Fintech in China: What’s Behind the Boom?

From Cliff Sheng & Jasper Yip at Brink:

“Over the past half decade, we have witnessed phenomenal growth in the Chinese fintech industry. 2013 is widely recognized as the onset of the boom. Since then, major segments of the fintech market have, on average, doubled or even tripled every year. For example, the outstanding loan balance for online peer-to-peer lending platforms surged from 31 billion yuan in January 2014 to 856 billion yuan three years later. The explosive growth in China’s fintech sector is further characterized by its relatively short maturity curve. For example, it took four years for peer-to-peer transaction volume to exceed $5 billion in the U.S., while it took only two years in China. Lufax, a Chinese peer-to-peer lending platform founded in 2011, reached an annual loan origination amount of 9 billion yuan in just two years, compared to five years for Lending Club, the biggest peer-to-peer lending company in the U.S.”

With SMEs representing an underdeveloped segment in a bank dominated environment in China, Fintech players have leveraged on the Internet boom to mend the holes created by traditional financial services. The stringent regulatory framework recently imposed by the Chinese government has prohibited Fintech players from exploiting loopholes in the system. By utilising big data analytics computation as well as algorithmic learning capabilities, leading Fintech players are able to adopt these technologies to better understand the market, automate operations and reduce labour costs.

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