China has leapfrogged the UK and the US to become the world’s undisputed global financial technology (fintech) hub, according to a report by DBS and EY.
According to the report, the speed, sophistication and scale of development of China’s fintech ecosystem have been at a level unmatched in more established markets.
The Rise of Fintech in China report looks at China’s dynamic and rapidly evolving fintech ecosystem, and examines the drivers behind its explosive growth. It details the unique characteristics and development profiles of China’s fintech giants, provides an understanding of the opportunities to scale, and assesses the implications in Asia and internationally.
The report states that China’s lead is facilitated by the sheer size of the market opportunities in the financial services ecosystem. At $10.9 trillion in 2015, China’s GDP already almost equates to the aggregate of the next 10-largest emerging markets. Despite recent market movements, its economic growth continues to outpace almost all other countries. Years of sustained economic growth is swelling the ranks of the middle class, with individuals in this category set to rise from about 150 million to one billion — or 70% of China’s projected population by 2030. This gives rise to a vast consumer base with new-found spending power and unmet financial needs.
Underserved by China’s incumbent banking system, consumers and small- to medium-sized enterprises (SMEs) are increasingly turning to alternative providers for access to payments, credit, investments, insurance and even other non-financial service offerings.
DBS chief innovation officer Neal Cross says: “The speed at which China’s fintech landscape has developed is truly remarkable. It’s gotten this far because China’s landscape has operated in a sandbox-like environment conducive for fintech to thrive — a strong domestic market, coupled with a constant push for innovation and experimentation driven by leading giants, unhindered by international influence. Much of this can be attributed to the favorable government policies and regulations.”
“While the country hasn’t received the attention and acclaim of its counterparts in the Fintech arena, its champions are blowing away competition all over the world. It’s only recently that we are starting to see China’s leading Fintech companies take center stage at the global level. This will be an ongoing trend in the coming years and we can expect China’s fintech ecosystem to have a wide-ranging impact on global Fintech development.”
James Lloyd, EY Asia-Pacific Fintech Leader, says: “Chinese fintech development is primarily characterized by the sheer scale of unmet needs and the opportunities they present. In addition, new providers are typically not constrained by the legacy infrastructure or regulations present in more developed markets. China’s unique mix of rapid urbanization, massive (and underserved) market, e-commerce growth, explosion in online and mobile phone penetration, and customer adoption willingness have created a fertile ground for innovation in commerce, banking and financial services more broadly.
“These developments are also worth considering relative to other markets. For consumers and SMEs at least, it is in developing markets where fintech will likely have the greatest impact. Markets in which the scale of unmet needs and leapfrogging technology combine to create “10x solutions” — that is, solutions that are an order-of-magnitude better than what they replace. This step change in quality, efficiency and user experience is necessary in order to achieve mass adoption — as what we have seen in China,” adds Lloyd.
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