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Fintech As a Pathway to Financial Inclusion? The Case of China

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Microfinance Gateway | Douglas Randall & Jennifer Chien| Apr 2018

Toward financial inclusion in China - Fintech As a Pathway to Financial Inclusion? The Case of China

Two Chinese fintech models illustrate the opportunities and risks involved

Douglas Randall is a Financial Sector Specialist and Jennifer Chien is a Senior Financial Sector Specialist in the Finance, Competitiveness, and Innovation Global Practice, World Bank Group. 

The opportunities and risks of fintech are front of mind for financial sector policymakers these days, and many are looking to China for inspiration and guidance. The Chinese experience has undoubtedly demonstrated that fintech – i.e. new, technology-driven financial sector players - can transform how consumers make payments, save, borrow, invest, and insure themselves against risk. But this experience also comes with caveats and cautionary tales. These topics, along with many others, are discussed at length in a new report on China’s financial inclusion experience co-authored by the World Bank and the People’s Bank of China.

The report explores two fintech models in China that serve to illustrate both the opportunities and risks of fintech: (1) nonbank digital payment providers, and (2) peer-to-peer (P2P) lending platforms.

Nonbank Digital Payment Providers

Alibaba and Tencent were originally established as an e-commerce and social network company, respectively. But both are now major players in the retail financial services market. This transformation began with the integration of payments functionalities into their existing online networks. Alibaba’s first foray into financial products was Alipay, launched in 2004 to facilitate transactions and build trust between buyers and sellers on Taobao, Alibaba’s online marketplace. Similarly, the integration of a payments product into Tencent’s social media platforms WeChat and QQ has proven to be a massively successful model that allows users to blend social and financial interactions, including sending gifts or remittances.

Fast forward a decade, and hundreds of millions of customers now use payment services offered by nonbank digital providers like Alipay and Tenpay, as well as a broader range of financial products offered by Ant Financial, a group of companies of which Alipay is a member. Alibaba and Tencent were leaders in opening up digital payments to nonbank players. The result is a dramatic evolution towards a cashless society in many major urban areas in China. The Chinese experience has shown that online, network-based business models can facilitate the design and delivery of innovative financial products by leveraging technology, network effects, big data, and cross-subsidization opportunities.

See: China’s Alibaba bringing online payment platform AliPay to Canada

But while fintech has certainly improved the availability, convenience, and affordability of financial products for consumers within these large online ecosystems, there is less consensus on the degree to which nonbank digital payment providers have reached unbanked, "last mile" consumers in China. Consumers who do not use social media or e-commerce platforms - disproportionately the poor, rural, and elderly - may receive limited financial inclusion benefits from such models. The scarcity of robust data and analysis poses a further challenge in determining the degree to which fintech providers reach "last mile" consumers.

In fact, much of the progress achieved in reaching the “last mile” with basic transactional products has been accomplished by traditional financial service providers. For example, China has nearly one million third-party retail agents operating on behalf of a financial service provider, with many agents operating in villages not otherwise covered by bank branches. Less than 5% of these agents have been established by nonbank digital payment providers. The channeling of social transfers through bank cards and via agents has also been a significant contributor in reaching previously excluded adults.

P2P Platforms

In the credit space, fintech providers have similarly disrupted the status quo. New digital credit providers have emerged, including internet banks, online microcredit companies (MCCs), and P2P platforms. In particular, P2P platforms seized on the significant market opportunity to reach creditworthy retail customers neglected by traditional financial service providers focused on serving larger enterprises. P2P lending platforms began gaining steam in the Chinese market about ten years ago, and there are now over 2,000 such platforms serving over eight million borrowers in China.

See:  Central banks should consider using digital currencies: China think tank

Unfortunately, there have been numerous instances of consumer abuses in the P2P industry. Many lenders/investors were led to believe that their funds were channeled to a specific borrower or that their loan was guaranteed by the P2P platform – beliefs that often turned out to be false. There were also cases of outright fraud. In one high-profile case, the company Ezubao was shut down in 2015 after authorities discovered it had been operating a Ponzi scheme in which fraudulent investment products were sold to nearly one million investors.

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NCFA Jan 2018 resize - Fintech As a Pathway to Financial Inclusion? The Case of ChinaThe National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:

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