World / Reporter's Journal

The booming business of fintech draws massive investment

By Chang Jun in San Franciscon (China Daily USA) Updated: 2016-05-10 23:20

From the Silicon Valley to the world’s most populous nation, “fintech”, a combination of finance and technology, has developed into a booming industry that continues to draw an extraordinary level of funding from investors.

The most recent gold-spinning episode was the completion by Alibaba’s Ant Financial Services Group (Ant Financial) — a fintech behemoth established in October 2014 — of a $4.5 billion Series B round of financing in April. The company is expected to go public soon.

The booming business of fintech draws massive investment

Skyrocketing into innovative startups, fintech has been transforming the way we lend, transact, invest and insure. According to a list jointly compiled by Australia’s H2 Ventures and KPMG on the world’s top 50 fintech startups, there are 25 unicorn companies worth $1 billion or more in the United States and seven in China.

The fintech industry differs greatly in many ways in the US and China, said Long Chen, a finance professor at the Cheung Kong Graduate School of Business and a well-known economist in China.

“The influence of fintech on the public life in Western countries lags far behind than that in China,” Chen wrote in a recent opinion piece in Caixin magazine. “The practice of fintech in China is much more broad and deep.”

With its pillar business units: Alipay, the world’s leading third-party payment platform, which split from Alibaba in 2011; Ant Fortune, which includes the money market Yu’e Bao and the third-party financial services platform Zhao Cai Bao; Koubei; the private online bank MYBank; micro-loan provider Ant Micro Loan; and Sesame Credit, China’s first credit-rating system – Ant Financial has profoundly transformed everyday life for Chinese people.

Ant Financial can handle more than 80,000 transactions per second, outpacing all of its leading Western counterparts and breaking Visa’s world record of 14,000 transactions per second.

On micro loans, Ant Financial has issued some $96 billion to small- and medium-sized enterprises and rural and urban merchants in the past five years. America’s biggest peer-to-peer (P2P) consumer loans platform, the Lending Club, reported $16 billion in loans over the same period, Chen said.

Morgan Stanley estimated that there are more than 1,500 P2P lending platforms in China, and the total volume of P2P lending in China surpasses $33.2 billion, more than in the US.

Still, credit, security and risk control in China’s P2P market remain problematic. In February, the Chinese government investigated online P2P lending industry players and cracked down on Ezubao, a company that officials said was a Ponzi scheme that offered mostly fake investment products to nearly 1 million investors. Ezubao enticed them with promises of annual returns of up to 15 percent and was accused of defrauding investors of more than $7.6 billion.

Cheng Li, CTO of Ant Financial, visited Silicon Valley to talk at the Ant Financial Tech Forum on Sunday.

“Innovative technology and extensive data analysis underpin everything we do,” Li said. “The cloud and Big Data power our rigorous credit, security and risk- control processes and allow us to tailor our products to customers’ individual needs and operate in the safest, most efficient and cost-effective manner.

“Our mission is to grow a financial ecosystem in China and beyond by collaborating with domestic and international partners,” Li said.

Fintech also helps bring about lifestyle changes.

“We call it from fintech to finlife,” said Li, adding that Alipay has evolved from a digital wallet to a lifestyle-enabler. Users can hail a taxi, book a hotel, pay the utility bills, make doctor’s appointments or buy movie tickets directly from various modules within the app — and also purchase wealth management products such as Yu’e Bao.

More than 600,000 brick-and-mortar merchants and some 1 million taxis now accept Alipay as a payment method across China. As of December 2015, Alipay was accepted in more than 50,000 retail stores outside of China, and tax reimbursement via Alipay was supported in 24 countries and regions, including South Korea, Germany and France.

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