Sherry Mandera, the City of London’s Special Adviser for Asia explains how the booming FinTech sector will help innovative British businesses boom
What do you think are the most significant developments and main opportunities in China’s FinTech industry?
China’s FinTech innovation and success is certainly something we can learn from in the UK. I lived in Beijing for almost three years, and I have to admit after returning to the UK a year ago, I still miss using my beloved WeChat wallet to buy my morning coffee.
As China prepares to celebrate the approaching Spring Festival, many people will be stocking up on red envelopes, or hongbao as they are known in Chinese, to hand out to their friends, family and colleagues. Last year over 46 billion of these were sent using WeChat – a remarkable statistic – and 43 percent up on the year before. I’m sure the coming Year of the Dog will see even more money sent using the platform – a real litmus test of the impact and take-up of FinTech in China – and hopefully, a few of my Chinese friends will remember me with their digital hongbaos.
This is an example of current and future opportunities for FinTech: the sharing, earning and linking to social media. The Big Data generated in China can be minded for future innovation and efficiencies. FinTech also has the opportunity to accelerate segments of China’s financial markets currently lagging behind Western markets. Insurance is one such are where Asia overall lags the West in penetration. InsurTech can bring value and variety to China’s market.
In 2016, investment in mainland Chinese and Hong Kong FinTech ventures totalled $10.2 billion, exceeding North America’s $9.2 billion. Alibaba has more than 550 million customers for its core offerings, and Tencent’s has nearly a billion. Taking these massive numbers into account, the question most people will ask is: what can we in the UK offer China?
The answer is mature market innovation. After all, London has been named as a world leader in FinTech, and UK based FinTech startups are seeing record-breaking investment that far outstrips their European competitors.
Developments such as the UK-China FinTech bridge announced in 2016 and that with Hong Kong will go some way to strengthening cross border collaboration and leverage global innovation.
At the City of London we are pleased to support the UK’s burgeoning FinTech scene. Working with KPMG, we recently published our Value of FinTech report. The central recommendation was to pursue a FinTech sector deal, and we offered to help convene the industry to support that.
We’ve also long seen the importance of tech hubs such as Shenzhen, and I am a regular traveller to the City. Late last year the City of London Corporation’s Policy Chairman Catherine McGuinness and I visited to speak at the CBBC Outbound Conference, and this March our Lord Mayor Alderman Charles Bowman will visit alongside a senior UK business delegation.
Back home, the Financial Conduct Authority’s FinTech Sandbox and wider Project Innovate has been a huge success for the UK and now is the time to build on it. There are also further opportunities for the UK to be a lead regulator in areas like Blockchain, AI and Big Data- not just in China, but also in Belt and Road countries- provided we can demonstrate policy and legal certainty. This opens a future opportunity for RegTech to accelerate in China.
Innovate Finance- the membership body dedicated to FinTech which now numbers over 300 FinTech firms – is seeking to build even more excellence in the sector here in the UK. Innovate Finance recognises the importance of collaboration with China.
Preparations are also underway to launch the first UK-China FinTech Awards, to attract Chinese FinTech companies with the intent to setup in the UK. Clearly there is a lot of exciting progress underway, and 2018 will see some interesting developments in this area.
What do you think are the main challenges or problems in China’s FinTech industry?
In terms of challenges, I think the main concern for the sector is regulation and the Chinese government has made no secret of its concerns about dubious lending practices. Recently in December Chinese regulators issued a notice spelling out stricter rules for cash loans and P2P lending. And late last November they stopped issuing licences for new online small-loan companies.
Clearly a lot of firms will be affected by these controls – and the new rules are already making the market nervous. An example of this was the muted investor demand to the US initial public offering by online Chinese consumer lender LexinFinTech, which had to scale back its offering from US $500m to US $109m.
While some firms will struggle to survive this clampdown, others will continue to expand, and the battle between FinTech giants Alipay and Wechat payment will lead to more acquisitions, mergers and innovative financial models, as the tech behemoths lock horns in order to expand their customer bases both at home and overseas. Hopefully new innovators will find way to thrive.
A great example of this is the Chinese FinTech firm CreditEase lending consumers cows in a bid to reach those living in rural areas who might have limited access to credit and financing. ANT Financial is innovating in green finance by planting trees in proportion to volumes on its platform.
The investment bank Macquarie estimates credit extended by China’s FinTech firms will jump more than seven-fold by 2022 to 6.2 trillion yuan (US $940 billion), to pay for things like luxury and household goods or training and education. Clearly there’s plenty of room for expansion in the market.
In terms of challenges for foreign investors, market access is still an issue. But on this point we are seeing progress, and the further opening up of China’s financial sector to foreign businesses.
In November last year, the City of London welcomed an announcement by the Chinese Finance Ministry that it will move to remove limits on foreign ownership in financial ventures. We hope this will increase mutual exchanges, and create a level playing field for Chinese and foreign institutional investors- not only for firms in market, but also those currently considering making an entry. I also believe it will make the country’s financial market more appealing to foreign investors, including those FinTech firms in the UK looking to expand their operations overseas.
What do you think FinTech companies can do to overcome these challenges and succeed in the FinTech market?
I think the keyword here is caution. As I said before, with the recent regulatory clampdown we are bound to see a few firms in China changing their business models or falling out of the market altogether. But this doesn’t mean there are no opportunities- firms considering a market entry just need to do their homework.
What examples are there of British and Chinese FinTech companies collaborating with each other, and how can they collaborate with each other in the future?
In the 9th UK-China Economic and Financial Dialogue in Beijing, which the City of London attended alongside the UK Chancellor, both sides welcome the establishment of WorldFirst’s office and WFOE in Shanghai. In addition, the People’s Bank of China welcomed the move by WorldFirst to apply for a payments licence and to conduct cross-border payments.
A good example of UK-China collaboration for the future is the partnership agreement the London-based investment firm Future Planet Capital (FPC) and China’s Tsinghua University.
FPC will invest up to £30m in businesses spinning out Tsinghua University’s X-lab, a platform which supports and facilitates startups founded by Tsinghua alumni, students or faculties.
A truly innovative partnership is the announcement by R5FX to partner with Shanghai Clearing House to offer FinTech solutions to cross border RMB clearing.
I should add I am delighted 13 UK FinTech firms have been introduced to the China–Britain Business Council, and hope more approach CBBC to learn about expanding into China.
Are there any Chinese FinTech companies working and investing in the UK and what opportunities are there for Chinese FinTech companies in the UK?
Several firms from Hong Kong have already made inroads into the market. In September last year, Hong Kong Cyberport and the Hong Kong Monetary Authority brought the largest ever Hong Kong FinTech delegation to London to expand partnership network for industry players between the two cities. During an event held at the City of London’s Guildhall venue, a number of partnership deals were struck, including the wallet company TNG entering the UK market.
In terms of firms from the Chinese market entering the UK, we are already seeing the growth of Alipay and Wechat payment in our shops and stores. After all, there are a vast number of Chinese tourists and students coming to the UK each year, accounting for over £3 billion in spend annually. It makes sense to allow these people to use mobile payments abroad.
We’re also seeing Chinese FinTechs firming up their plans to enter the UK market. X-Transfer is planning to launch in early 2018, and Ant Financial has successfully obtained a payment license from the FCA. In addition, BBD, a Chinese FinTech company, has been promoting cross border working.