FinTech at a Crossroad: The Development of the B2B Space in China

A look into FinTech disruption across the B2B payments space, from international partnership to local innovation

Like elsewhere around the world, FinTech development in China has appeared to be mainly B2C-focused up until now, particularly for the last couple of years. Of the US$10.2BN investment in FinTech in 2016, 89% was focused on the B2C space. Approximately 50% of this investment came from two major players serving the B2C space with payments and lending services – Ant Financial and JD Finance.

So why the lack of B2B FinTech players operating in China’s payments space? Firstly, there is still a vast amount of opportunities in the B2C space that remain untapped by traditional banks. Secondly, B2B payment solutions typically require more capital and specific expertise in advanced technology solutions, e.g. blockchain, where China is still arguably lagging behind other FinTech hubs in the U.S. and Israel.

Chinese commercial payments innovation is being driven by both FinTech entrants from other regions and market leaders in adjacent industries, such as the mobile (e.g. WeChat) and e-commerce (e.g. DHgate) space. This is resulting in a number of interesting B2B payments solutions in the Chinese market that are starting to solve some of the common pain points faced by Chinese businesses, such as invoicing and expense management, cross-border payments, supply chain management, etc.

 

Local players laying the foundations for B2B FinTech Innovation

WeChat has been one of the prime examples of FinTech innovation driven from outside the industry. As of July 2017, China’s State Administration of Taxation mandated the use of corporate tax identification numbers when issuing the so-called ‘fapiao’, a legal invoice serving as a proof of expenditure for businesses. In response to the new requirement, in July 2017, WeChat launched a new function on its instant messaging app – WeChat Fapiao Helper. This function allows businesses to input corporate tax information, thereby removing the necessity to input tax information manually, as well as limiting errors and fraud.

Taking this a step further, WeChat partnered with Concur, a business travel and global expense management provider, in November 2017 to introduce ‘Concur e-Fapiao’, an e-receipt solution for businesses to track employee T&E expenses. This solution enables users to transfer their e-Fapiaos via WeChat into the Concur Expense platform, providing them with a real-time expense management solution. Though WeChat may not directly position itself as a B2B player, it seems to have directed attention to improving capabilities for penetration into the B2B space.

DHgate, a Chinese B2B e-commerce platform, provides another example of innovation by a local player operating outside the financial services industry. DHgate launched a cloud-based cross-border trade platform – DHport, in July 2017. By integrating a traditional cross-border trade platform with supply chain and government services, DHport enables domestic suppliers to select their own cross-border providers, offering a one-stop exporting experience, claiming to reduce time and costs required to complete the trade process.

International partnerships shaping the future of B2B payments

Demand for B2B cross-border payment facilities is rising as trade volume between the US and China increases. In April 2017, Remitsy, a Chinese FinTech targeting foreign businesses that send money to China, was acquired by Wyre, a US-based Blockchain cross-border payments provider. Having gained a foothold in the market, Wyre launched Wyre Bot, a solution aiming to streamline business payments between Chinese and US-based companies through WeChat and Facebook while utilising Wyre’s Blockchain technology to eliminate fraud and enhance security. Together with its existing partnership with AliPay and its proprietary solution, Wyre has been able to build up significant presence in the US-China business payments market.

Additionally, there has also been an increased focus on the digitisation of supply chain processes. For example, in March 2017, Tradeshift, a Danish cloud-based platform connecting businesses with their suppliers, partnered with Baiwang, a Chinese government-approved provider of tax-related services. The aim of the partnership was to deliver a comprehensive billing, e-invoicing and procurement solution to Chinese businesses. The joint offering has reportedly gained significant traction across the finance and insurance industries in China, with the largest banks and industrial conglomerates among their customers. Given the significant amount of investments raised by start-ups focused on logistics and transportation (accounting for US$16.8BN) in 2017, an increasing number of B2B FinTech players have started developing proprietary solutions to help streamline and improve relevant businesses processes.

Going forward: emergence of Chinese B2B FinTechs in the commercial payments space

Despite the emergence of some innovative solutions, we have seen far less traction from B2B FinTechs compared to consumer-focused products & solutions in China. Nonetheless, as the B2C space becomes more penetrated, Chinese FinTechs are likely to recognise opportunities and shift the focus to commercial payments.