is to become leaders in technological development. They can help financial institutions access long-tail customers and assist them in building better connections with their clients through their competitive technologies, Bank of Communications’ report added.

China Top Credit Inc, for instance, is a company that seeks the second type of growth path. The Shanghai-based firm is focused on offering financial information and services for the consumer finance industry, with participants from banks, securities houses, trust firms and big tech companies.

Last year, it launched a new business line to serve its enterprise clients.

Lin Shiyi, head of the business segment, told Shanghai Daily that such a move reflected their long-term strategy of becoming a pure tech company.

Lin anticipated that in the future, financial institutions like banks will shoulder more active management roles for their business while their fintech partners will be more likely to serve “behind the scenes.”

Special Reports