China Fintech Passed Disruption Tipping Point, Report Says

  • Fintech firms may have more clients than banks: Citigroup
  • Internet firms taken market share in e-commerce, payments

Financial-technology companies in China have passed a “tipping point” in disrupting the banking industry owing to their surging number of customers, according to a Citigroup Inc. report released this week.

Chinese fintech firms now have a similar number, if not more, clients as the largest banks, according to the more than 100-page report. The country’s major Internet companies have gained considerable market share in e-commerce and third-party payments, and were faster than lenders in offering alternatives to traditional payment methods, Citigroup said.

“In China, unlike the U.S. or Europe, we are well past the tipping point of disruption,” the report said. “China’s e-commerce ecosystem is now larger than any other country in the world in terms of transaction volume.”

Banks around the world from Citigroup to Standard Chartered Plc have been exploring ways to benefit from applying new technology to areas as diverse as lending, payments, trade finance and compliance as they seek to cut costs and improve profitability. Investments in financial technology had grown to $19 billion by December from $1.8 billion in 2010, according to Citigroup’s report.

Retail banking automation alone is expected to be the main driver behind a 30 percent reduction in staff at lenders between 2015 and 2025, Citigroup said. The bank estimates U.S. and European firms will cut about 1.8 million full-time employees in that period, on top of the 730,000 job losses since before the global financial crisis.

The growth of financial technology in China has benefited from the distribution networks of Internet giants Alibaba Group Holding Ltd., Tencent Holdings Ltd. and Baidu Inc. for businesses ranging from payments to lending. More than 416 million people used online payment systems in the country by the end of 2015, up 37 percent from the previous year, according to a report by the China Internet Network Information Center. Mobile-payment users climbed 65 percent, the report showed.

The country’s e-commerce industry is worth about $672 billion and is expected to more than double to $1.6 trillion by 2018, accounting for more than half of global e-commerce, according to Citigroup’s report. China’s peer-to-peer lending business last year of $67 billion was more than four times bigger than the U.S. market, Citigroup said.

Before it's here, it's on the Bloomberg Terminal.