How fintech disrupts supply chain finance in China

As technology heralds the future of the finance industry, transaction banks are facing increasing competition from non-traditional providers, such as fintech companies. Supply chain finance has become a battlefield in China amid recovering global trade.

A research report from Qianzhan Intelligence Co shows that the market size for supply chain finance already exceeds 10 trillion yuan and is expected to double to 20 trillion yuan by 2021.

Companies with e-commerce backgrounds, such as Ant Financial, JD Finance and Suning Finance, are active in directly providing supply chain finance services. JD Finance has served over 100,000 corporates, most of which are SMEs, with supply chain finance solutions for financing amounting to 250 billion yuan.

P2P companies are joining the competition. Fahuidai.com, d.com.cn and Dianrong all announced that supply chain finance will be part of their future strategies. In March, Dianrong and Fnconn, a financial platform under Foxconn, jointly launched a blockchain platform called Chained Finance, which is the first solution to leverage blockchain technology for a supply chain finance solution in China.

Fintech companies have an advantage over traditional banks in accessing user data. By collecting data from online transactions, fintech companies are able to analyze the credit profiles of companies or individuals. To illustrate, Alipay has already established a mature credit evaluation system for its retail users when providing an online consumer finance service.

According to iresearch, a research company focused on e-commerce, the application of internet consumer finance in e-commerce comes in the credit accumulation process at present. After the data accumulation stage, more value-added services based on the credit data of individual accounts will be offered, which could become a major trend in the future.

Amid pressure from the emerging new economy, traditional transaction banks are catching up in offering new supply chain finance solutions. Citic Bank launched a new supply chain finance programme in the automobile industry, while China Merchants Bank also launched its Smart Supply Chain Finance 4.0 programme. In 2016, working with Alibaba, China Merchants Bank introduced a B2B bills pool service, bridging the financing gap for SMEs.

In official guidance jointly issued by the People’s Bank of China, Ministry of Industry and Information Technology, China Banking Regulatory Commission and China Securities Regulatory Commission in March, financial providers are encouraged to provide supply chain finance to manufacturing companies. Specifically, supply chain finance products include receivables financing, factoring, letters of credit, and discounted bills.

“In the future, companies will enjoy more online financial services like cash management services. The services that are only available to large companies now will be available to SMEs thanks to the internet,” says a director at a Chinese e-commerce company. “The objective is not to introduce competition but to offer different options according to you risk preference.”

Date

19 May 2017

Channel

Treasury

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