China’s fintech sector is expanding at speed, and agile Australian firms are lured by the call of the country’s 1.4 billion prospective consumers.

 
To say China’s fintech sector is booming is an understatement. In 2016, investors poured $US6.4 billion into the sector in China. Why is so much finance suddenly flowing into the system and what opportunities does this present for Australian firms?

A key reason for this burst of investment is that financial institutions are shifting their focus. “State-owned banks have not traditionally been focused on consumers,” says James Lloyd, fintech leader, Asia-Pacific, EY Hong Kong. With the World Economic Forum projecting China’s consumer economy will expand to $US6.5 trillion by 2020, “The scale of unmet needs in the Chinese market is enormous,” Lloyd says.

From micro-loans to opening lending in rural areas, Lloyd believes China’s fintech revolution has emerged through “business innovation and customer adoption”.
 
“The boom has been led by tech companies who have moved laterally into financial services,” Lloyd explains. For example, Ant Financial, a subsidiary of online behemoth Alibaba, recently acquired international payments firm MoneyGram for $US880 million. According to MoneyGram’s press release at the time, the deal “will be able to leverage Ant Financial’s global presence and existing network to serve more than 630 million users – including 450 million with Alipay and 180 million with India’s leading mobile payment provider Paytm – to increase MoneyGram’s transaction volume across the broad Asia-Pacific region.”
Australian fintech companies are taking a world-leading approach to blockchain uses

Australians at the gates

 
Hoping to capitalise on this rapidly growing sector, an Austrade delegation will head to China in late March to shore up connections between fintech companies in both nations. For Australian firms, gaining access to the country’s 1.4 billion potential customers is an obvious drawcard. A spokesperson for industry group FinTech Australia, Mark Skelsey, says the dynamism of the sector in Australia means firms have multiple ways to enter the market.

“We have the experience and expertise to assist China to review its financial policies and regulations, modernise its banking infrastructure and connect consumers to value-added services,” Skelsey says.

“Australian fintech companies are taking a world-leading approach to blockchain uses, such as developing a diverse range of solutions including for agricultural commodity settlements, labour hire and international payments.”
Australia has the experience and expertise to assist China to review its financial policies and regulations, modernise its banking infrastructure and connect consumers to value-added services.

Risk versus reward

New players still need to consider several risks. Chief among them is China’s regulatory environment, which can be notoriously difficult, particularly for international businesses. Skelsey, however, believes these challenges are “not insurmountable”.

“We already have a number of Chinese-based Australian success stories such as AirWallex, CrowdFundUp and SmartTrans,” says Skelsey. “Australia has the experience and expertise to assist China to review its financial policies and regulations, modernise its banking infrastructure and connect consumers to value-added services.”

The Chinese government has also allowed local fintechs to utilise regulation “white spaces” to help them expand into a consumer market not traditionally serviced by the banks. “They have been provided with an environment in which they can move pretty fast, and faster than most Western countries,” Lloyd says.

Lloyd believes the greatest challenge for Australian firms entering the market may in fact be competition. “They face problems with access to capital, talent and customers with a growing middle class,” Lloyd says. “For overseas players to compete, they will need to offer a compelling product or service – simply replicating current services will be difficult.”

Two-way street


In a globalised economy, commerce moves in more than one direction, and some of the leading Chinese players are already beginning to enter Western markets. “I think we’ll see more payment acceptance, such as WeChat Pay moving into Australia and the United States,” Lloyd says.

“It’s part of the irony of China: they have outbound fintechs, but market entry is difficult the other way,” he says. “It’s an interesting asymmetry that will cause friction in the coming years.”

This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY.
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