Traditional financial centers such as London and New York are witnessing increasing pressure from Chinese cities such as Beijing and Shenzhen which are quickly becoming front runners in the fintech race.

By many measures, China can already be considered the world leader in the fintech industry, counting 500 million fintech users and an overall market size exceeding RMB 12 trillion (US$1.87 trillion) by the end of 2015.

The rise of fintech in China has been fueled by the government’s supportive policies and loose regulatory environment, the country’s unique technology ecosystem, and the large pool of individuals and small and medium-sized enterprises (SMEs) that are underserved by the conventional financial sector.

And while fintech in China has flourished in the past years, further growth is expected for the year ahead.

Power shift from west to east

According to Brett Diment of Aberdeen Standard Investments, fintech will increasingly be associated with Beijing, Shenzhen and Hangzhou in 2018 instead of the other more traditional hubs like London, New York and Silicon Valley.

Diment attributes the rapid ascent of fintech in China to the extent of smartphone penetration. Around 60% of Chinese people own a smartphone, which is more than Japan or France. And as smartphone penetration continues to growth, so too will the market for fintech products.

In particular, he cites the case of online payment in China, which has grown tremendously in the past years and already accounts for around half of global transactions. In addition, Chinese consumers are increasingly using mobile technology to borrow and invest, and B2B finance is also taking off. Diment expects digital wealth management products to grow rapidly in 2018 with customers already responding enthusiastically to the trend.

“In 2018, [fintech] products will cover a wider range of financial services. Fintech firms are now looking now only to disrupt banking, but to compete with insurers and property companies too,” Diment wrote in a post. “As 2018 unfolds, we’re increasingly likely to associate fintech not with Silicon Valley, but with Beijing, Shenzhen and Hangzhou.”

Chinese fintech giants set to grow even bigger

China’s large pool of venture capital firms will not only help the local startups scene thrive but will also accelerate the growth and expansion of Chinese fintech giants including Alibaba and Tencent into other sectors and markets.

Ant Financial, the payment affiliate of Alibaba, has already expanded into the property rentals market, allowing users to directly rent apartments on its Alipay app. Meanwhile, Tencent has secured a license to sell insurance products on its popular messaging apps WeChat and QQ.

These giants are also expanding their operations overseas. Alibaba has established joint ventures in Hong Kong and Indonesia, and is investing in India, South Korea and the US. It is also setting up a global research academy, with labs in Beijing, Hangzhou, the US, Russia, Israel and Singapore. Meanwhile, Tencent has been investing in India’s e-commerce sector and building partnerships in Thailand, South Africa and Europe.

Insurtech: more investments and more IPOs

For Zarc Gin from Insurview, an online news portal specializing in the Chinese Internet insurance industry, the fever of digital insurance will reach a new level with considerable funding rounds and IPOs to occur in 2018.

“Because of the successful IPO of Zhong An, investors are looking for the next big name in digital insurance,”

Gin wrote in a blog post.

“My forecast is that Ping An Health Internet, a Ping An Group subsidiary, will be the first insurtech IPO this year.”

Ping An Health Internet already received the go-ahead from the Hong Kong Stock Exchange for a listing, the company said in January.

Gin predicts fiercer competition in the digital health insurance space following the launch of Wesure in 2017, another player in space that joined Zhong An’s Exalted Life and Ping An’s E-life.

Opportunities for B2B and non-financial core companies

B2C startups have been in fashion in the past years, but the years ahead are likely to put B2B and non-financial core companies under the spotlight.

Companies that are not usually viewed as being inside the fintech industry, notably those specializing in Big Data and artificial intelligence (AI), will be more and more in demand by the bigger fintech players and their growing customer base.

Given the importance of the collection and analysis of Big Data to the industry, there will be opportunities for companies in the sector to collaborate with fintech players that do not have the capability to do this by themselves.

AI companies can collaborate with fintech players too as AI can be used, for instance, to eliminate or reduce face-to-face interaction, and, consequently, cut costs. Baidu’s stock trading app StockMaster already uses AI to predict share price changes.

Featured image: Shanghai, China, Pexels.