China represents a golden opportunity for UK fintechs.
Last week Chancellor Philip Hammond hosted China’s Vice-Premier Ma Kai for trade talks in London with mention of a “golden era” of relations between the two countries.
The UK’s relationship with China is viewed as being more important than ever as the country looks to expand its trading horizons in the wake of the Brexit referendum vote.
In the meeting between Hammond and Ma Kai it was announced that the Chinese contractor CITIC Construction would be invested £200m in the first phase of the £1.7bn London Royal Albert Docks project, which is being headed by the Chinese developer ABP.
In return the UK is to invest up to £40m in the Asian Infrastructure Investment Bank in a fund that is designed to help developing countries to create infrastructure programmes.
Trade relationships are in place with China and Brexit promises an opportunity for much deeper relations with what is a huge Chinese market.
For UK fintechs that are looking to expand there is a clear but challenging opportunity to break into the Chinese market, one that strong relationships with the country would surely help.
China presents an opportunity that is even greater than the US market. According to the Credit Suisse 2015, Annual Wealth Report, China already has 109 million middle-class adults while the USA has 92 million. It also has 568 billionaires, compared to 535 in the US.
By 2022 a McKinsey report predicts that 54% of China’s population will be considered in the upper middle class, earning between $16,000 – $34,000. This highlights the rapid market growth opportunity in a class group that would fit the kind of demographic that UK fintechs are aiming at.
China represents a good opportunity now because Brexit has left many with questions that remain unanswered. The result left fintechs questioning as to how the UK will trade with Europe following the country’s departure from the union and the financial services sector is rightly concerned that it will lose its place as a financial hub.
For fintechs the concerns match the incumbents in the market but perhaps pose a bigger threat due to the smaller new market entrants because Europe is the likely first step for those that are expanding their horizons beyond the UK.
It is widely accepted that the UK’s fintech sector is one, if not the, best in the world, highlighted by the sector generating over £6.6bn in revenue and employing over 61,000 people in 2015. The diverse sector offers things like alternative finance, payments services, online-only banks and blockchain.
On the 11th of November a group of some of the leading business men and women from the UK and China met at Level 39 to talk about, ‘UK – China Collaboration in FinTech’.
Co-organised by the Department for International Trade (DIT) and the National Internet Finance Association of China (NIFA), the event welcomed senior executives from the likes of Accenture, Deloitte, EY, the FCA, Barclays, HSBC, Lloyds Banking Group, and many more. Numerous figures from Her Majesty’s Treasury were present as were the likes of Shengqiang CHEN, CEO, JD Finance, and Dr Long CHEN, Chief Strategy Officer, Ant Financial.
The lengthy list of names from senior positions across the UK and China highlights the level of importance that is being placed on the potential fintech collaboration between the countries.
At the event, which was attended by CBR, came the launch of EY’s report, ‘China and UK FinTech – Unlocking opportunity,’ which is a dubbed a guidebook to building a leading partnership between the China and UK fintech sectors.
Commissioned by HM Government, the report aims to shine a light on the what a UK and China fintech relationship could bring to both countries, how both can benefit.
For starters, it is clear that at least some of China’s biggest companies are looking to expand into Europe and the US.
Dr Long CHEN, chief strategy officer, Ant Financial, said: “Globalisation a major priority,” but EY’s global head of fintech, Imran Gulamhuseinwala, said: “Exporting Chinese business models in same way they were created will be frustrating.”
The two countries bring their own strengths, and weaknesses, when it comes to fintech. The EY report says that the UK’s fintech sector is underpinned by its world leading policy environment, and development of technologies such as blockchain.
These are core components that can be leveraged in seeking new markets to expand to, such as China.
China’s competitive advantage comes in the area of strong investment, in 2016 it’s estimated that investment in the area has hit £6.5bn and the sector has been personified by a handful of tech giants, such as Ant Financial, Tencent, Baidu, and JD, all of which provide fintech solutions across a variety of subsectors.
Read on to find out how China is so unique.