Tighter competition in FinTech industry

Andrew Work

Chinese tech companies remain the driving force behind the continuous growth of the financial technology (FinTech) industry, says Head Content Strategist (Asia Pacific) of NexChange, Andrew Work.

With the emerging popularity of alternative Chinese payment methods through non-bank firms such as Alibaba’s WePay and Tencent’s Tenpay, even giant banking institutions have been threatened by the increasing use of these methods, particularly in China.

Recent figures from JPMorgan Chase show that its QuickPay processes 94 million payments every year, but Tencent processed 46 billion payments in just five days during the last Lunar New Year.

In contrast, as the user base of alternative payment methods in China grows, American tech giants are just beginning to tip-toe into FinTech.

Speaking at the French Macau Business Association (FMBA) talk, Andrew Work described the move as a defensive one as these American companies are seeing Chinese tech giants ready to take their businesses outside their country while American firms are not ready to compete with these entities.

“Chinese tech companies went to finance big time and they’re doing a fantastic job. They’re competing heavily with each other and a lot of this is because of the use of a leapfrogging technique,” Work explained.

Significant populations in China were inadequately served by financial institutions compared to individuals in Western societies, creating an increased market for mobile finance and consumer-driven FinTech.

Currently, there is still a massive drive in China to invest in technology, as exemplified by the moves of Chinese insurance titan Ping An, who was awarded a USD40 billion venture fund to become one of China’s top tech companies – along with Alibaba, Tencent and Baidu.

“[These firms are] reinvesting everything in Artificial Intelligence, Internet of Things, insurance [and such]. It’s a stunning amount of money that they want to deploy to become a technology company,” the expert shared.

Although Chinese tech giants are the leaders in the FinTech industry, there is ongoing debates as to whether China has an advantage in this sector.

Chinese firms are better able to coordinate with government policies, financial institutions and technology companies, whereas in America’s adversarial system, regulators and regulations may have deterred American companies from entering the sector.

“They see that financial institutions are constantly at war with regulators and getting hammered with giant fines. They don’t want to have to go there and deal with that because they see it as a big risk,” the expert explained.

“In China, tech companies work closely with the government and the government recognizes the power of these companies in terms of collecting data, so they collect financial data on people. The motivation is different,” he added.

With the growing number of Chinese tourists, tourist hotspots regions such as the US or Europe also accommodate payments made through mobile apps such as WePay or Alipay.

The travel industry has also significantly benefited from FinTech, enabling them to instantly transact online, along with the availability of insurance which can be made through ATMs, particularly in Hong Kong International Airport.

Meanwhile, as banks remain a tough competitor against popular Chinese payment apps, the expert said that the transition of conservative financial institutions to FinTech is slow. However, Work noted that some institutions have already established standards of innovation.

“It’s like watching a large ship turn itself in a different direction, it’s slow.

But once it gets going, they’re going to go [all out],” he said.

These institutions deploy old technologies but will also invest in the next technological wave, whether it is in AI, robot advisers, and related innovations, and will start to put capital into quantum computing.

Regarding cryptocurrency, Work noted that regulators in Singapore, Hong Kong and the US have pushed people into the token sale model.

The expert said that traditional finance institutions, as represented by banks, regulators, and the government, have become inaccessible for people seeking to invest or participate in an initial public offering (IPO).

There are high fees associated with banking, along with tougher regulations, thus Work noted that investors are turning to alternative forms of investment such as cryptocurrency – which require little capital.

“The great thing about FinTech in a lot of areas is that it’s so much easier for people with low- income levels to be involved,” he said.

Using equity crowd funding as an example, he continued, “I don’t need to have a large amount to invest but I can get in the game. In traditional finance, you can’t do that,” Work added.

Although cryptocurrency investors do not need a large amount of capital, these investors do need to acquire a base level of technical know- how.