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?
Automated advisory platforms, or Robo-advisors, have shaken up the finance industry in many parts of the U.S. and Europe. China's wealth management industry is now the next in line to receive such a boost.
Securities market regulator the Securities and Exchange Board of India (SEBI) has taken credit rating agencies to task after a spate of fiascos wherein a rating agency downgraded a certain paper from BBB+ to BB+ and finally D all within a span of month. In another case the credit rating agency suspended ratings on a certain stock citing non-availability of sufficient information. Interestingly, in both the cases the companies have been called out for debt servicing issues in the wake of the NPA process at major Indian banks.
The Department of Post (DoP) is all set to launch its payments bank by September this year after receiving the in-principle approval from the RBI to launch the same in August last year. With over 154,000 post offices of which 130,000 are operating in rural pockets of the country the new bank is expected to be a sure winner on account of the distribution strength. No wonder that some of the world's top 50 banks including Barclays of England, Deutsche Bank of Germany, Citi Bank of USA and the World Bank wanted to link themselves with the postal department for a piece of the action.
The Reserve Bank of India (RBI) has proposed that commercial banks need to institute a Board-approved Cyber Security Policy no later than September 30, in a bid to address the growing number of cyber threats and reported incidents of cyber crime in the banking industry. The RBI set the rules in a letter to bank chief executives this month, with Regional Rural Banks exempt from the change. The use of technology in banks, already an "integral part" of operational strategy, has gained further momentum, hence the need for such guidelines, the RBI said.
Last week, the China Insurance Regulatory Commission (CIRC) issued a new scheme for evaluating risk in online insurance. Aimed at providing consistent development of the industry and ensuring proper risk management, the scheme is focused on the business model and operations of internet insurance companies. Companies offering life insurance, financial insurance, and other insurance areas are all covered by the new supervisory scheme. The review will take place in three steps, carried out over the course of five months.
Xiaomi has entered the finance industry, following in the steps of Chinese tech titans Alibaba and Tencent. On June 13th, Xiaomi, whose traditional strength is in the smartphone business, joined hands with Chinese conglomerates New Hope Group and Chengdu Hongqi Chain Co. to establish the New Hope Bank in the Western Chinese province of Sichuan.
India’s insurance sector is worth $60 billion and has established some solid regulatory models that helped spawn an entire web and mobile driven industry. The main insurance regulator, the Insurance Regulatory and Development Authority (IRDA), played a proactive role by setting boundaries early on in the sector, such as clearly distinguishing between insurance brokers and web aggregators.
The Islamic banking system, where neither the borrowers nor depositors are paid or pay any interest, is set to launch in India. It will completely function under the tenets of sharia law, where the bank doesn’t charge interest but the customers share a part of profit or loss of the bank. The idea is to encourage the economic and social development of the region the bank is based in.
As the 'India stack' becomes mainstream, what will banking look like in the future?
Even with over 40 Acts directly or indirectly pertaining to pertaining to insolvency and bankruptcy, banks in India are still under tremendous pressure due to rising non-performing assets (NPAs). Multiple agencies are involved in handling these situations, with overlapping jurisdictions that creates complexities and delays.
For nearly 30 years, India’s double taxation avoidance agreement (DTAA) with Mauritius came in handy for investors to route money through ‘shell’ companies based out of the island nation. These investors saved on capital gains tax liabilities in Mauritius which does not impose these taxes on off-shore entities. A similar treaty exists with Singapore. As a consequence, India receives half of its FDI from just two countries: Mauritius (34%) and Singapore (16%).
Blockchain is a distributed, immutable ledger that records transactions using digital tokens. Its distributed architecture is much like P2P services such as Skype and bittorrent and it uses public key cryptography to ensure complete security for users. The immutability of entries on the blockchain is a key design feature that makes it particularly attractive to industries that lean heavily on trustworthy records, such as banks. But is India ready?
India’s banking regulator, the Reserve Bank of India (RBI), recently released a consultation paper on P2P lending in India. This paper aims at regulating India’s fledgling P2P ecosystem, demonstrating that the RBI is positively besieged with the concerns and realities of this nascent industry.
Although China’s newly issued April export/import data may be worrying on its face, when examined from a different angle, it may tell a more positive story.
In China this year, over 3,700 billion RMB (about 570 billion USD) worth of domestic debt will expire, a record-breaking amount. Many companies will face difficulty in rolling the debt over because of the limited size of the whole bond market. Even if just a small percentage of the whole market defaults, the amount defaulting would still be so large, it could start a crushing storm for an already vulnerable Chinese economy. Many defaulting state-owned companies are from sectors in difficulty as China slows, such as mining and heavy industry. This makes the possibility of default more likely to happen. And in the environment of a slowing debt market, things will probably get worse.
For several years the Indian Government has been pushing larger Public Sector Banks (PSBs) to consolidate the market by acquiring smaller and weaker banks. After failing several times in the past, it seems at least the merger of India's largest bank with its five associate banks will be finalised during this fiscal year.
Capital Small Finance Bank (SFB) was launched this Sunday (April 24, 2016) with much fanfare. This is the first of the ten small finance banks to become operational. The SFBs had received in principle approval from RBI last fiscal to start operations.
Shanghai Gold Exchange started trading a new gold contract on April 19th. The contract is meant to become a global benchmark similar to the gold fix originated in London and New York, but denominated in RMB.
And these are not Fintech startups alone. The banking sector is trying to woo this very important and growing ecosystem in the country. Some banks have resorted to novel ways of doing so. RBL (Ratnakar Bank Limited) has announced opening of a branch in Bengaluru dedicated exclusively to cater to the growing startup ecosystem in that city. This comes close on the heels of SBI recently announcing the establishment of its branch called InCube in Bengaluru recently. RBL bank plans to launch several such branches across the country in the future.
It is well understood that India continues to have acute challenges around financial inclusion. Only 40 per cent of the adults in the country have formal bank accounts, despite the country having 150 domestic commercial banks and over 2,700 co-operative sector banks operating in the country.
Recently DCB Bank became the first bank in India to introduce Aadhar based authentication at its ATMs, starting with its branch in India’s commercial hub- Mumbai. Aadhar provides a 12 digit number to every Indian resident that serves as a proof of identity as well as proof of residence, with biometric scanners being used for authentication.
What’s the golden rule for investment? Don’t lose money. China’s middle class are thinking the same, and people are looking to P2P platforms for ‘safe and high return investment’ until the recent successive P2P company crisis from Jinlu to Zhongjin which has become a nightmare for the families who invested everything on them - the future of P2P products is uncertain.
In early March Citibank announced that it would sell-off its 20% stake in China Guangfa Bank to China Life insurance for USD 3 billion, almost five times more than what the US bank paid for the stake in 2006.
NPAs (non-performing assets) as a percentage of total banking credit in the Indian banking industry has increased to nearly 5% in 2015. This has essentially come from the public sector (state owned) banks (PSBs). 90% of the NPAs in the Indian banking industry are attributable to these banks.
Finance Minister Arun Jaitley presented the Union Budget for 2016-17 and while India’s high economic growth rate of 7.6% was a bright spot, banking related allocations grabbed the most attention.
“I don’t really care about what are the investment projects on the P2P platform or the borrowers’ details. My attention is more on the investment return, since most of the platform provide guaranteed return rate.”
With an estimated USD 1 trillion worth of capital outflows from Mainland China in 2015, it is clear that a subset of Chinese citizens would rather keep their money outside of China. Following the country’s turbulent stock market and depreciating Yuan, an estimated 100,000+ Mainland Chinese citizens have been venturing out to Hong Kong in order transfer more than the stipulated USD 50,000 outside of China through the means of insurance policies.
A recent announcement from China's central bank, the PBOC, now allows banks to remotely open bank accounts, which was previously not possible - there was at least a bank visit and some paperwork needed. The announcement allows customers to open new accounts via their mobile, which should increase competition significantly between the BAT and traditional banks.
Numerous Chinese media outlets are reporting on the latest moves by China's regulators to stop any new internet finance company registrations in China. The announcement is a bit vague as is expected from regulators, but indicates that no new fintech business license registrations will be allowed for the foreseeable future.
China’s Banking Regulation Commission (CBRC) has played with fire long enough, standing on the side and watching the story of online peer-to-peer lending unfold, as it started with a tremendous rise from 2013 to 2014 and to quickly turn into a machine of fraud and risk, potentially damaging countless individuals who were naïve enough to trust this system.
The 12th of December marked the official announcement by China UnionPay (CUP) of the launch of Cloud QuickPass, a mobile payment solutionbased on NFC (Near Field Communication) technology. Tests had been ongoing since May at franchises like McDonald’s, with the backing of the Industrial and Commercial Bank of China (ICBC) and builds on the existing QuickPass NFC technology deployed in many of the current CUP point-of-sale terminals around China.
On November 18th, Baidu announced that it was finalising its private bank plans and would be setting up a banking venture with China Citic bank called Baixin. This was the last of the 3 BAT (Baidu, Alibaba, Tencent) to setup a private bank and was widely expected, although potentially a bit later than originally thought.
China officially dropped its one-child policy by announcing that all married couples would be allowed to have two children. The move had an impact on markets at home and abroad. Shares in companies that make baby products such as diapers, prams and infant formula were up on the day of announcement while shares of popular contraception brand fell. This economic wave travelled as far as New Zealand where the currency of the dairy exporting country surged. The market reacts for a good reason. It is estimated that the relaxed controls would result in an extra 3 million to 6 million babies born annually in the five-year period starting in 2017.