Fintech in Asia: a fast growing giant with China well in the lead

Doug Ferguson, Partner in Charge, Asia and International Markets
Doug Ferguson, Partner in Charge, Asia and International Markets

When we talk generally about Asia and fintech we make a fundamental mistake. China is a standalone fintech market which dwarfs every other country in the region in terms of size, as well as the degree and speed of innovation. In fact China is leading the world in fintech, especially alternative finance peer-to-peer lending platforms, building off its highly successful internet finance and e-commerce sectors and players.

In 2015, KPMG teamed up with the Universities of Cambridge, Sydney and Tsinghua to release an alternative finance report[1]. Globally we discovered around a US$250 billion flow of investment funds into fintech alternative finance. China accounted for US$101 billion. The next largest were the US at US$35 billion and the UK at US$6 billion. Asia (excluding China) only accounted for US$1 billion in accumulated investment and that included Japan and Australia.

What’s staggering is the speed of growth in China’s fintech investment. Flow of funds increased from US$5 billion in 2013 to US$25 billion in 2014 to US$101 billion in 2015. It’s important to note this funding is not seen to be government investment, it’s from the private sector.

The biggest players in China’s fintech market are Ant Financial, Zhong An, Lu.com and Qfenqi with most now taking their technology offshore to countries including Australia.

For example, Ant Financial, a subsidiary of Alibaba pulled of a staggering US$4.5 billion fundraising round in March 2016 – the largest in history and from a local standpoint and Alipay now has a strategic partnership in Australian with CBA.

Another example is Zhong An, which only began four years ago. It is a joint venture between incumbent leading players, Ping An Insurance, Alibaba and Tencent (a social media gaming company) to co-create a new fintech business. Now, it is the leading internet insurance company in China with more than 400 million customers and has sold more than 5 billion policies.

Outside China fintech is growing fastest in Asia’s leading financial centres – Hong Kong, Tokyo, Singapore, Seoul and of course Sydney. They are all growing on a similar trajectory. Fostering communities of developers, investors and importantly fintech policy makers and regulators who play key roles in supporting development and promoting competition.

Meanwhile across SE Asia we are starting to see governments and regulators recognising how fintech can help with the development of e-commerce and improve financial sector inclusion for lower income classes. In these countries a large percentage of the populations are not served by the traditional financial services industry, so governments are engaging and learning in regulator fintech boot camps, such as one held late last year in Singapore.

Chinese fintechs aren’t disrupting Australia’s financial services sector yet, but this will change over the next five years with many examples of Asian and particularly Chinese fintechs coming to Sydney and aligning with fintech hub Stone & Chalk to develop local strategies.

Meanwhile Australia’s Federal Government through Austrade has launched innovation landing pads to help Australian fintechs engage and learn about Asia in Shanghai and, as of last week, Singapore. Most aren’t prepared to go into China, it is just too competitive. They prefer to play in Singapore and Hong Kong and will look to partner with or help Asian banks, through white label products.

While major banks are potentially at risk, be assured that Australia’s banks are not reactive but are leading the way in building or buying financial technology or entering into partnerships with fintech players like Alipay.

There are no signs of complacency and in fact Australian banks are globally respected as leaders in digital technology transformation. They recognise that customers want an Uber or Airbnb experience when they bank; easy, very fast and quite invisible as part of a consumer’s experience and expectation.

Looking ahead to the next five years, expect a level of transformation in the industry that we haven’t seen before globally or in Australia. As a result, regulators will also need to keep up with the game to fulfil their mandate.

 

Doug Ferguson recently presented at the ASIC Annual Forum 2017 on the topic of “Disrupting traditional business models – perspectives from Asia”.

This blog forms part of his speech, prepared with the valuable assistance of Ian Pollari.

 

[1] A report update will be released in the next few months.

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