According to J Capital Research, a research firm based in Hong Kong, fintech startups in China are set for unstable conditions in 2016. This is due to the government’s plan to review fintech regulations in terms of the willingness of big banks to reinstate their control over consumer finances’ management.
China has been identified as a promising future market for fintech development as the government decided to open up banking sector competition. Some of the leading e-commerce corporations in the country, including Alibaba, Tencent and Baidu, have also been attracted to the sector.
J Cap warns that any fintech startup that is optimistic of sailing through the anticipated bumpy ride should be watchful, as well as prepared. J Cap has predicted several failures and mass amalgamation as the low-cost era fizzles out. This will also expose unsustainable business models to certain instabilities.
The research firm has also identified various factors, such as the upsurge of US interest rates, China’s capital reversal from inflows to outflows, and the country’s central bank decision to lower interest rates, as being responsible for the creation of unfavorable market conditions for the e-commerce giants, including the emerging fintech sector in the country.
Payment revenues for private companies are expected to decline, as capital and profit margins reduce. This means that peer-to-peer (P2P) lenders will be pushed out of business, and entry costs for all fintech operators will be raised.
In Western countries, alternative finance companies have been given a level ground to compete with banks on product and service innovation. With Chinese companies, however, it is different since they have continued to rely on the strength of the Renminbi for assurance of a stable return on customer funds that are held in float. If this continues to happen, then there is a likelihood of e-commerce companies in China declining drastically.