Beware fintech’s pivot to China

 
Nancy Hungerford
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The dominance of local tech giants makes China an inhospitable place for UK firms (Source: Getty)

Ever since former Barclays chief executive Antony Jenkins declared an ”Uber moment” for banks, the powers that be from the Square Mile to Canary Wharf have rushed to defend themselves against a herd of ambitious fintech unicorns.

But if recent collaborations between financial titans and spritely startups are anything to go by, it appears the duelling sides are nearing a truce. That’s good news for London, which has staked a claim as the fintech capital of the world. But while the battle with home-grown disruptors is being won, the war with overseas upstarts is just getting started. And for once, I’m not talking about Silicon Valley.

The world’s largest fintech conference, Money2020, landed in Copenhagen last week – its first time in Europe. I attended the event, which was designed to celebrate the continent’s superstars, particularly in the payments sector. But after 48 hours of speaking to founders, investors, and top chief executives (two of which were jumping on the next flight to Shanghai), I noticed a disproportionate amount of noise around activity taking place in China.

The co-founder and chief executive of Swedish payments firm Klarna was the most outspoken on the matter, waving a white flag when it came to entering China. “I wouldn’t even go there due to the dominance of Alipay, Tencent and their affiliates,” Sebastian Siemiatkowski told me.

That is a rare dose of humility for a tech founder in an age where breaking into China is regarded as the Holy Grail for achieving scale.

But Klarna sees more opportunity tackling Silicon Valley giants such as PayPal, having launched in the US last year.

One of Klarna’s top investors, legendary venture capitalist Sir Michael Moritz, shared in Siemiatkowski’s admiration of China and suggested that a “Western imperial arrogance” had led to a misunderstanding and a lack of appreciation for the culture of innovation in China.

Even the banking incumbents appeared hesitant to take on China’s big three tech firms in mobile payments and peer-to-peer lending. HSBC chief operating officer Andy Maguire, appearing in a separate panel at Money2020, suggested the bank was better off seeking fintech opportunities in other emerging markets “where they could still set the standard”.

Not everyone is satisfied sitting on the sidelines, however. The founder of Israel-based social trading network eToro recently struck a partnership with domestic insurance giant Ping An to help tap into the massive market. Chief executive Yoni Assia marvelled at the success of Alibaba, Baidu and Tencent in driving fintech innovation across the country. If Google, Amazon and Apple were investing even close to the level of China’s big three, the US and Europe would be miles ahead of where they are currently, he told me.

Up until now, Chinese fintech firms have been content staking out a dominant position in their domestic market. But it wasn’t lost on the 3,000 participants in Copenhagen that Alipay took up a prominent position in the exhibit hall at Money2020. The company also took the stage at the conference to outline its expansion plans in Europe as it steps up services for Chinese tourists on the continent.

Against this competitive global backdrop, the UK’s fintech scene is bracing for an unwelcome threat to scaling growth in their own back yard. The looming June EU referendum and the threat of Brexit could have dramatic consequences for a booming albeit nascent sector.

As London plays host to the next big event on the fintech social calendar this week, the Innovate Finance Global Summit, it’s plausible that the debate will turn from Fintech: Friend or Foe to the Big Banks, and towards Brexit: Are We Better Together in the Race to Innovate?

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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