Cliff Sheng, the head of financial services at Oliver Wyman, discussed the evolution of the fintech space in China and shared his perspectives for the future. Fintech in China used to be more about “Fin” than “Tech”. It was not disrupting, but creating a less regulated capital market online.
The four key drivers for the industry’s rapid growth in China are: 1) structural rebalancing of China’s financial system; 2) fast adoption of technology and the growth of online eco-systems; 3) unserved consumer and SME demand for financial services; and 4) white space in the financial infrastructure.
What is changing now is the introduction of regulation. The intent of the changes is to pull fintech back to the existing regulatory framework (which is evolving as well) and to eliminate the regulatory arbitrage. Fintech players will need to either go “pure tech” or institutionalise to become regulated financial service providers.
“Tech” will be the future source of value in China, either by upgrading the existing value chain, or by disrupting customer ownership and risk pricing. Customers are no longer directly engaging with financial institutions: the MAU of all the direct banking apps in China adds up to less than one-third that of Ant Finance.
China has developed the world’s leading online ecosystems which are generating huge demand for financial services embedded within them. Who owns the customer is most important. If you don’t own or partner with these ecosystems, you get further and further away from the customer.
Technology is fairly similar across the fintech platforms. Sheng’s prediction is that the winners in China’s fintech space won’t be the most aggressive companies but those who adopt model governance processes that will enable them to be ready for future regulation.