China fintech groups ride boom to list in US

Fintech changed how the Chinese make payments, transact business, buy insurance, lend money, and invest capital. It also spawned a cohort of start-ups that have listed on international stock exchanges, providing high-growth investment opportunities. But there are also risks.

Last year, China Rapid Finance Ltd, Qudian Inc, Hexindai Inc, Jianpu Technology and PPDAI Group Inc went public in the US.

“The fintech market in China is at least one generation ahead of the US, if not two,” said Schulte Research founder Paul Schulte.

Listing in November 2017, Jianpu Technology Inc is an independent financial platform — essentially, an Amazon for financial services in China. It offers individuals and small and medium-sized enterprises 170,000 products from 2,500 financial providers. For example, users can apply for loans via mobile, and get approved for Rmb5,000 ($790) within five minutes.

“In China, we have people already online that are eager for credit,” said David Ye, Jianpu Co-founder, chairman and chief executive. Mr Ye used his career experiences at PayPal, Capital One, American Express, and America Online to co-found Jianpu’s parent company, Rong360, in 2011. “The fintech space is going to be bigger than social networking, than ecommerce, than travel,” he said.

Jianpu’s Beijing headquarters have glass walls, greenery, table football, dart board, martial arts dummy, treadmills, and brainstorming lounge. The front desk is curved and coloured different shades of blue. Conference rooms are named after Chinese rivers. These design and nomenclature align with feng shui and are intended to represent financial liquidity.

The lobby houses a robot that is about 7ft tall, which Jianpu hopes will become users’ “financial partner.” Employing facial recognition, it scrapes information from China’s national identification system and other sources to make personalised financial recommendations. Jianpu intends to scale the robot down and place them in offices and public domains around the country.

Jianpu has more than 80m registered users and expects to have 200m by 2020. China had 724m mobile internet users last year, many of whom are early adopters of innovative new products. According to the 2017 EY FinTech Adoption Index, 69 per cent of China’s digitally active users have adopted fintech solutions, compared with 33 per cent in the US.

There is little delineation between users’ real and financial lives. E-commerce and other technology companies routinely offer financial services.

Mr Schulte said Alibaba in particular excels at collating information on customers’ civic, personal, and professional lives. “Alibaba has captured on this in ways no Western company can dream of,” he said.

There are hurdles, though, for fintech users, companies, and investors. Consumer privacy is worrisome. A 2017 study by the China Consumer Association found that respondents’ primary online concern was the “disclosure of privacy and lack of protection of user’s personal information”.

For companies, their databases are geographically specific. Chinese enterprises have less data on foreign consumers, which inhibits international expansion.

Hiring candidates with both technological and financial expertise is also arduous. Not all suit-wearing, middle-aged financial services professionals — who are accustomed to plush offices — desire to work with jeans-wearing, 20-somethings in open office environments. “Culturally, that’s very hard,” said the 45-year-old Mr Ye.

Competition is intense. More start-ups, traditional financial services corporations, and e-commerce companies are offering fintech services.

Additionally, technology changes rapidly. To evolve with big data and artificial intelligence, roughly three-fifths of Jianpu’s more than 700 employees are in technology or engineering roles. Mr Ye continues learning, too. Almost five years ago, he enrolled in an EMBA programme at Tsinghua University in Beijing. He hopes to graduate this year. “Lifetime learning is very important,” he said.

For investors, there’s ambiguity around appropriate valuation metrics for this fledgling sector, which meshes finance with technology. According to Mr Schulte, bank stock prices trade at around their book value. Technology companies trade at a premium — six to eight times their book value.

Ron Cao, founder and managing director of Sky9 Capital, an early-stage China technology VC firm, invested in Jianpu and PPDai, where he remains a board member. He said even experienced investors are learning how to evaluate fintech companies. “This is a new breed of companies. So it will take some time for the market to understand them more,” he said.

There is also regulatory uncertainty. In recent years, Chinese policymakers have bolstered oversight of the peer-to-peer lending industry. This benefits consumers and surviving P2P companies, but could wipe out thousands of underperforming companies.

In November, Chinese fintech stock prices suffered double-digit declines on worries of new regulations and under-reported bad debts. Lending company valuations have languished since then. As a technology platform that eschews credit, market, liquidity, and regulatory risk, Jianpu’s shares rebounded.

Mr Cao said innovation sometimes leads regulation, but that Chinese regulators are progressive and their recent crackdowns will be supportive to the market’s long-term development. “That’s good for entrepreneurship because we know the [regulatory] direction. The worst is no man’s land,” he said.

For successful companies, there is a lot at stake. According to JPMorgan research, China’s fintech market could grow 44 per cent annually, with the industry’s total revenue in 2020 reaching Rmb460bn. The Boston Consulting Group forecasts that China’s individual investable assets will hit Rmb220tn by 2021.

Mr Ye said another 300m-400m Chinese need financial services. “They want to borrow. They want to buy insurance. They want to invest. They want to get their first credit card,” he said.

According to Brookings, there are 27 fintech “unicorns” — or start-ups with valuations of $1bn or more. Nine are in mainland China or Hong Kong and 12 are in the US. With market growth, more start-ups are expected to go public, and many will opt for listings in the US.

Source: Financial Times

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