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AI Boosts China’s Fintech Sector

Volume 2, 2017

By Janine Coughlin

China’s finance sector is at the forefront of innovations in artificial intelligence (AI). According to Professor of Finance and Accounting and Zhongkun Group Chair in Finance Oliver Rui, venture capital investment in China’s fintech sector increased by more than 600% from 2014 to 2015. He adds that the volume of internet payment transactions in China grew by 55.4% in 2015 (year-on-year) and the volume of mobile payment transactions increased by 104.2% that year. In fact, he says that between 2009 and 2017 e-banking has replaced 80% of banking transactions in China.

When transactions are processed online, or through mobile payment platforms such as Alipay or WeChat Payment, this provides financial institutions with far more detail about consumer spending habits than cash or credit card payments. “When I worked in a high street bank 30 years ago, we never had the sort of data about our customers that you have today,” says Prof of Strategy & International Business Klaus Meyer. “When Alibaba [Alipay’s parent] is providing loans they have data on consumer spending behaviours through their platforms so they have a good understanding of someone’s use and access to financial resources and can assess their credit risk based on this data.”

This relatively recent shift towards using data analysis and computer models for loan decisions has significantly lowered transaction costs for banks and other financial institutions, says Prof Rui, who is also Director of CEIBS Center for Wealth Management. Not only does this benefit banks and financial institutions, it also helps small and micro-enterprises, particularly those in developing countries and regions such as China and Africa, as it speeds up development of inclusive finance. For example Prof Rui notes that analysts project that the number of small and micro-enterprises in China who receive financing will rise from 11% in 2013 to 30 to 40% in 2020.
“If you look at financial services and the advancements in fintech by PayPal in the US, or M-Pesa in Africa, or Alipay and WeChat Payment in China, it’s changed the landscape,” says Professor of Management Practice Jeff Sampler. He adds that he thinks China is far outpacing the US, particularly in the area of mobile innovation. “In China you have 800 million customers pushing you to innovate every day. That’s an interesting phenomenon,” he says. “I think the US, with all due respect to Silicon Valley, it’s not obvious to me that the game is there.”

However, despite these changes, Prof Rui says in many cases, customers will still require the same services from banks as they always have, they will just use different tools to access those services. “Fintech is basically old wine in a new bottle,” he says. “It is certainly changing the structure of traditional banks, however they are adapting to these changes that technology is bringing about. Ultimately they will adapt and thrive.”