Challenges in Cracking the Chinese FinTech Space

Do Western FinTechs have a chance to play on the Asian FinTech stage?

Asia is entering the global FinTech scene at a rapid pace, having already overtaken Europe in terms of financing activity. Even though North America still accounts for the majority of total global FinTech funding, the recent FinTech boom in China is narrowing the gap.

Recently we have witnessed a boom in FinTech investment across the Asia Pacific region, with funding into the region skyrocketing to US$2.6BN in Q1 2016, compared to just US$880M over the whole of 2014.

China’s internet finance industry has grown massively in recent years, as FinTechs emerge and consumer behaviour changes. According to a recent research, China’s Internet finance sector is estimated to be worth more than CN¥ 12TR (US$1.8TR) which is largely dominated by the payments sector. With an increased interest in China and spiking investments into Asia Pacific, it is expected that both China and the region as a whole will play an important role on the global FinTech stage.

 

So, what does the rise of the Chinese FinTech space mean for the global landscape?

Recently, we have seen the emergence of FinTech bridges aiming to foster the global growth of FinTechs. China will undoubtedly play a crucial role in the global FinTech scene, however what China’s booming FinTech industry will mean for the composition of the global FinTech landscape may be in contention. Will China offer a new market place for non-native FinTechs or will it mainly export its domestic ones?

This question prevails after Uber admitted defeat to its Chinese equivalent Didi Chuxing. As a standalone event, Uber’s exit from China would not raise any suspicion, however this is not the first time Western juggernauts face difficulties when trying to crack China. Some of this century’s most successful companies, including Amazon, Apple, Facebook and Microsoft, have struggled to flourish in the country. So far, Google, Amazon and Microsoft have withdrawn their business from the nation state, whereas Facebook never properly started its operations. Even Apple, which successfully marketed its iPhones in China, struggles to keep its services up and running – it has recently shutdown its iBooks and iTunes Movies services due to legal challenges, subsequently impacting its sales figures. Typically, these conglomerates had to give way to their Chinese counterparts.

 

What will be the impact for foreign FinTechs trying to enter China?

At this stage, we cannot say with certainty whether the dominance of home-grown companies is due to the Chinese expressing a particular liking for native companies or whether regulatory burdens discourage foreign companies when trying to enter the market. However, despite China being a member of the WTO, the US-China Business Council suspects that the Chinese Government has favoured domestic companies over foreign players since 2011. If this were true, this may be a contributing factor for the failure of foreign conglomerates in China.

Regardless, the rise of China’s FinTech sector is likely to shift the global FinTech scene. Even though it is too early to speculate what the exact impact of China’s emerging presence on the global FinTech space will be, one should consider the challenges that foreign FinTechs may face when trying to crack China. Whether or not this will result in a substantially larger number of Chinese FinTechs on a global stage is yet to be seen.

 

 

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