Future Watch: China's fintech ecosystem update

1. OTSIKKO ALAOTSIKKO, KUUKAUSI VUOSI CHINA’S DIGITAL LANDSCAPE AND RISING DISRUPTORS MODULE 2.7 FINANCIAL TECHNOLOGY (FINTECH)

2. AUTHORS Dr. Edward Tse Founder and CEO Team Finland Future Watch Report, Oct 20172 Mr. Bill Russo Managing Director and Auto Practice Lead Mr. Alan Chan Senior Consultant Mr. Henry Qin Consultant

3. FinTech TOPICS Team Finland Future Watch Report, Oct 20173 1. INTRODUCTION TO FINTECH 2. CHINA’S FINTECH STATUS AND INNOVATORS 3. FUTURE OPPORTUNITIES AND IMPLICATIONS FOR TEAM FINLAND

4. FinTech Team Finland Future Watch Report, Oct 20174 WHAT IS FINTECH AND WHY? Source: Literature research, Pulse of Fintech Q2'17, Gao Feng analysis High management and compliance risks Limited product and service offerings Ineffective operations management What is FinTech? Financial Technology (FinTech) refers to the new technology and business model innovation that aims to improve (and compete) with traditional financial methods in the delivery of banking and financial services Fintech innovations are typically launched by established legacy financial institutions or emerging start-ups that aim to transform the industry Pain points of the traditional financial industry High customer acquisition and marketing cost In Q2’17, global investment in FinTech companies hit USD 8.4bn across 293 deals

5. FinTech Team Finland Future Watch Report, Oct 20175 THE RISE OF TECHNOLOGY ENABLERS IS TRANSFORMING THE FINANCIAL INDUSTRY, PRIMARILY FOR MEETING FAST-CHANGING CUSTOMER NEEDS Source: Global FinTech Survey 2016, Gao Feng analysis Big data analysis Cloud computing Mobile internet Artificial intelligence Blockchain Automated processes In which areas do you see the most important impact to your business from FinTech? 42% Meeting changing customer needs with new offerings Leveraging existing data and analytics 42% 75% 51%

6. FinTech Team Finland Future Watch Report, Oct 20176 THERE IS ALREADY A FEW EARLY GLOBAL FINTECH DISRUPTORS, AND MORE WILL EMERGE TO CREATE GREATER IMPACT Source: 2016 FINTECH100, Gao Feng analysis Consumer banking Wealth management InsuranceTransfers & payments  Founded in 2012, the health insurance company that employs technology, design and data to provide a customer-centric business model which manages care, controls costs and offers transparency  Founded in 2013, it makes AI-driven predictive analytics through a self-service analytics platform  It delivers applications and optimize businesses using an automated system and predictive modelling  The world first and largest peer-to-peer lending online platform  Founded in 2007, USD 19bn in loans had been originated through its platform up to 2016 Q1 CASE EXAMPLES (Technology innovator) (Business model innovator) (Business model innovator)

8. FinTech Team Finland Future Watch Report, Oct 20178 CHINA HAS BECOME A GLOBAL LEADER IN FINTECH, PARTICULARLY IN THE MOBILE PAYMENT AREA Note:* China’s traditional cash-filled red envelope that people give each other during festivals Source: Goldman Sachs, Gao Feng analysis $11.4trn Third-party payment value grew more than 74X from 2010 to 2016 14bn Virtual “red packets”* were exchanged via WeChat on Chinese New Year Eve in 2017 $156bn Total internet loan balance grew more than 36X from 2013 to 2016 28 Countries and regions Chinese consumers can use their favourite third-party payment 75% Third-party payment done via mobile device 40% Retail consumption paid by third-party payment

9. FinTech Team Finland Future Watch Report, Oct 20179 THE MARKET SIZE AND KEY DRIVING FACTORS OF CHINA’S FINTECH INDUSTRY Source: Literature research, iResearch, Let’sTalkPayment.com, Gao Feng analysis Key foundations for the rise of FinTech in China 2% 89% 5%5% Others Financing Third-party payments Wealth management China’s FinTech Market Size 2015, RMB Tn Total market size: RMB 12.4Tn Wealth management (RMB 6,100M) - Fund sales and others Financing (RMB 6,100M) - Small and micro loans, Peer-to-peer lending (P2P), and Crowd-funding Others (RMB 2,000M) - Insurance, Cloud, Direct banking, and Others Large under-banked and unbanked population with a high savings rate (30 %+) Unsophisticated incumbent consumer banking – hence free from legacy heritage High mobile internet penetration and digital-savvy lifestyle Large opportunity in credit with a financing gap of USD 3.5 Tn for SMEs and consumers

10. FinTech Team Finland Future Watch Report, Oct 201710 OVERVIEW OF CHINA’S FINTECH LANDSCAPE Source: Goldman Sachs, Gao Feng analysis NOT EXHAUSTIVE Banks such as : ICBC CCB BOC ABC BoCom Asset mgmt companies such as: ICBC Credit Suisse Asset Mgmt E Fund Mgmt China Asset Mgmt Insurance Companies such as: China Life Personal Credit Rating: Official personal credit record of PBOC PAYMENT DIRECT BANK DEBIT TRANFER SYSTEM MOBILE PAYMENT SOLUTION PAYMENT SERVICE PROVIDER FINANCING PERSONAL LENDING SME LENDING CROWD-FUNDING SAVING/ INVESTMENT ONLIINE SAVING PLATFORM ONLINE ASSET MANAGEMENT ONLINE-ONLY BANK OTHERS CLOUD COMPUTING PERSONAL CREDIT SCORING ONLINE-ONLY INSURANCE COMPANY INCUMBENTS DISRUPTORS

11. FinTech Team Finland Future Watch Report, Oct 201711 FUTURE TRENDS OF CHINA’S FINTECH ECOSYSTEM Source: Goldman Sachs, Gao Feng analysis Integration  A few hybrid tech/finance companies have started to dominate the space by owning the entire supply chain and distinctive ecosystem  Other companies currently outside of the FinTech ecosystem either directly or indirectly start entering as they strive to close the loop within their own supply chains, especially in the payment Regulations  In China it is still pro-growth, but getting more sophisticated in risk management and customer protection, for example, in the P2P lending space and the Initial Coin Offerings ban  Private capital has uncharacteristically high participation in the FinTech infrastructure build-out vs other industries Going global  Chinese FinTech players started to expand overseas for a broader user base through M&A, partnership and self- owned  Local conditions – legacy infrastructure, regulation, demographic and culture norms – will dictate the adoption  Chinese companies leverage Chinese tourists and export technology standards (QR code)

12. FinTech Team Finland Future Watch Report, Oct 201712 DISRUPTIVE PLAYER – ANT FINANCIAL CASE EXAMPLE Source: Company data, Gao Feng analysis Valuation 2016: $ 60bn 2015: $ 45bn  Most valuable Fintech unicorn in the world  Yuebao under Ant Financial has become the world largest money market fund  China’s most cutting- edge Fintech ecosystem  Ubiquitous element of Chinese consumer’s daily life Key success factors: 1.Innovative product based on in-depth local market understanding 2.Leverage Alibaba’s ecosystem for customer acquisition and scale-up 3.Big data-enabled customer insights across different ecosystem services Ant Financial, an affiliate of Alibaba Group, provides credit system and financial services platform through technology innovations, and offers consumers and small businesses with inclusive financial services globally

13. FinTech Team Finland Future Watch Report, Oct 201713 TRADITIONAL PLAYER – LUFAX Augmented Reality (AR) Source: Lufax company presentation, Gao Feng analysis CASE EXAMPLE Valuation 2016: $18.5bn  LUFAX is the Global biggest P2P player and largest Wealth-tech platform in China, backed by Ping An Group, has 30mn+ users by 2017  Offers consumer lending, commercial banking and investment banking services for individuals and businesses through Lufax and Lfex platforms Individuals lending companies …. P2P platform for individual investors ….. Bank Security Insurance Trust PE Government Conglomerate Information and trading platform for business partners Key success factors: 1.Strategic partnerships of service partners 2.Comprehensive ecosystem of product offerings 3.Physical branches positioned as experience centers

14. FinTech Team Finland Future Watch Report, Oct 201714 NON-FINANCIAL COMPANIES ARE ALSO EXPANDING INTO FINTECH Source: company websites, Gao Feng analysis CASE EXAMPLE  Founded in 2011, retail tycoons Suning has stepped into supply chain finance  SMEs of the retail chain usually have urgent demands for operating capital. Suning is familiar with those companies, which facilitates risk assessment and management  Suning usually granted with good credit ratings to obtain handsome funds at low cost, and thus making it capable of offering competitive prices to SMEs  The real estate giant Wanda Group had an offline customer visits of 10bn in 2016  Wanda has already infiltrated to multiple scenarios in consumers’ daily life, which can be linked to multiple online applications Suning Finance Wanda Group Key success factors: 1.Strong industry expertise and willingness to transform via technology adoption 2.Data monetization across the end-to-end value chain 3.Powerful offline network to supplement and enhance an integrated O2O customer experience Third-party payment Credit rating subsidiary  Geely, the Chinese automaker that owns Swedish carmaker Volvo, acquired 30% of Dannish Saxo Bank to tap into financial services in 2017  The company aims to leverage Saxo Bank’s online trading platforms and financial technology capabilities to gain consumer data and provide personalized auto financing services in China and globally Greely Group

16. FinTech Team Finland Future Watch Report, Oct 201716 THERE IS A GROWING AMOUNT OF FINTECH START-UPS IN THE NORDIC REGION CASE EXAMPLES Source: FinTech in the Nordics, Company websites, Gao Feng analysis  Founded in 2011, Holvi is a banking service combines financial reporting in one digital business account  It has 6 round of funding with total amount of €4.25M Finnish FinTech start-upsNordic start-up in FinTech subsectors

17. FinTech Team Finland Future Watch Report, Oct 201717 MORE AND MORE FINTECH-RELATED INITIATIVES ARE EMERGING IN FINLAND Source: : Literature research, Gao Feng analysis The Finnish Immigration Department has adopted Fintech to restore the identity of refugees  The department partnered with MONI, a FinTech Start- up, to generate credit scores for refugees who are traditionally deemed to be un-bankable  Next, MONI aims to create a model for automated tax collection from self-employed refugees through smart contracts on its platform Local and global start-up events with FinTech companies involved The Tekes Young Innovative Companies program has supported many promising Finland start-ups in FinTech with needed resources Startup event Slush brings together Finnish FinTech start- ups to share knowledge and build connections Future Digital Finance Forum  To be held in Helsinki on Oct 31 and Nov 1, 2017  To deliver the latest knowledge on the digital finance business models, technologies and regulation, and to bridge the gap different stakeholders

18. FinTech Team Finland Future Watch Report, Oct 201718 IT IS KEY FOR FINLAND TO EXTEND ITS CURRENT COMPARATIVE ADVANTAGES INTO THE FINTECH CONTEXT Augmented Reality (AR) Source: Gao Feng analysis Strong collaboration between various business sectors, research institutes, universities and the government  To foster more collaborations on FinTech area  To encourage more FinTech-enabled commercial applications in the Finland/Nordic context  To incentivize more FinTech-related fundamental research Successful Finnish start-ups (in other non-FinTech industry) as role models World’s leading STEM education system and top-quality technology talent pool  To cultivate the next-generation FinTech unicorn from Finland  To inspire more domestic FinTech entrepreneurs  To position Finland’s as the Nordic FinTech hub to attract global FinTech talents  To blend technology education with industry- specific (such as finance) knowledge  To cultivate FinTech professionals who have combined expertise in both finance and technology Finland’s current comparative advantages Needs for FinTech development

19. FinTech Team Finland Future Watch Report, Oct 201719 FINLAND NEEDS TO DEFINE ITS FUTURE VISION IN THE FINTECH REVOLUTION AND TAKE ACTIONS TO BUILD FINTECH CAPABILITIIES Augmented Reality (AR) Source: Gao Feng analysis Potential actions Policies More defined national strategy on FinTech and the future vision for Finland in FinTech Design preferential policies and incentive programs to encourage more domestic FinTech innovations Offer accommodative regulations to allow more rooms for FinTech experimentations Businesses Explore new applications of FinTech and identify potential use cases in the regional context Further collaboration across the industry between start-ups and incumbents. Innovators on both sides will require deeper commitment to each other without limiting each other’s core strengths Global ecosystem collaboration Establish purpose-driven tools and forums to encourage global knowledge transfer and benchmark global best practices, for example companies in UK, US and China Encourage both incumbents and start-ups to compete and collaborate on FinTech initiatives Education Offer FinTech-specific curriculum at the top local universities and STEM education in high schools Hold public events to discuss and educate the basic concepts, benefits and risks of FinTech Make it easier for companies to bring more talents to Finland and to oﬀer competitive package Potential actions Policies More defined national strategy on FinTech and the future vision for Finland in FinTech Design preferential policies and incentive programs to encourage more domestic FinTech innovations Offer accommodative regulations to allow more rooms for FinTech experimentations Businesses Explore new applications of FinTech and identify potential use cases in the regional context Further collaboration across the industry between start-ups and incumbents. Innovators on both sides will require deeper commitment to each other without limiting each other’s core strengths Global ecosystem collaboration Establish purpose-driven tools and forums to encourage global knowledge transfer and benchmark global best practices, for example companies in UK, US and China Encourage both incumbents and start-ups to compete and collaborate on FinTech initiatives Education Offer FinTech-specific curriculum at the top local universities and STEM education in high schools Hold public events to discuss and educate the basic concepts, benefits and risks of FinTech Make it easier for companies to bring more talents to Finland and to oﬀer competitive package

20. FinTech Team Finland Future Watch Report, Oct 201720 THERE ARE POTENTIAL AREAS WHERE FINLAND AND CHINA CAN COLLABORATE TO ACCELERATE FINTECH DEVELOPMENT  Leverage cross-border and/or Chinese start-up incubators help incubate/scale-up Finnish FinTech start-ups in China  Zervant, a Finnish e-invoicing startup, was awarded by True Global Ventures “The Most Promising FinTech startup in the Nordic Countries” and received invitation to meet with new potential partners in China  Position Finland as the test bed/entry point for China’s FinTech start-ups to expand into Europe  Help Chinese FinTech companies set up R&D center for FinTech  Organize international conferences and workshops to facilitate thought leadership exchange on FinTech  Targeting popular tourist sites in Finland, encourage collaboration between Finnish businesses and Chinese FinTech solution providers  Example: Alipay services are available in Helsinki Airport and Finland Santa Claus Village Expanding Finnish FinTech technology into China Helping China’s FinTech companies go global FinTech Services for Chinese travelers in Finland Source: Goodnewsfinalnd, Xinhua, Gao Feng analysis

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