Startups muscle in on cash transactions

Financial technology companies lead push to change the way business is done, even in the supermarket

A growing number of financial technology companies are boosting China's links to the wider world by giving users more efficient platforms and solutions, especially in the fields of cross-border transactions.

The trend is set against a backdrop of global acceleration of the so-called FinTech industry, which has more than tripled in investment to $4 billion (3.5 billion euros) in 2013 compared with 2008.

Usually established as start-up firms, leading FinTech companies rose fast, especially after the financial crisis, when markets lost confidence in big banks and financial industry incumbents, and smaller companies started to come up with solutions to change established financial systems, using software as their key weapon.

At Europe's largest FinTech incubator, Level39, which is owned by London financial district property developer the Canary Wharf Group, already 170 FinTech firms are fast establishing themselves, with another 1,500 startups lining up waiting for approval to enter the incubator.

"When we started Level39 two and half years ago we never thought it would be this big," says Eric Van der Kleij, head of Level39.

The companies inside the incubator span a large range, from small startups with a few people to large companies like UBS, which has set up an innovation laboratory there to investigate block chain and other distributed ledger technologies along with smart contracts.

One level39 company keen to expand into China is Reward Technology Ltd, which uses data to help supermarkets, malls and hotels better serve their customers.

Paul Sheedy, CEO of Reward Technology, says he believes his team's promotion solution for supermarkets is greatly suitable for China and he wants it to become the key market to test the new technology.

The technology cleverly turns supermarket vouchers from paper formats into a digital format for ease of use, flexibility and more effective marketing.

Each loyalty card inside customers' pockets is detected when the customer walks into the store, and the system automatically generates a selection of the most suitable promotions based on the customer's past shopping behavior and sends these to the customer's phone as a text message.

This new information would allow the customer to pick up promotions that they may otherwise not notice, and regularly the store will send customers an update of the value of promotions they have used, to generate emotional loyalty.

This method of electronic promotions has certain advantages compared with paper vouchers because it has flexibility. For example, if a customer is observed to buy shampoo every six weeks, then a voucher is likely to be sent to the customer on week 5.

In addition, the system could sometimes give customer-specific discounts. For example, if a consumer has moved away from a brand he or she is previously loyal to, then the brand may be willing to give the customer a discount to attract him back to the brand, and the Reward Technology system can identify this.

Sheedy says his team has now registered the patent of the technology in the Chinese market, and is also speaking to Chinese investors in the hope that they can invest more capital into his business.

He says he wanted to attract Chinese investors who can see the technology being introduced across Chinese supermarkets, so it is easier to convince them about its effectiveness.

He says his team will target Chinese local supermarkets, which are now struggling to keep up with competition from Western supermarkets entering China, such as Carrefour and Tesco. This could be a real game changer for Chinese supermarket chains.

He also believes that this technology is much harder to market to Western supermarkets that are established and well used to the idea of paper vouchers. Such supermarkets have for years worked with external data analysis companies, which have embedded interest to make sure their positions are not challenged by companies like Reward Technology.

Tesco, for example, has worked with the data analysis firm Dunnhumby for 20 years, and Sainsbury has worked with Aimia for 12 years, so they are unlikely to change to another firm.

Because Chinese supermarkets are more flexible in their choice of partners and are more adaptable to new methods, Reward Technology is keen to target this market. Sheedy says his team will start from big centers like Shanghai and Shenzhen, which have big shopping clusters.

The rapid growth of outbound mergers and acquisitions and private equity investment from China has prompted the founding of the M&A platform DealGlobe, another FinTech firm at Level39, which provides a platform for agents serving both target firms and investors to connect with each other.

Founded last year, DealGlobe has 26 staff, of which 10 are based in the UK, and the rest are in its offices in Shanghai and Beijing.

Feng Ling, CEO of DealGlobe, says that DealGlobe hopes to serve small and medium-scale M&A deals by using its professional staff and their understanding of both the Chinese and Western markets to help deals become successful. It will generate profits by taking a share of consultants' commission.

"I came up with the idea of DealGlobe initially because I realized that there were inefficiencies in the traditional investment banking sector in how they bring deals to happen, and also there is an information gap between China and Europe in cross border transactions," Feng says.

To bridge the gap, his team has created an online platform that shares information about projects in an efficient and transparent way. It is also a platform that encourages users to post their own information, so the growth of the user-generated content will help the platform to grow even more quickly. DealGlobe has also developed a mobile app to present these deal information to users.

The platform itself has attracted more than 3,000 users, and it now carries information from more than 1,000 projects, all of which are companies looking for investments either through M&A or private equity funding. To date DealGlobe has facilitated the agreement of two cross-border M&A deals, although they are yet to complete.

Feng says the biggest challenge he has encountered in setting up DealGlobe is recruiting and maintaining highly talented employees, because DealGlobe's success relies heavily on offline support.

"We managed to attract so many users for our online platform because our employees both in the UK and China have lots of contacts accumulated from their previous experience working in the industry. They can then invite their contacts to use our platform."

"In addition, we also provide a lot of support for the M&A process. So in effect our services are like a continuation of the traditional M&A consultancy process, but we use more technology and have more efficiency."

China's increasing number of students going abroad to study has made it a key market for the Boston-based FinTech company peerTransfer, which provides students a more convenient, quicker way to transfer money to overseas universities, and gives them favorable exchange rates for the transfer.

Traditionally, students would pay their tuition fee by wiring funds or sometimes using credit cards. This often means hidden fees, unfavorable exchange rate conversions, and an inability to track the money. The universities also encounter the hassle of having to match the students with the payments over a few weeks when all the students wire in their tuition fee.

Instead, peerTransfer would collect the payment from its banking partners, after the payment is received from the students, and then transfer it directly to the universities.

Established in 2009, peerTransfer now provides this service to students of 750 universities in 12 countries, and in its largest market, the US, universities accounting for about 50 percent of foreign students in the country have signed up to its networks.

In China, for example, students can pay in the local currency to peerTransfer through either China UnionPay, Alipay, or make a payment to peerTransfer's banking partner China Everbright Bank, which is partnered with PayEase, the cross-border payment provider, to transfer the funds.

In the current academic year, peerTransfer will transfer about $2 billion in funds and about 30 percent of these funds will come from China. But the market for growth is enormous because over the same period $53 billion of funds are transferred internationally for tuition fees.

It provides a more competitive exchange rate, but also delivers a promise to match any rates that clients can get from their banks.

In July peerTransfer established a subsidiary in Shanghai, in order to provide a better service to the Chinese students and their parents, establish closer working relationships with its Chinese banking partners and convince more Chinese and other Asian universities to join its network.

It currently has three people based in its office inside the Shanghai Free Trade Zone, but CEO Mike Massaro believes this will grow to about 10 employees in the next year. Globally, peerTransfer employs about 80 people.

Massaro says peerTransfer's key reason for success is its understanding of customer needs, and it creates an easy to use and efficient method to meet these needs.

"At the core of this is the decision to focus on the student market, which makes transfers of funds in large quantities at the beginning of the academic year as opposed to smaller funds transfers that are more frequent for the general cross-border transfer market, served by companies like Western Union and TransferWise," Massaro says.

cecily.liu@chinadaily.com.cn

(China Daily European Weekly 09/18/2015 page19)