FinTech provides more inclusive financial services for individual users and companies. China, with the highest penetration rate of online payment around the world, enables individual users to enjoy in-depth inclusive lending services. This chapter will portray and assess FinTech's adoption, challenges, and its potentials to China. Based on previous literature, the characteristics of FinTech in China and the roles of government in promoting FinTech to Chinese business will be discussed. This chapter will also select cases from Hangzhou and the Greater Bay Area in order to analyze the opportunities and challenges for Chinese companies integrating FinTech into its business operations.
TopIntroduction
Definition of FinTech
As a combination of technology and finance, FinTech has become the main form of financial innovation in this century. According to the Financial Stability Board’s (FSB) definition (FSB, 2017), lots of technology-enabled financial innovations, such as Peer to Peer (P2P) lending, electronic payment, crowdfunding, cryptocurrencies, are included in the FinTech industry. FSB defines FinTech as technology-enabled innovation in financial services that can result in new business models, applications, processes or products with an associated material effect on the provision of financial services. This definition has been adopted by the People’s Bank of China (PBOC) in its FinTech Development Plan (2019–2021). Before this, FinTech was often referred to as internet finance in China.
FSB also notes that FinTech is low cost and high efficiency as it not only promotes the availability of financial resources and improves the symmetry of transaction information, but also enhances the disintermediation of resource allocation (FSB, 2016).
Literature Review
The development of FinTech and its relationship with financial inclusion have been widely studied. In a study conducted by Croutzet and Dabbous (2021), the impact of FinTech on renewable energy use is examined. FinTech can incentivize the use of renewable energy and helps fund its development. Patwardhan et al. (2018) conducted interview-based studies with FinTech providers and regulators to provide more insight into the potential impact of FinTech development on enhancing financial inclusion outcomes. Hill (2018) discussed the development of FinTech in a global setting, especially in some European countries and in Asia. They reflect on the differences of the FinTech development among countries in terms of banking structure, regulations, institutions, maturation, consumer preferences, and cultural traditions. Hill points out that Chinese FinTech may have the greatest number of FinTech companies and users.
Hill (2018) also indicated that many Asian countries have active FinTech ecosystems. Besides that, various studies have been conducted to examine the FinTech advancement in developing countries. For instance, Lyons, Kass-Hanna and Fava (2021) did a comparative study on FinTech in emerging economies. They also discussed the linkages between FinTech development and financial inclusion. Muthukannan et al. (2021) studied the Indonesian FinTech Ecosystem. Abbasi et al. (2021) utilized firm-level data from OECD countries and examined the association between FinTech and Small and Medium Enterprise (SME) efficiency.
The development of FinTech in China has been widely discussed. Lee, Li, Yu and Zhao (2021) examined whether the development of the FinTech industry affects cost efficiency and the technology adopted for China’s banking industry. Shim and Shin (2016) explored the interaction between FinTech and its yet unfolding social and political context.
Meanwhile, some researchers considered that the development of the FinTech industry also results in new risks (FSB, 2017; Ng & Kwok, 2017; Lee & Shin, 2018; Gai, Qiu & Sun, 2018). Furthermore, with the emerging technology’s significantly accelerated speed and volume of financial transactions, greater volatility and instability of the entire financial market might occur (IMF, 2017). Therefore, measuring the risk level of China’s FinTech industry is important for financial stability (Yao, Li & Sun, 2021).