China - the source of fintech disruption?

Added 27th October 2016

Disruption of the funds management industry through the application of financial technology (fintech) is likely to come from mainland China, according to ICI Global, the international arm of the Investment Company Institute.

China - the source of fintech disruption?

“Fintech offers more potential for direct selling..., which might then introduce more competition into the [distribution] model,” ICI Global’s managing director Dan Waters told FSA on a recent trip to Hong Kong.

“In some respects China is setting the pace in terms of use of multiple technologies and ease of investor access to money market funds, which is beginning to move to actual investment funds.”

Qiumei Yang, chief executive office of ICI Global in Asia-Pacific, added that the asset management industry has been changing extremely fast in China. Six years ago, Yang worked at the China Securities Regulatory Commission (CSRC) in charge of the fund department.

“At that time, China had only 16 [fund management] companies and I heard from banks that only one had strong performance and could negotiate on the commission level. The industry has changed very fast."

Six years ago 90% of funds in China were distributed through key state banks and today the figure is about 60%. “The main reason is online distribution,” she said, adding that banks are not as important for fund distribution as in the past and the fee-based model could ignite in China and spread to Hong Kong.

"Six years ago 90% of funds in China were distributed through key state banks and today the figure is about 60%"

China – fintech leader

ICI’s views are underpinned by the latest report from KPMG on the top 100 fintech companies in 2016.

China has become a major global force in fintech, said the report, which ranked the top 50 “established innovators” in fintech. This year, Hangzhou-based Ant Financial was ranked number one globally.

China-based companies Qudian, Lufax, Zhong An and JD Finance were also in the top ten. Most are online lenders with the exception of Lufax, an Internet-based lending and wealth management platform, which is owned by Ping An Group.

“China now tops the global rankings,” the report said. “Within three years, China’s fintech ventures have gone from only one company included in the top established 50 rankings in 2014, to this year China featuring four of the top five companies and eight of the top 50.”

The report highlighted that the list features more disruptors -- firms that challenge the existing market – over enablers, those who help incumbents do better work.

“With 92% of the top 50 in the disruptor category the message for the financial services sector is that now more than ever it is time to embrace innovation to stave off the threat of fintech startups.”

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