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Out of 27 FinTech unicorns spread around the world, 14 are from the US, 8 from China and 5 from the rest of the world. While attention is mostly paid to Western innovators, China consolidates the most financial power even with fewer representatives — China-based unicorns are worth over $96 billion in valuation. For comparison, America’s unicorns’ valuation is at $31 billion and the ROW — $11.5 billion. No region is anywhere close to China with its power team BAT (Baidu, Alibaba and Tencent) — the GAFA of the East.
Not only have China’s FinTech unicorns beat every other region in valuation, the four largest unicorns in the world are all Chinese (Ant Financial: $60 billion, Lufax: $18.5 billion, JD Finance: $7 billion and Qufenqi: $5.9 billion). Some professionals explain it with the fact that China has more than 500 million smartphone users, with a more evolved market for payments and P2P lending.
Data source: Visual Capitalist
The interesting part about China’s FinTech is that the domestic regulatory environment is one of the most welcoming for entrepreneurs globally (even more so with Hong Kong launching a regulatory sandbox for FinTech), but, at the same time, China has one of the most competitive environments for foreign entrants (which Apple Pay coming to Hong Kong may prove soon, piling up into the batch of bitter examples like Uber’s two-year-$2-billion crusade, or Groupon’s failure in the country).
As professionals from EY suggest, however, “China is formalizing this harmonious relationship between banks and FinTech players by creating a tiered regulatory regime… China is increasingly at the forefront of regulatory developments within FinTech, signaling a dramatic change in the origin of where regulatory standards may emerge from.”
In addition to that, unlike the US and Europe’s telecom and Internet companies, China’s Internet giants have been strategically expanding into finance and their local consumer banks are more sophisticated. The powerful parent company in telecom or Internet business has ensured fast and smooth entrance into FinTech and immediate access to the large consumer market. That is why new solutions with a strong ‘umbrella’ were able to deliver more convenient, reliable, fast and cost-efficient alternatives to traditional banking solutions.
The valuations of its unicorns making them the largest in the world is not the only jewel in China’s FinTech crown. China has an advantage of a massive consumer market and, hence, the incompatible customer base for its services. Let’s look at some figures: China’s Tencent has 700-million-plus users on its WeChat messaging platform, where it offers financial services including payments. Alipay is reported to have about 450 million users.
Among the reasons that allowed technology companies accumulate such a power in the financial services industry is believed to be related to a relative immaturity of the traditional financial system. Sources cite that ~80% of small- and medium-sized enterprises in China are not adequately served by banks. As a result, the alternative lending industry in China grew to be the biggest one in the world with almost $66 billion lent out. Moreover, China’s market is growing at a rapid pace — around four times the absolute size of marketplace lending in the US and over 10 times the UK.
But what is more important than a customer base or total consumer market? The technology and infrastructure. Alipay and Tenpay (the platform behind WeChat Pay) have their own payment network, cutting off card issuers and global network owners. The bank and card issuer would have no idea where the user was or what they were buying — only Alipay and Tenpay can see that. And by owning the data, they really secure control over the market (knowledge is power).
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