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Explosive Growth of FinTechOpportunities to ScaleCurrent and Future LandscapeThe Rise of FinTech in ChinaRedefining Financial ServicesA COLLABORATIVE REPORT BY DBS AND EYNOVEMBER 2016THE RISE OF FINTECH IN CHINA02Produced by:Asian Insights Office DBS Group ResearchCo-Author: Sachin MittalSenior Vice President Global Head for Technology, Media Founder, Next MoneyChien Yen GohSenior Vice President Asian Insights Office Group Research DBS BankDaniel FooAnalyst Group Research DBS BankCo-Author: James LloydAsia-Pacific FinTech Leader EY With contributions by: Jan Bellens Global Emerging Markets and Asia-Pacific Banking open up the global settlement network; break down international payment barriers; and enhance opportunities for these Chinese technology players to transform financial services from the ground up. Yet, just like in China, business success overseas requires catering to the individual peculiarities of international markets and their consumers. Chinese companies cannot merely replicate and export domestic business models abroad. They need to adapt to local cultural norms and expectations and focus on safety and security reassurance. To do so, they will need to collaborate with and invest in overseas comparators. A key challenge for Chinese FinTech firms as they seek to internationalise will be in attempting to replicate their domestic ecosystems overseas; this is where local FinTechs (and, indeed, established financial services providers) can cooperate or compete.The Future of Chinese FinTech In the coming years, China looks set to continue to dominate the global FinTech industry with a very strong domestic market. Internally, the push and pull factors are clearly in place to catalyse the establishment of a leading digital finance sector. On the push side, capital investment is pouring in and the market is being bolstered by substantial government support for innovation. On the pull side, demand is being driven by under-served SMEs and tech-savvy, often unbanked, consumers keen to access financial services via their mobile phones.Overseas, Chinese FinTech firms will also play an increasingly important role in the global collaborations driving technological innovation. What these companies learn abroad, they will bring back to the domestic market, further fuelling the sector to stay ahead of the rest of the world.Exciting times lie ahead. 08THE RISE OF FINTECH IN CHINAFinTech refers to the application of technology within the financial services industry. The sector covers a wide range of activities from financial data and analysis to financial software, digitised processes and, perhaps most well-known to the wider public, payment platforms. China is emerging as a leading FinTech market not just in Asia-Pacific, but globally.China has a huge amount of white space open to disruptive and innovative models, as evidenced by the exponential growth in Chinese FinTech investments. The numbers speak for themselves, with FinTech investments in China surging to US$8.8 billion between July 2015 to June 2016, equivalent to an increase of 252% since 20104. Some notable highlights include Tencents WeChat sending 32 billion digital red envelopes over the six-day Chinese New Year holiday in 2016, logging in those few days more than six times the 4.9 billion mobile and desktop transactions PayPal did for the entire 2015. Meanwhile, Ant Financials Yue Bao became one of the largest online funds managing US$96 billion for more than 295 million clients by mid-2016. Elsewhere, Chinas biggest P2P player, Ping An Insurance-backed Lufax, had more than 23.3 million users at 30 June 2016, a figure more than double a year earlier. Players like Lufax and peers propelled China into the biggest P2P lending market globally, advancing 3% of system retail loans versus 0.7% for P2P lenders in the United States (US). China also houses several of the largest mutual funds, such as Yue Bao and Tencents Licaitong.2016 has only seen growth continuing, with FinTech financing in Asia-Pacific reaching almost US$10 billion in the first half of 2016. This is more than double the figure for all of 2015, eclipsing the aggregate of North Americas (US$4.6b billion) and Europes (US$1.85 billion) over the same period. Investment in Asia-Pacific continue to be driven mainly by growth from China, with US$1 billion invested each in two of Chinas largest internet finance companies, Lufax and JD Finance. A further US$4.5 billion was raised in the second quarter of 2016 by Ant Financial, the financial services arm of Alibaba. This was the largest single private placement in any FinTech firm globally, valuing it at US$60 billion, just shy of Chinas fifth-largest bank, Bank of Communications. Although such a deal may be uncommon, it showcases the massive potential for digital banking services in China. IntroductionThe disruptive nature of FinTech is best illustrated in China, where disintermediation is starting to reshape the industry09THE RISE OF FINTECH IN CHINAService type China India Singapore Indonesia Malaysia ThailandPayments/remittances40% 20%54% 1% 1% 1%Lending 14% 5% 2% 2% 2% 2%Personal wealth management5% 3% 1%* 2% 1% 1%Insurance 35% 2% 2% 1% 1% 1%Consequently, Chinas FinTech industry is leading by huge margins in Asia-Pacific with segments like payments and insurance already beyond the tipping point6(the juncture where it is broadly accepted by the mass market) with non-banks commanding an impressive 35% or higher market share within the span of two years. First movers contributing to the percentages include Ping An, which leads digital insurance in China (in partnership with Alibaba and Tencent), alongside Alipay, Tenpay and UnionPay for payments/remittances. Unsurprisingly then, China has 8 of the 27 current FinTech “unicorns”7 technology companies that investors value at more than US$1 billion.*Robo-advisors (online platforms that provide automated investment advice) can take advantage of Singapores fast growth rate of ultra-high net worth individuals and the wealthy to drive adoption rates. Thanks to favourable demographics, FinTech can reach a tipping point in just two years despite strong competition from major established banks.10Diagram 1: Percentage of banking/financial services customers using FinTech servicesSource: DBS Bank, 2016Highly DisruptiveMaterial ThreatWatch listEmerging ThreatRemote possibility of disruptionTHE RISE OF FINTECH IN CHINA
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