Latest Reports

  • Open Banking and APIs in Asia - A paper from Kapronasia and Red Hat
    Open Banking and APIs in Asia - A paper from Kapronasia and Red Hat Both regulatory and competitive forces have been making Open Banking a new reality across the region. Banks are now realizing that if they want tokeep their existing customers, acquire new ones, and play a greater role in their customers’ lives then they must become more customer focused, while offering a…
  • Delivering a Secure Digital Experience - A paper from Kapronasia and Jumio
    Delivering a Secure Digital Experience - A paper from Kapronasia and Jumio With the rise of digital banks and fintechs across the region, the race is on to acquire new customers. Customer experience built on new, innovative product offerings will become a key differentiator. On the other hand, the growing financial crime threats means that regulators will continue to tighten their AML/KYC…
  • 2021 Asia Pacific Fintech Trends
    2021 Asia Pacific Fintech Trends 2021 marks the tenth year that Kapronasia has produced our fintech trends report. In 2011, our focus was completely on the mainland China market, but as our business expanded, today we are present in Shanghai, Singapore, Taipei, Seoul, and Tokyo and our trends report has grown to match our footprint.

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Latest Insight

China's smartphone market might be maturing

Written by Kapronasia || March 07 2014

An interesting graphic from IDC and WSJ looks at the declining growth rate in smartphone sales in China. China's smartphone market is maturing.

Money funds in China have been around for a long time with the first launched just over a decade ago in 2003. For the most part, these funds existed in relative harmony with the banking industry and occupied a small niche in the investment market. However, the emergence of Yuebao in 2013 started to change that. Money funds have now grown significantly in prominence and present an increasing threat to traditional banking services.

China banking net interest margin continuing to increase

Written by Kapronasia || March 03 2014

The latest figures from the China Banking Regulatory Commission (CBRC) shows that China commercial banks’ deposit net interest margin has been increasing from 2.57% in 2013Q1 to 2.68% in 2013Q4, despite of the pressure from the interest rate liberalization.

Get paid to ride Taxis in China

Written by Zennon Kapron || March 04 2014

The Basics

If you haven’t been following Chinese online finance innovation industry, here’s a quick brief: leveraging mainly underlying high-yield interbank deposits as assets, China’s main internet giants including Tencent, Alibaba and Baidu have launched online finance products where users can quickly and easily move money out of their banks accounts onto these platforms. Tencent uses their nearly ubiquitous Wechat app as the main user interface which Alibaba uses their Alipay platform to distribute the products; the underlying funds are managed by an external asset manager.

The typical returns of Chinese online finance innovations are between 5-8% and greatly eclipse traditional bank deposits, which yield less than 1%. With this kind of return, it’s not surprising that consumers are moving assets over to the platforms at an astonishing rate with some funds accumulating over 400 billion RMB (~US$66B) in AUM in less than a year making the asset managers some of the largest in China.

At the same time, taxi booking apps are growing incredibly rapidly in in China’s eastern coastal cities – some with the support of the internet giants as well. Over US$40 million of investment has gone into the taxi booking apps over the past two years and it’s not uncommon to ride in a taxi where the driver will have 3-4 phones all running the apps on his/her dashboard.

Bring it together

A key part of the internet giants’ strategy has been to bring everything together in one platform. Tencent, already with a significant user base through it’s ‘whatsapp on steroids’ Wechat app allows you to invest in their online finance product called Licaitong and they have integrated a taxi booking app called Didi Taxi where you can ‘tip’ taxi drivers a pre-selected extra amount to come and pick you up.

Money for nothing and your taxi for free

So, all of the above is well and good. Where it gets interesting is the level of competition in the marketplace and what companies are doing to gain marketshare. A Chinese friend related her experience:

She initially called a taxi via Didi taxi. Didi is running a promotion where you can get 12 RMB (~US$2) back on your taxi ride when you use the app. Base fare in a taxi is 14 RMB (~US$2.33), so she paid 2 RMB (~US$0.33) for the taxi ride. But wait, there’s more…

The taxi driver then asked if she could pay using Alipay and she said yes. Why? Because Alipay is running a promotion where she could get 13 RMB (~US$2.15) back and the taxi driver then likely also received some reward. The taxi driver then gave her the 14 RMB in cash and she sent him 14 RMB via Alipay.

So let’s do the math:

 

Rider

Taxi Driver

Internet Giant

 

Change

Balance

Change

Balance

Change

Balance

Initial Ride

-14 RMB

-14 RMB

+14 RMB

+14 RMB

0

0

Bonus for using Didi

+12 RMB

-2 RMB

0 RMB

+14 RMB

-12 RMB

-12 RMB

Driver pays rider cash

+14 RMB

+12 RMB

-14 RMB

0 RMB

0 RMB

-12 RMB

Rider pays driver w Alipay

-14 RMB

-2 RMB

+14 RMB

+14 RMB

0 RMB

-12 RMB

Bonus for Using Alipay

+13 RMB

+11 RMB

??

??

-13 RMB

-25 RMB

Net

 

11 RMB

 

14+ RMB

 

-25 RMB

So basically, my friend was paid to ride the taxi. She can then take that 11 RMB and instantly put it on her online finance account where she’ll earn about 6% and the internet giants are out a combined 25 RMB.

Of course in the internet space, we’ve seen plenty of companies providing products or services for free or nearly for free, but the scope with which this is happening in China is amazing. And it’s happening more and more.

Take your lessons to go

Time is compressed here. Group buying developed over years in the US and took another couple to fade away. In China, it was started and finished in less than 3 years. Will taxi booking and online finance be similar?

Although both products are essentially in the middle of a ‘perfect storm’ of a huge potential user base, very tight liquidity (giving high overnight lending / fixed deposit rates) and tremendous mobile and internet penetration and momentum, the winds are shifting in terms of innovation and it has put fear into the financial industry.

Both banks and securities firms are feeling the pinch from internet finance. Banks are facing eroding deposits in the face of gradually liberalizing interest rates, while brokers and asset managers are seeing their customers move to relatively high-return products that carry very few fees.

Although the same ‘perfect storm’ may not be happening in the west, paying attention to how things are developing in China is important as more Walmarts and Tescos move into the banking space. Not that banks were ever really known for innovation, but here in China, it's clear that the innovation is certainly not - which is putting them in an increasingly tight position.

February 2014, represented another month of decreasing commission fees in China's capital markets as the entrance of China's technology giants in internet finance starts to affect not just banks, who are losing deposits, but securities brokers whose fees are being squeezed. 

Bad loans rise in both amount and proportion in China

Written by Kapronasia || February 28 2014

According to the latest figures from the China Banking Regulatory Commission (CBRC), both commercial banks' balance of Chinese bad loans and the ratio of bad loans increased throughout 2013.

The continuing increase of bad loans is an indication of the challenges in China's economy currently. With an economic transition happening and increased lending on bad loans, this is not likely to decrease in 2014 which will pose even more of a challenge for banks as they face increased interest rate liberialization and other financial industry reform. 

China's Bad Loans

Chinese Commercial Bank Profitability continues to struggle

Written by Kapronasia || February 27 2014

According to the latest figures from the China Banking Regulatory Commission (CBRC), Chinese commercial banks’ accumulated net profits reached 1.4 Triliion RMB in 2013, up 179.4 Billion RMB from 2012. However, the growth rate of net profits has been decreasing in recent years. In 2011, profits grew 36.33%, then dropped dramatically to 18.96% in 2012, and again in 2013 to 14.48%.

Research shows that the decreasing trend of Chinese commercial banks’ profitability growth rate seems to be in line with China’ declining GDP growth rate, shown in the chart below. It reflects that with the acceleration of interest rate reform and the influence from internet finance, China’s commercial banks profit margin faces continuing pressure.

Chinese Bank Profitability struggles

Yu'ebao AUM reaches RMB 400 Billion

Written by Kapronasia || February 21 2014

Yu’ebao had already made Tianhong Asset Management the largest one in the public fund industry in China in early 2014. However, the scale of Yu’ebao has continued to grow with the latest figures showing the AUM of Yu’ebao reaching RMB400bn on Feb 14, 2014, a leap of 60% compared to only one month ago. The speed of capital inflow is still accelerating in 2014. We may witness Yu'ebao becoming the largest money market fund in the world soon. 

The fast expansion of Yu'ebao crosses 400B under managementYue bao AUM data of Chinese money market funds, especially the ones leveraging Internet Finance, reflects the large wealth management demand potential of Chinese market and new innovative finance forms that will appear in the Chinese market in 2014.  

Shanghai Free Trade Zones showing signs of payment activity

Written by Kapronasia || February 20 2014

After what seems like forever, on February 18th, the regulators gave us a milestone reform for cross-border trade.

Competition for online finance cash increases in China

Written by Zennon Kapron || February 18 2014

Not satisfied with just taking deposits from banks, online finance platforms are facing more competition from each other.

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