In September, online marketplace JD.com’s fintech division JD Digits’ application for a listing on China’s new tech board, the sci-tech innovation board (the STAR Market), was accepted by the Shanghai Stock Exchange. This happened more than a year after the company changed its name to JD Finance, the financial arm of JD.com established in 2013, and it made fintech one of its principal businesses. “It will provide one-stop solutions for the digitalization of financial operation in banks, security companies, insurance enterprises and so on,” the company advertises on its website.
It is a change of focus for the company. As internet finance bloomed around 2013 and 2014, several leading internet-based tech firms including Alibaba, JD.com and Tencent entered the field based on their online payment platforms. Throughout the years, they gained financial licenses (which are increasingly hard to get due to tightened policies) to cover operations in payments, lending, banking and more. In the past years, JD Finance has built major business lines in payments, lending, asset management, insurance and securities.
But the transition is not so abrupt a decision for the firms that started with technology.
According to Shen Jianguang, JD.com’s vice president and chief economist, JD Finance stressed technology in 2015 when internet finance was the new wave. “The core of JD Digits is technology. It means to use science and technology to serve enterprises,” Shen said.
“In internet finance, borrowing and lending are transacted online, and the process relies on risk management mechanisms built from scenarios and data. We found that this experience could reach more people in need [who are not qualified to get a loan from traditional banks otherwise]. This makes the company shift to supplying financial technology gradually,” Shen said. The company has built its data-driven risk management solutions and applied digital technologies like machine learning, artificial intelligence (AI), image recognition and blockchain to improve its capability in risk pricing. By the end of June, it has provided digital solutions to over 600 financial institutions including commercial banks and insurance and securities companies, according to its prospectus released in September.
Ant Group announced in July that it is planning an IPO on the STAR Market and the Hong Kong Exchange (HKEX), a month after it assumed its new name. It stated in 2017 that it would engage in technology only and assist financial institutions in their business, saying that its financial business was only a trial for technologies that they would provide to customers. Its finance report in 2018 predicted that from 2017 to 2021, its income from technology services would rise to 65 percent while that of financial services would drop to 6 percent from about 11 percent in 2017.
These changes, from titles to business layout, are not “de-financialization” in the genuine sense, according to Huang. He called it a global trend featuring a two-way fusion of finance and technology that generates a new area of innovation. “If more emphasis is put on finance, then it is internet finance. If more attention is placed on technology, then it is called fintech. But the technology still means to serve finance. It is two sides of the same coin,” Huang said.
“To provide better technology services, a company must know its customers well and have experience in financial business, so it can win more trust,” Huang said. He added that as the government encourages fintech development, companies with licenses will get more involved in finance instead of walking away.
For many third-party payment platforms with limited sources of revenue, turning to technology is more of a passive choice. For a long time, these platforms made fat profits from clients’ reserve funds deposited in their bank accounts (before an online transaction was finished) by gaining interest or making investments with the funds. But starting in January 2019, they must deposit all such funds to accounts assigned by the PBoC. Losing this source of revenue, many platforms redefined themselves as financial infrastructure for financial institutions or provided financial services. In the online lending industry, where the clean-up campaign is going on, many operators tried to transform and become fintech service providers as a way out.
“More and more platforms are downplaying the financial label and advertising themselves as a provider of technology services. Fintech is the new star on the stage,” said Gao Yanping, president of third-party payment company Lakala’s research institute, adding that the industry is expecting new technologies to reach deeper into the financial area and cover a wider group of users.
“Not only this, but as the consumer-oriented internet becomes saturated while the industrial internet continues to grow rapidly, fintech suppliers will provide more services directly to enterprises,” Gao told NewsChina.