China’s incumbent online giants are abandoning efforts to expand directly into the financial sector themselves, to focus instead on the provision of technical services to the country’s established financial institutions according to an opinion piece published by the state-owned Xinhua News Agency.
“On the one hand Alibaba, Tencent, Baidu and other online companies are all ‘de-financialising,’ focusing on the ability of science and technology to energise finance,” said the piece entitled “Internet Companies De-financialise, Financial Institutions Focus on Tech” (互联网机构“去金融” 金融机构“重科技”).
“On the other hand more and more financial institutions are establishing tech subsidiaries…industry insiders believe that the nuanced cooperative-competitive relationship between finance and technology is currently entering a phase of high-speed growth.”
The article points in particular to the recent decision by JD Finance to change its official name to “JD Digital Science” (京东数科), in a sign that the JD.com subsidiary is changing tack.
JD Finance made the name change to its official Sina Weibo, Toutiao and TikTok accounts on the evening of 17 September, as well as changed the byline for its official website to “a data sciences company servicing financial institutions.”
At the Bo’ao Forum held in April JD Finance CEO Chen Shengqiang (陈生强) made reference to “not doing finance,” as well as indicating that in future the company’s financial operations would be transferred to financial institutions.
Analysts believe the name change to “JD Data Science” signals a major shift towards “de-financialisation.”
According to Xinhua heightened scrutiny by Chinese regulators is one of the chief reasons that online giants are withdrawing from direct participation in the financial sector.
“Against a background of strict regulation and financial deleveraging, further expansion of the financial operations of internet companies will face greater pressure….more and more internet companies are making the shift from finance-type organisations to tech companies.
“Baidu Finance executive Zhu Guang (朱光) has clearly indicated that Baidu Finance will not seek a full financial license and share-control rights, and will only obtain the necessary ‘testing fields’ to verify fintech capabilities.
“Ant Financial has already mooted a new tech export strategy with regard to urban service areas including leasing, fee payment, government affairs and healthcare.”
As China’s online giants scale back their financial sector ambitions, in sharp contrast more and more traditional banks are establishing their own fintech subsidiaries, including Industrial Bank Co., Ping An Bank, China Merchants Bank, China Everbright Bank, China Construction Bank and China Minsheng Bank.
These fintech subsidiaries are not only developing in-house operations for their parent companies, but also becoming service providers for other financial institutions.
Chinese banks are also pursuing greater cooperation with tech companies in order to enhance their fintech advantages.
Shanghai Pudong Development Bank recently established the “Tech Cooperative Community” (科技合作共同体) with the execution of memorandums of cooperation with 16 domestic and overseas tech companies including China Unionpay Data, Microsoft, IBM, SAS, Temenos and Teradata.
According to SPD Bank the community will be an “open, joint-sharing, jointly established win-win ecosystem platform” comprised of banks, tech companies and research organisations that will focus on long-term collaboration as opposed to short-term cooperative projects.
Yuan Xin (原欣) from Microsoft China said the company has borne witness to a shift in the development models of commercial banks such as SPD Bank, and will continue to expand its tech R&D investments in the region.
“Techology is the driver of future commercial development,” said Pan Weidong (潘卫东), vice-head of SPD Bank.
“At present commercial banks face many pressures and challenges….the resolution of certain financial service problems is impossible without a tech mentality and tech methods.
“Following the continuous development of fintech, the core competitiveness and services capability of financial institutions will see ‘fusion-style’ increase.”
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