China’s biggest FinTech companies now have a similar number of clients as the country’s top banks, according to a report on digital disruption by Citi. China’s fintech industry has been growing rapidly over the past decade and is dominated by the largest payments and peer 2 peer lending markets in the world. According to Citi, 4 elements have led to the industry’s growth:
- high internet and mobile device penetration in the market;
- a large e-commerce system with companies focused on payments;
- relatively unsophisticated incumbent consumer banks; and
- accommodative regulations.
For a number of years third party payment platform operators have not been subject to a lot of regulation in China. However, China’s central bank has released new regulations for third party payment transactions which will be effective from July 2016. Under the new regulations Know Your Client (KYC) checks must be completed on clients for anti-money laundering purposes and there are annual limits on outgoing payments. Payment platform operators can offer three types of accounts which have escalating regulatory requirements. Accounts with lower annual limits have lower minimum KYC requirements and accounts with higher annual limits have more prescriptive KYC requirements.
Peer 2 peer platform operators are not currently subject to a lot of regulation. However this too will soon change with draft regulations released at the end of last year in response to the high level of fraud in the market. Under the proposed regulations platforms must be registered, customer funds must be held in a bank and platforms are banned from providing a number of other financial services such as setting up asset pools and equity or real asset funding.
Citi’s digital disruption report can be found here.