Fintech startups in China look set for a bumpy ride in 2016, as the Government backtracks on legislative easing and the big banks prepare to reassert their dominance over the management of consumer finances, according to J Capital Research.
China has been singled out as a bellwether market for fintech innovation as the government opened up competition in the banking sector and the country's giant e-commerce conglomerates Baidu, Alibaba and Tencent advanced on the sector.
Fintech startups hoping to hitch a ride on the reformist agenda may be in for a rude awakening, warns J Cap, which is forecasting mass consolidation and multiple failures as the era of cheap money comes to an end, exposing unsustainable business models.
The Hong Kong-based research firm singles out the rise in US interest rates, a reversion of capital inflows to outflows in China and the action of the country's central bank to slash interest rates as creating a perfect storm for the country's emerging fintech sector and e-commerce giants alike.
It points to a decline in returns for private sector payments revenues as capital dries up and margins are squeezed, pushing P2P lenders out of business and raising entry costs for all but the most large-scale operators. While Western alternatives to banks have been forced to compete on service and product innovation, Chinese firms have relied on the strength of the Renminbi to guarantee a solid return on consumer money held in the float.
States JCap: “It’s very likely that China’s e-commerce companies, far from representing the rise of consumption in China, are creatures of China’s Era of Capital and will fall like stars."