The emergence of financial technology has been rapid in the past years around the world, and the ecosystem is continuously growing, with China leading the way.

FinTech is considered one of the fastest growing industries in the world and a good number of investors are pouring money into the industry. However, an in-depth analysis of adoption trends shows unexpected results, with China in the front, leaving developed economies way behind in the use of online and mobile financial solutions.

It has been suggested that FinTech has achieved early mass adoption in most markets, ever since the dramatic growth in FinTech users between 2015-2017. Although adoption of services still has a long road ahead, FinTech is already used across a variety of industries and also investments in financial technology are increasing by the day. Overall, use of FinTech services shows encouraging growth levels.

China Tops the List of FinTech Adoption by Far

In the last couple of years, China has grown to become the most exciting FinTech market in the world. By any measurement, it’s certainly the largest. Less than two years ago the demand for mobile payments reached USD5.5 trillion, which is roughly 50 times the size of the North American market. During the same year, Chinese FinTech investments rose to USD10 billion, holding the most significant share of global investment within the sector. The share represented 90 percent of all ventures within the Asia-Pacific area.

According to a report conducted by Ernst & Young, while the average percentage of FinTech use per country stands at just 33 percent, China is blazing a trail with 69 percent of Chines using a sort of FinTech service. When comparing to European countries such as France, Netherland, and Belgium, where only less than a third of people (13-27%) use advanced financial services, it is evident that the FinTech market in China is in its bloom.

Why is China the FinTech Capital of the World?

For decades, China looked at developed countries in order to structure its financial system, but when it comes to FinTech, China overshadows every other FinTech market around the world.

China’s FinTech revolution is an outcome of a multitude of factors, such as easy access to capital, and facilitation of regulations. Consumers and SMEs are increasingly turning to digital providers for payments, credit, investments, insurance, and beyond.

High levels of internet and mobile penetration have already made China the world’s largest and most developed online retailer, that accounts for 47% of global digital retail sales. A large part of the success in FinTech is due to the success of digital payment platforms, such as WeChat Pay and Alipay, that have revolutionized the way individuals handle their finances and payments.
The qualities of China’s FinTech ecosystem such as speed, sophistication, and scale of development remain unmatched with more established markets. While places such as London and Silicon Valley strive to position themselves as global hubs for FinTech, China has gone to the front in both innovation and adoption. Which is due to developments across technology hubs across China, such as Shanghai, Beijing, and Shenzhen. Whereas the banks and financial services organizations in the West innovate incrementally, China’s technology leaders are transforming, remodeling and revolutionizing many aspects of financial services in a disruptive way.

What Drives Mass Adoption of FinTech Services In China?

There’s a whole generation of people in China where the first time they ever accessed the internet was actually via mobile phone, and many of people don’t even carry their wallet anymore since they can do everything on their phone.

China consumers have adopted the technology much quicker than the rest of the world, especially on the mobile side. Forty percent of Chinese consumers are using new payment methods, whereas only 4% of Singaporeans. In China, roughly every third of the population is using FinTech to access insurance products compared to one or two percent in most markets in Southeast Asian. There are also significantly higher rates of FinTech participation in wealth management and lending.

Cost of service is a significant determinant of mass adoption of FinTech. Provision of a paid service for free and a markedly cheaper service boost the use of FinTech, particularly in markets where access to financial services is hard.

While there is surely a lot to learn from the rise of Chinese FinTech, not all products and services can be reproduced in the Western markets. China’s mighty mix of accelerated urbanization, regulatory acceptance, a large and underserved SME market, increasing e-commerce growth, an explosion in online and mobile penetration, have created a fertile ground for innovation in commerce, banking, and financial services.

Exciting Times Lay Ahead in Chinese FinTech

The industry is evolving at an incredibly fast pace. In the upcoming years, China looks set to continue dominating the global FinTech industry with a strong domestic market. The next step will likely be integrating products and services into singular platforms, leveraged by big data and machine learning, as well as the disruption of new sectors.

Overseas, Chinese FinTech firms will also play an increasingly important role in the global collaborations driving technological innovation. What these companies will learn abroad, they will bring back to the domestic market, which will further fuel the sector to stay ahead. As Chinese companies expand out of China, it remains to be seen whether they will make it on international markets. We might also start to see more direct competition between the likes of Baidu, Tencent, Google, and Amazon.

Whatever happens in China and beyond, incumbents and FinTech firms alike will need to transform to remain relevant in this new world order. The next years will be an exciting time for the industry, and for now, the rest of the world will be looking to learn from this Asian giant.

Cornfield & Partners can help you with the FinTech market. To find out more about potential business opportunities, contact info@cornfieldpartners.com or you can call us at +44 (0) 20 7692 0873.

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