Fintech wave sparks investment funds

Chinese banks have moved to set up investment funds to acquire overseas financial technology companies, hoping to harness tech innovation in the financial sector, or the so-called fintech wave that is poised to disrupt the traditional banking business.

Fintech involves new technologies like machine learning, predictive behavioral analytics and data-driven marketing, as well as improved data analytics that help institutional clients further refine investment decisions.

Smaller joint-stock commercial banks and city commercial banks in China are taking the lead, and some will soon establish their own fintech funds, says Nicole Zhou, associate partner at consulting firm McKinsey & Co.

The move is being seen as an answer by the banks to the challenges posed by the flourishing internet finance sector and their response to the rapid rise of digital banking in China, says Zhou, who has been advising her banking clients on digital strategies.

She says the first batch of these funds will probably be announced within months, although she declined to name the banks involved.

Setting up overseas investment funds will still be subject to regulatory approval on foreign exchanges and the relaxation of investment restrictions on commercial banks. But analysts say the fintech trend is here to stay and direct investment into technology firms would be an effective way for Chinese banks to acquire vital technology and resources.

"The fintech wave is an unavoidable trend and will have a huge impact on banks, many of which have difficulties in developing their own technology capability given their current corporate resources," says Zeng Gang, director of banking research with the Chinese Academy of Social Sciences' Institute of Finance and Banking.

"If so, the most effective way for the banks will be investing directly into fintech firms rather then developing their own technology ecosystem."

The internet finance market in China has been growing fast, with McKinsey & Co putting the total market value at 12 trillion to 15 trillion yuan ($1.82 trillion to $2.28 trillion; 1.62 trillion to 2.03 trillion euros) last year, accounting for nearly 20 percent of China's GDP.

The People's Bank of China, the central bank, has also been exploring the feasibility of launching digital currency and weighing the blockchain technology, a technical innovation of bitcoin, which will prevent financial transaction records from being tampered with and revised.

The developments in China reflect a global fintech wave that poses a challenge to operations in the traditional financial sector. Fintech companies have been using new technology including big data, cloud computing, blockchain technology and mobile internet to disrupt the business model of traditional banks.

Last year, the fintech sector attracted a record $19.1 billion in investment globally, nearly eight times the amount in 2011, according to McKinsey & Co.

lixiaong@chinadaily.com.cn

( China Daily Africa Weekly 06/17/2016 page30)