Important Issues on Financial Technology in China and US

Fintech in China and US
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Fintech in China and US
Fintech, which is stands for financial technology, refers to the use and development of financial technology systems to make financial transactions easier (Hernбndez, Цztьrk, Sittуn, & Rodrнguez, 2019). It is estimated that there have been more than 55 billion dollars invested in the Fintech industry globally, and the figure is poised to double given the increase in demographic trends in the world. China and the United States (US) have established some of the best financial technology systems in the world, as most developing countries look up to them for benchmarking. Various factors have driven the growth of Fintech in China and the US. Low levels of banking system penetration are one of the factors that have enhanced its adoption in both countries (Richman Centre News, 2019). The paper focuses on factors contributing to the growth of the Fintech industry in both China and the US, current issues in Fintech, and merits attributed to financial technology.
Demographic change is one of the main issues that has led to the explosive growth of Fintech in the world. For example, China has experienced a significant increase in its middle-class population, which demands more sophisticated and more uncomplicated financial services. The modern population demands easy and fast payment activities to wealth management (Richman Centre News, 2019). This has led to the development of mobile applications in conjunction with the banking systems to enable subscribers to make payments and withdrawals without necessarily going to the bank physically. In the United States, there has been more significant growth in Fintech companies.
Table 1: US Fintech top Firms (Kauflin, 2019)
Company NameCompany Value (billions)Stripe Company 225.5Coinbase Company8Robinhood Company 5.6
As shown in table 1, some of the biggest Fintech companies in the US include Stripe valued at 22.5 billion dollars, Coinbase at 8 billion dollars, and Robinhood Company valued at 5.6 billion according to Kauflin (2019). This is due to the demand that continues to expand by the day. It is also important to note that the increase in population has made it difficult for the incumbent financial institutions to serve the increasing number of customers in the market, especially in China. Nevertheless, in the US, the rise of Fintech is meant to give the population alternatives and convenience in financial institutions (Kauflin, 2019).
Emerging Trends in Fintech
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Figure 1: Current Issues in Fintech
Companies, as well as consumers, are looking for ways to reduce the use of energy and use of natural resources by going green, as shown in figure 1. The creation of technology that reduces energy usage in financial systems such as the use of energy management software like an intelligent energy management control system helps companies to devise ways of reducing energy consumption and reduction of costs (Hernбndez et al., 2019). Fixed costs due to economic conditions and regulations in the financial market ensure that people have to come up with relevant software that would be able to monitor firms to ensure that they comply with specific regulations. It is also important to note that there have been financial failures in the market due to increased technological hitches. For instance, during the Facebook IPO, when some of the clients purchased the shares at the wrong price. Knight Capital also suffered a technological breakdown that significantly affected its market value (Kauflin, 2019). Legal systems in most financial institutions are obsolete. Integrating these systems with newer systems tends to be time-consuming, complicated, and expensive.
Merits of Fintech
The reduction of operating costs for both financial institutions and consumers has led to more development in Fintech. The use of technologies such as PayPal as a form of payment internationally has reduced the costs that customers and banks incur significantly as well as increased the ease and speed of completing a transaction (Richman Centre news, 2019). This has forced banks to integrate these technological applications into their systems to stay relevant in the market. This has reduced the time and costs involved to sign and authenticate checks and cash transfers. It is also important to note that financial companies that acquire already established tech firms also boost their customer base, which increases their revenues in the long run. An example integration of the Zelle payment tool into mobile banking applications by both Chase Bank and Bank of America.
Advanced security for customer data in financial firms is enhanced as more firms invest heavily to provide this service to financial firms. The use of encryption and biometrics has ensured that money and vital customer information is not accessed by third parties that would result in loss of financial information of customers. The creation of personalized services that are consumer-oriented has been eased by the application of Fintech, which creates convenience for consumers (Hernбndez et al., 2019).
As established by Qian (2019), China remains the largest fintech ecosystem globally in this age and time. This is attributed to the fact that China is currently dominated by some of the biggest giants in the market that include Ant and Tencent, besides other hosts of organizations that are making significant efforts directed towards filling the gaps that exist in the underserved markets. Recent reports by Qian (2019) revealed that the growth of Fintech in China is mainly attributed to the landscape of the nation, with the economy of China perceived as the driving factor for the growth in Fintech ventures. The global investments in Fintech ventures doubled significantly in 2018, an aspect that was initiated by the surges in funding from China as well as a stronger gain in other markets, given the fact that investors mainly placed their higher bets in mature startups. This tremendous growth is attributed to an increase in the value of the established deals in China that led to a collection of approximately $25.5 billion from Fintech investments in 2017. China, as alleged, is believed to have accounted for 46% of the Fintech investments, with more than half of these investments believed to have been financed in May, and which managed the largest money market globally (Qian, 2019).
China’s Low Credit Card Penetration
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Figure 2. Reasons why Fintech Ventures Thrive in China as opposed to the U.S.
On the other hand, it is significant to note that traditionally, the Chinese economy is often centrally planned, given the fact that it is driven and steered by investments that are mainly built within a state-owned and directed enterprise (SOE). Moreover, financial institutions and other lending systems mainly focus on the provision of services to the SOEs, an aspect that significantly underserves retail customers and SME's in China (Chen, 2016). Contrary to the U.S, the sluggishness of an incumbent, as well as the failure to address the changing needs of consumers, could result in disruptions that would make it challenging for entities to enter the market, detailing the reason why Fintech ventures in China are making significant strides. However, from a macro-economic view, there is a need for China to make significant transitions from its investment-directed economy to what Chen (2016) establishes as a consumption-led economy. Given the government's efforts to support innovation in the nation, this would throw weight behind the nation's efforts to develop a comprehensive financial system that drives and thrives on consumption.
Besides this, there is a need to underscore that the dominant domestic e-commerce marketplace for the Chinese consumers that include Alibaba and Taobao that was launched a few years down the line play a significant role in the expansion and the growth of Fintech ventures in China. This is to say that the mobile, as well as the internet boom, significantly created an environment that allowed consumers to shop online, efforts that saw the economy leapfrog from its traditional retail infrastructures that were mainly operated offline (Chandler, 2017). It is equally crucial to establish that the emergence of e-commerce entities in China played a significant role as a precursor that lead to the growth of Fintech firms in China, many of which are currently considered as financial subsidiaries that primarily focus on the third-party payment or remittances. For instance, Alipay was mainly developed by Alibaba Group with the intent of providing clients with an internet payment system within its e-commerce platform.
The Effect of the US-China Trade War on Fintech Ventures
The US-China trade wars, as alleged in the views of Gordon (2018) is mainly rooted in the concerns emerging and the perceptions of the U.S. over the development of technologies in China. China, as revealed earlier in this study, remains the largest Fintech ecosystem globally. This is attributed to the fact that China is currently dominated by some of the biggest giants in the market that include Ant and Tencent, besides other hosts of organizations that are making significant efforts directed towards filling the gaps that exist in the underserved markets. The trade wars, as established in this case may have a long-term effect on China’s economy, as well as the success of the scheme, dubbed Made in China 2025. However, critics allege that this may equally generate short-term uncertainties and shocks, both to the U.S. and China. The long-standing trade wars between China and the U.S. continue underway, efforts that have seen the Trump administration establishing global tariffs on their metal imports that would be targeted towards the Chinese outputs. This will, therefore, see tariffs that range between 24% on the steel imports as well as those of aluminum that range at 7.7% mooted before consideration, with this impeded on the investigations by the U.S. that revealed that the import of these metals tends to be a threat to the national security of the state. In response to this, the Chinese government called for further tariffs from the current 5% to 10.7% on some of the styrene imports, an aspect that critics have alleged that would result in a quick escalation of an infinite trade war (Gordon, 2018). Several experts equally establish that the trade wars may equally have a stronger negative impact on China’s economy, with those attributed to the fact that the Chinese economy is currently facing a period of economic slowdown as well as higher levels of debts. Industries within these economies that face instances of higher...