How did the Chinese banking industry respond to the fintech trends?
Sookie Tao, Fintech Specialist, WeBank
Characterized by the widespread adoption of emerging technologies, including ABCD (Artificial Intelligence, Blockchain, Cloud Computing, and Big Data), China has entered the third phase of the fintech evolution. As one of the most affected sectors, the banking industry calls for a sweeping digital transformation to adapt quickly. The outbreak of Covid-19 further underscores the banks’ need to become digitally enabled as people become more reliant on contactless payments, online lending, and other technology-empowered financial services. Chinese banks seek to stay on top of the inevitable trends by strengthening their technology capabilities and shifting strategies and operating models.
The article depicts the landscape of Chinese fintech quoting data and trends in the Finance Technology Report 2020 published by the China Center for Information Industry Development (CCID), with a focus on public banks in three aspects:
1. Fintech Innovation as High-level Principles
China’s central bank, the People’s Bank of China, released a three-year fintech development plan that outlines guiding principles and development targets in 2019, setting the tone for the sector. Following the guidelines, the Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), China Merchants Bank (CMB), and other major banks have tailored their versions of fintech development plans to build up core competence. Banks in China take active measures to put fintech into practice, setting specific goals and making action plans to equip themselves with concrete fintech capabilities. For example:
ICBC: Ranked as the world’s largest bank by asset size, the Industrial and Commercial Bank of China has made a five-year development plan to build a smart banking ecosystem. It works as the high-level principles guiding the implementation of ICBC’s smart banking strategy, leading to the establishment of seven innovation labs.
CCB: CCB has ramped up fintech efforts through mapping out its five-year fintech strategic plan, making fintech one of its “three major strategies”. CCB has established a fintech company and a Fintech Innovation Committee to improve digital operation for a better customer experience.
2. Increase Fintech Investment, Incubate Talents in Particular
Although Chinese banks spend much less on IT investment in comparison with big banks in developed countries, the investment in fintech development of china’s banks continues to rise sharply. According to the Gyroscope assessment system published by the China Banking Association, the fintech investment of mainstream banks as a percentage of the operating income increased from 1% to 2% approximately in 2018. The annual investment in fintech of the whole banking sector approached 100 billion RMB. The following chart shows Chinese banks’ fintech investment as a percentage of their operating income.
The availability of skills is a crucial factor that determines the success of an industry. Fintech is an emerging concept that develops too quickly to have enough specialized talents with combined finance and technology skills. The banking industry is facing a significant shortage of fintech talent. To keep up with the ongoing demands of fintech, Chinese banks step up efforts to increase investment in fintech talent through recruiting more fintech workers and cultivating in-house tech skills. As we can see from the following chart, the China Minsheng Bank has the highest percentage of tech employees, accounting for 39% of the headcount.
3. Deepen Collaboration with Fintech Firms
Many banks began to play the fintech card as they found a way to catch up with the shifting market. An increasing number of banks in China have established wholly-owned fintech arms to gain technology advancement and competitive edges. Chinese banks that have done so include Bank of China, Industrial and Commercial Bank of China, Industrial Bank, China Merchants Bank, etc.
It’s not novel about Chinese banks working hand-in-hand with fintech firms. Partnerships between large banks and fintech benefit both sides: banks gain product-to-market agility and innovative technology-driven solutions. At the same time, fintech firms get business scale and well-established networks from the banking side. In this way, banks and fintech firms together make financial services more accessible and cheaper for the consumers, which improves financial inclusion in the long run.
