China Internet Finance - what's in a name?

Written by Felix Yang || July 11 2016

Fintech in China started as 'internet finance' or 互联网金融. As the first real China fintech giants tended to come from internet finance platforms, like P2P lenders or financial distribution platforms, the name seemed to make sense, so the term 'fintech' was rarely used. However, today, we're seeing an interesting phenomenon in China as more firms are transforming their businesses to be more 'fintech focused', but what does that actually mean? Is fintech different than internet finance? And more importantly, why now?

As the term 'fintech' was so lightly used in China, for most industry insiders, the word is short on meaning domestically beyond being seen as a big focus of overseas markets. On the other hand, 'internet finance,' as a specific modern word, was born in China. Strictly speaking, they are different but also related at some level. Internet finance is certainly considered the combination of finance and technology, but the models tend to be a bit more basic - less driven by the internet or technology being the enabler of the platform itself, but instead leveraged for the distribution of the underlying product. E.g.,, a massive Ping-An invested P2P / Financial distribution platform, makes good use of internet and mobile technology for product distribution, but the underlying technology is not incredibly sophisticated for say, predicting investor needs or portfolio management. On the other hand, if you had to separate them, fintech is seen as more tech-based. As an example, an online savings calculator in the US, would barely be considered 'fintech' at this stage as 'fintech,' in western markets, has evolved to be much more disruptive with businesses seeking to completely redefine payments or savings, not just provide incremental change.  

(Of course, in addition to the companies that are actually 'fintech' firms, i.e. based on innovative business models and forward looking customer experiences, there are many more that are just taking advantage of the name change to ride the industry trend.) 

In China, over the past year, there has been a significant amount of negative press on internet finance companies such as P2P platforms, some of which have absconding with money and/or illegal fund-raising. Many internet finance platforms shut-down and a significant amount of investor money was lost. It certainly had a negative impact on both the popularity of these companies, and subsequently, the term 'internet finance' as Chinese consumers fell out of love and lost trust. This is not only affecting 'internet finance' companies' reputations and business growth, but more importantly (at this stage anyway), their valuations and financing. In addition, the government is getting involved and regulation around 'internet finance' is increasing.

So rather than work within the 'internet finance' industry, many are trying to escape the negative press and tight regulation by becoming born-again 'fintech' companies. 

It may sound amusing that you can avoid problems just by declaring an ambiguous company type, but many are just doing that and 'fintech' seems to finally be catching on in China. Will regulations and customer sentiment catch-up? Or will companies be able to leverage their new 'fintech' status to stay ahead?

Playing the name game may not be enough - self discipline is becoming increasingly critical and a name change isn't really enough. As we have seen in the west, slapping the 'fintech' lipstick on the proverbial pig does little to ensure long-term success - innovation, real change, as well as a solid (and legal) business models are necessary. 

Nevertheless, we're seeing a big change in China as companies now move away from 'internet finance' towards 'fintech,' but only time will tell what's in a name.