After years of regulatory freedom, Chinese fintechs are facing increasingly restrictive laws. Chinese financial regulators are trying to get them to adopt a business model closer to that of traditional banks.
A new regulatory framework
After years of allowing fintechs to develop without much regulatory constraint, China's central bank is now multiplying bills and restrictive measures for non-bank payment institutions.
As revealed in an Institut Montaigne study published on April 22 by Viviana Zhu, Research Manager, "the lack of regulation on non-bank mobile payment systems has enabled companies like Ant Group or Tencent to grow and reach a critical size to withstand competition and compliance costs."
However, the regulators' tone has changed: in November 2020, Ant Group, the Chinese fintech giant and financial arm of e-commerce platform Alibaba, had its IPO suspended by the Chinese stock exchange authorities. According to the government, the decision was aimed at "maintaining the stability of financial markets and protecting the interests of investors".
China's central bank has also introduced anti-monopoly measures for the first time: from now on, an antitrust investigation will be triggered when 2 players in the electronic payments sector alone hold more than 50% of the market share. This is precisely the case with Alipay, which holds 55% of the market, and WeChat Pay, which holds 38%.
Chinese fintechs likely to expand in Europe
According to Viviana Zhu and the survey, "China's FinTech: the End of the Wild West", Chinese fintechs could well be serious competitors to European players in the coming years.
While their presence on the Old Continent is currently limited, unlike that of the American Tech giants, expansion in Europe is not out of the question, even if it is not currently their priority.
Their performance in data collection and processing makes them particularly competitive. However, they will have no choice but to comply with European data protection regulations.
Despite these constraints, the Institut Montaigne study considers that "Chinese platforms possess important assets for international expansion in the financial technology sector." Among these assets, Viviana Zhu mentions "their long experience in the field" and "the quality of their technologies based on access to unlimited amounts of domestic data."