Latecomers and small players in China’s finance technology (aka fintech) space will need to identify and carve out market niches to survive, because the country’s tech giants already offer integrated platforms for financial services, said a Beijing-based lawyer. 

Small players and newcomers are concerned by the dominance of fintech leaders, particularly the so-called BAT (Baidu-Alibaba-Tencent).

“Winners-take-all has become a norm but [this is] also a concern for others,” said Davis Wang, China head at law firm Simmons & Simmons. “The leaders are doing everything, they are offering full-packed and integrated services in fintech.

“Five years ago, Alibaba would try to leverage the infrastructure of banks like ICBC (Industrial and Commercial Bank of China). There were battles, but now they are aligned.”

Wang was referring to Ant Financial, Alibaba’s financial service arm, which has gained investments from mainland bank China Construction Bank (CCB) and Postal Savings Bank of China’s parent group.

The strength of the BAT has left would-be fintech investors leery of investing into smaller companies that could end up in competition with them. 

“If you talk to venture capital investors, they are so careful about whatever [fintech companies] they are going to invest,” said Wang. “If the BAT can move into that space quickly, then the new players will be very cautious because it would be difficult for them to make a case.”

“The new players will need to find their niche,” he added. “BAT are technology giants, but they have a learning curve in every specific area.”

He pointed out Shanghai-based howbuy.com, a third party fund distributor, as an example of a company that has found its niche in fund distribution in the past few years. 

Other players

While the BAT are the most powerful players, several other large fintech companies are also making headway.

Wang noted traditional financial firms like Ping An group, mainland’s second largest insurance firm in terms of assets, has set up its internet financing platform LuFax; while Shanghai Pudong Development Bank has aggressively moved into fintech space by launching its internet platform called “spdb+”.

These fintech platforms usually offer a range of services, including mutual and private fund sales, peer-to-peer (P2P) lending, wealth management products, fixed term deposit products and insurance policies.

Other mainland tech firms such as Tencent, Baidu, JD.com, smartphone giant Xiaomi and travel agency Tuniu have set up their integrated platforms in the past two years, after the huge success of Alibaba's success in money market fund product Yuebao, which launched in June 2013.

“They usually have good information to leverage [the fintech development]. For example, [Ant Financial’s] Alipay owns a lot [consumer] data which can be used,” Wang said. “They also can enter another market easily, so why leave such opportunities to other competitors?”

China’s fintech market is expected to grow 27% each year between 2016 and 2020, expanding from $441 billion in 2016 to $1.15 trillion in 2020, according to internet statistics provider Statista.

In a briefing on Wednesday in Hong Kong, Simmons & Simmons pointed out that the speed of fintech expansion in China has not been without difficulty, such as the pain suffered by end users in the recent P2P frauds, which took place in part because of loosened regulations in fintech service innovation.

Wang said the potential consolidation between People’s Bank of China, the China Securities Regulatory Commission (CSRC), the China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC) Chinese central bank would hopefully help to improve fintech regulation.

The central bank and three financial regulators could consolidate and establish a new financial supervisory commission as early as this June, reported the Hong Kong Economic Journal in mid-April. The newly established National Internet Finance Association of China (Nifa) is also closely watching fintech development.