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China becomes the world's new fintech giant
The U.S. has traditionally maintained dominance in the global fintech market but last year lost its leadership in fintech to Asia according to the Money Of The Future 2016/2017 fintech report. Asia booked 47% of global volume in Fintech funding and investments and this growth is driven by fintech “megadeals” that happened in China. The world's second largest economy booked 78% of all the capital invested in Asia with about $7.6 billion invested in top Chinese fintech firms.
Many large local players, including Chinese traditional banks, IT giants and venture capitalists invested heavily into the fintech game providing funds to companies such as Ant Financial, Lufax and JD Financial.Consequently, China had 39% fintech funding in global volume for the year under review.While China dominates Asian fintech market by amount of funding, India is ahead of China in terms of the number of deals closed. China, India, and Singapore are the top three countries, in which more than 70 per cent of all fintech investments went in 2016 (by numbers of deals) according to the report.
PwC published in July 2017 a report on the status of Fintech in China. According to the survey, the global average of expected annual return on Fintech Investment stands at 20%. Europe is below average at 14% while North America slightly above at 23%. China leads the pack as it expects a 38% return on Fintech related investment. The survey also reveals that the three main areas to be disrupted by FinTech in China over the next five years are consumer banking, investment & wealth management, and fund transfers & payments. E-retailers, financial institutions and large technology companies will be the biggest sources of disruption.
Chinese financial institutions regard themselves as a source of disruption, and are keen to adopt emerging technologies such as data analytics, AI, mobile technologies, robotics process Automation and blockchain. Traditional institutions are transforming themselves at a pace not seen before with greater urgency than in most other markets.
Another report by Ernst & Young (EY) and leading Singaporean bank DBS stated in November 2016 that China has now leapfrogged ahead of global technology hubs such as Silicon Valley and London to become “the undoubted centre of global fintech innovation and adoption”.
McKinsey's July 2016 report titled “Disruption and Connection: Cracking the Myths of China Internet Finance Innovation”, explains the reasons behind China’s appetite for fintech. Its meteoric rise can be attributed to a number of factors, including a supportive regulatory environment, and the population's openess to using online finance. McKinsey has calculated that since 2011, the Internet economy in China has grown by more than 50 percent, and now constitutes a hefty 7 percent of China’s gross domestic product (GDP); in comparison, it’s only 4 to 5 percent for the US, Japan and Germany.
According to Citigroup, China’s rapid digitalisation, coupled with the rise of its middle class, will push more people towards online finance in the face of a decline in traditional financial institutions that will continue to experience increasing competition from “entrepreneurial e-commerce and social media ecosystems”.