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 Kohli Ventures
15 February 2017

What can China tell us about the Fintech revolution?

Fintech revolution image

 

You may have heard the recent news, coming from a Citigroup report, that China has now taken over the US in terms of Fintech investment – China now makes up an impressive 46% of all venture capital investments in Fintech, compared to the US’s 41%. It’s news enough to make even the most assured investor sit up and take notice – have we in the West been too slow to adopt Fintech? What is it that’s encouraged China to invest so heavily in Fintech? And if China is now becoming a world leader in Fintech, what can we learn from them to improve our own Fintech sectors?

The Rapid Growth of Chinese Fintech

Just why has China’s Fintech industry seen such massive investment? The first thing to bear in mind is that Fintech investment has risen everywhere – it’s just risen a little faster in China. So why has the US not kept pace? In part it’s the result of a handful of misfires in buzzy Fintech start-ups which has knocked American investor’s confidence – and yet these issues don’t seem to have had much of an impact in China.

Of course, it’s clear that there is still strong investment and interest in Fintech coming out of high net worth individuals in the US. For example, our founder, TejKohli (net worth: $4.5 billion) continues to consider innovative financial technology a key part of his areas of investment, and few investors are likely to pivot dramatically away from investing in Fintech completely. But on the whole it seems that Chinese investors simply have more confidence in their Fintech companies than we in the West have in ours.

The Citigroup report concludes that it is because American Fintech start-ups position themselves as niche, focusing on one particular area, and have a culture of ambitious valuations and unsustainable growth, while Chinese Fintech companies tend to position themselves as respectable online alternatives to traditional banks. Chinese Fintech thus avoids one problem that plagues its American counterpart: the perception that Fintech is a more volatile investment than more traditional financial investments.

What Can We Learn from China?

What’s most striking about Chinese Fintech is its ubiquity – not the province of a patchwork of niche services as in the West, you can find Fintech alternatives for almost any transaction you’d care to make in China. Whether it’s paying your bills or just buying a coffee, it’s those regular, everyday things that Chinese Fintech has gotten so good at capturing – China now has the largest number of people who pay using their phones of any country in the world, with 195 million doing so in 2016. And that day-to-day use of Fintech leads people naturally into using more serious Fintech like peer-to-peer (P2P) services – the Chinese P2P marketplace Lu.com, for example, is valued at $18.5 billion, putting it on a par with plenty of Silicon Valley’s tech “unicorns”.Tk_Image_07

More than anything, this is a question of culture – China has been able to promote Fintech so well because they’ve encouraged a forward-looking culture which rapidly adopts new technologies. New innovations are quickly taken advantage of and embraced in everyday life. So why are we falling behind China’s rapid, forward-thinking growth in this fascinating new area? It’s clear that Fintech’s the future – it’s poised to be an essential part of how we live our lives from day to day.We should learn from China’s culture of progress if we want our own Fintech sector to flourish as fast as possible.

So the truth is that China isn’t beaten us on Fintech simply because their Fintech outperforms ours technically – it’s that, as a country that’s looking towards the future, they’re eager to have an innovative culture that adapts to change quickly. Perhaps that’s the most important lesson we can learn from the story of Chinese Fintech.