China fintech seen shifting towards corporate users

The focus for fintech in China is changing from end users to businesses, not least small businesses, according to the financial affiliate of one of China's biggest e-commerce groups.

In an interview during Fintech Week in Hong Kong, Meng Zhaoli, the dean of JD Finance’s fintech research institute, outlined where she thinks the greatest potential for revenue growth lies.

The short answer is the corporate sector: “In the next five years, the fintech market will shift from a business-to-consumer (B2C) mode to a business-to-business (B2B) mode,” she told FinanceAsia.

By B2B, Meng in large part has B2SME in mind, in keeping with state-sponsored Chinese efforts to reduce the funding costs of its small and medium-sized enterprises (SMEs).

And behind that lies a clear national interest: how best to use new technology to improve productivity in traditional industries to support Chinese economic growth.

Meng said JD Finance, which raised almost $2 billion from its last funding round in the summer, maintains a competitive edge in the services it already provides to SMEs -- a central plank of its B2B push. The fintech arm of JD.com provides loans totalling Rmb500 billion to more than 200,000 Chinese SMEs.

“We focus on issuing loans of between $28,900 to $144,300. This is a blank market for traditional banks, as the cost of managing loans is too high for them and revenue is low," she said. "We are solving this problem with fintech, completing due diligence with fintech.”

That chimes with China's Small and Medium Enterprises Promotion Law, which was revised last year to encourage financial institutions to lend more to this sector and expand into rural areas, allowing them to harbour a greater proportion of non-performing SME loans on their books.

But JD Finance, Meng said, wants to go further, in line with what becomes possible with the relentless application of ever-changing new technology.

“Fintech companies already have some mature technologies such as algorithms provided on a municipal basis, like big data and algorithms for smart cities," she told FinanceAsia. "We are trying to use these kinds of technologies in more areas by creating the right application scene.”

“Companies used to sell cloud storage services alone,” Meng said, by way of example. “But where a bigger market lies is how this cloud data can help to improve company efficiencies. Apart from the cloud storage services, we also provide cloud computing and data analysis to help business reorganisation. This is where we will focus on.”

PLATFORM

JD Finance is also reducing the amount of its own capital that it lends to SMEs and looking to act as more of a conduit for financial institutions, to better comply with Chinese financial regulations.

One way it is doing that is via the asset-backed security platform it launched in June. Using blockchain technology to monitor sales and control risk, it provides institutional investors with a stronger grasp of the underlying assets.

The platform also helps to meet the demands of regulators, Meng said, since they need to be able to keep up with new financial developments and track down assets to manage default risks.

But there is still a lot more that could be done, given the huge amounts of additional data that is still to be collected as 5G spreads and the cost falls and as other technologies such as machine learning and the Internet-of-Things go from strength to strength.

"We can expect more changes to come,” Meng said.

And to identify and commercially exploit the new opportunities as they arise, fintech companies like JD Finance will need to work closely with other professionals from other industries, she added.