Digital Wealth – Shùzì cáifù – in China

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Heading into 2015, China had US$21 trillion dollars pent up in bank deposits. With such a large, investment hungry population with so much ready-to-invest capital, anyone with a WealthTech business idea can only start salivating.

Be careful and contain your excitement around this huge single market opportunity. There is no doubt that strong favorable winds are blowing in China because of:

  • Very high internet penetration
  • Reduced anxiety over data privacy
  • The internet of finance birthplace
  • Government support for innovation
  • A nationwide credit scoring system underway
  • Openness to Collaboration of restrained banks with fintechs
  • Capital looking for investments

On the other hand, look at who is already positioned in China to offer wealth management products and examine how they are delivering these services.

The Internet of Finance refers to financial services delivered through digital platforms (digital from birth).

Digital money-market type of funds

The money-market funds typically sold by the Charles Schwab’s or the HSBC’s in the West; are offered e-commerce giants in China. We are all familiar with the Yu’e Bao fund of Ant Financial (Alibaba when it was launched in June 2013), which by the way was met by the media with great skepticism since there were already more than 200 such funds in the Chinese market. Was it for small-size savers or was it for typical clients of wealth mgt services at banks?

To cut a long story short, the remarkable path of asset accumulation (summer of 2016 AUM 772 billion yuan (=$116 billion)) is even more stunning as the AUM growth occurred even though rates of return declined.

The fund started with initially offering 7.5% interest rates compared to 0.39% maximum interest rate that China’s national banks could give out. The Yu’E Bao rates are now only able to pay out an annual interest rate of 2.5%.

The fund is run by Tainhing Asset management and integration with Alipay, facilitated the growth of the retail user base. By mid 2016, there were close to 300,000 users reported.

Li Cai Tong’s fund by Tencent and Baifa fund offered by Baidu; are also major players in this space which continues to incentive users by offering better rates and better user experience.

Stock Trading apps

Broader Fintech type of activity in China is seen in the PFM space both from the e-commerce giants and the P2P lending platforms. Stock trading apps have been launched by several such platforms and are the first signs of integrated platforms that address investment and funding needs of individuals and their businesses.

These apps offer access to trade-invest in A-shares and mutual funds or structured products that are more diversified options. They are all heavily used by brokers (over 90% of usage) who form their end, tap into the growing customer base of these tech businesses. Some of the players are the ever present trio BAT, JD finance, Credit Ease, Wacai, and Tongbanjie. The latter two are standalone Chinese mobile apps. JD Finance is the financial subsidiary of e-commerce giant JD. They are in the process of following restructuring the organization and following pretty much the spinoff steps of Alibaba-Ant Financial. Credit Ease, run by publicly traded Yirendai (NYSE: YRD) was setup as both a lender (small business and consumer) and a wealth mgt business focused more on the middle and upper end of the wealth spectrum.

In addition to these local players, there are already noteworthy moves from foreigners positioning themselves through local partnerships in the stock, fund trading space. These strategic moves makes sense given the much anticipated increase of the limit for Chinese individuals for overseas investments and at the same, establishing a sensible presence in the local market.

Currently, Chinese investors can only trade overseas equities through the “QDII = Qualified Domestic Institutional Investor” framework which offers quotas to select institutions, which in turn channel to each Chinese citizen an annual exchange “allowance” of US$50,000.

Robinhood, the US-based free stock trading app, formed a partnership with Baidu in summer 2016 to tap into the mass market of Chinese citizens by offering them US stock trading access. They also launched their Chinese app, named Luobin Xia (罗宾侠), for US citizens in mainland China.

Another different partnership of two Asian Fintechs and an established global financial service provider originating from Europe, is that of Saxo Bank, WEEX, and Lean Work. The Chinese online trading platform WEEX of WallStreetCN, partnered last summer with Saxo Bank, the Danish-origin multi-asset trading business, and Fintech startup LeanWork to tap into the mass market of Chinese speaking users. Lean Work is a Shanghai based startup, focused offering cloud based risk management, back office, trading and brokerage solutions. The 15million monthly users of the WallStreetCN financial media business (a 3yr old financial content startup) will gain access to over 30,000 instruments via this integration.

Brokerage, social trading, robo-advisors

The lines between stock trading apps (linked to third-party brokers) brokerage businesses with bells and whistles, and robo-advsiors; are blurred. The grouping I have chosen is more for the sake of simplicity.

Tiger Brokers (Bejing based) is a 2yr old Fintech broker targeting the overseas investing market segment (Hong Kong and US). One of the largest mainland China brokers, Citic Securities (Shengzen based) participated in the Dec 2016 Series B funding round ($29mil) which will be used mainly to boost Tiger broker’s big data capabilities in financial advice. Xiaomi participated in the Series A round.

Jimubox (Bejing based) the Xiaomi backed marketplace Fintech, launched a trading app mainly to serve the overseas channel, the Jimustock app.

Snowball Finance (Bejing based) is a Fintech with a social information and investment platform that plans to add brokerage capabilities (Sequoia Capital participated in their $40mil series C in 2014).

ChaoTrade, is a newly launched social trading Fintech platform.

At the same time that Robinhood launched Luobin Xia, 8 Securities launched their free-trading app in Hong Kong, with an AI feature, Chloe, that can educate and help users in their investment discovery process.

In the summer of 2016 which is clearly a turning point for the Digital wealth space in China, CreditEase launched a robo-advisor in mainland China, ToumiRA. The offering allows overseas investing via ETFs instead of the expensive and non-transparent way of managed accounts. ToumiRA was launched in partnership with the US based B2B robo-advsior DriveWealth.

Pintec is the other significant player in mainland China. Pintec is a Fintech group that spun off Jimubox. XUANJI is their robo-advsiory offering launched also in summer 2016. They have an onshore and offshore version; and they have a B2C offering in addition to a white liable offering.

Digital apps using machine learning for investment advisory are:

Micai Fintech launched in Spring 2015

Clipper Advisor, launched out of California and with a motto “the Wealthfront of China”.

Our Chinese Fintech startup coverage in this post on wealth management is focused on the B2C segment. Hong Kong is booming right now with B2B offerings that mainly targeting the South East Asian markets (Indonesia, Malaysia ect). Another post will cover those trends.

Wealthtech China

China is leading in the integrated digital wealth management movement.

Credit Ease, is one Fintech launched with that mission; the PINTEC group is similar in its broad scope and aim to become a full range financial services provider. Alibaba, Baidu, Tencent, JD, the e-commerce tech giants, are spinning off subsidiaries and taking the lion’s share from Fintech funding (skewing global reality also, with the huge lump-size funding rounds) and dominating the financial services space. They are leading the way of digital cross-selling.

In a report recently published by EY and DBS on “The rise of Fintech in China” it is noted that:

“ The willingness of Chinese consumers to adopt FinTech services is striking. Forty percent of consumers in China are using new payment methods compared to 4% in Singapore. Thirty-five percent are using FinTech to access insurance products compared to1-2% in many Southeast Asian markets. There are also significantly higher rates of FinTech participation in wealth management and lending.”

Happy new year China.

Thank you April Rudin for tweeting the jewelry designs for the New year in case your gold allocation has some room.

chinese-jewelry

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.

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