China’s fintech to thrive on consumer data troves
China has the opportunity to become a leader in the global financial technology race due to the ability of its homegrown tech giants to access to enormous amounts of data that has been surrendered by the population. That could offer it an opportunity to become a trailblazer in investing products.
Beijing wants China to become a world leader in artificial intelligence (AI) by 2030, and financial institutions around the world are competing to leverage AI to automate their workflow and engage more customers.
The country has an edge over other developed economies in AI-driven fintech because many of the country's middle class use their cellphones for large amounts of activities in their daily lives, and they surrender a lot of personal data in the process, said Paul Schulte, founder of Hong Kong-based research house Schulte-Research. AI is generally far more reliable and accurate when it is based upon a great deal of data.
“You got to be surrendering your location data on your cellphone, other information like your private address, or your spending habits. AI is when computers can look at hundreds of millions of people…and figure out consistencies, patterns, are you are who you say you are,” he told AsianInvestor.
Schulte noted that the big data collected by local tech companies has allowed them to create AI machines that are quickly learning and identifying consumer patterns. As a result, he said Chinese fintech companies are developing much faster than their rivals in the US.
Another reason for the disparity is one of culture. A large number of US citizens are distrustful of surrendering too much personal data, and they sometimes have the choice to avoid giving it. But Schulte said that people in China don’t have a “sense of distrust” for the tech giants, and so they are willing to surrender their information voluntarily.
When asked his opinion about recent news of Tencent submitting all the private information it gathers on its customers to authorities in China, Schulte claimed that many governments around the world employ similar practices.
Data is nutrition
The importance of being able to gather data on citizens cannot be overstated, when it comes to the development of AI products.
Danyi Hong, deputy general manager of financial technology at Tencent, told an audience at Hong Kong Fintech Week (last week) that if AI could be viewed as a young baby, computing power would be like its bones, algorithms would act as its muscles, and big data would be its nourishment to grow.
“If you can feed more data to the baby, they can grow faster and better,” he said.
Big data can be applied in many different ways when it comes to investment products and services. In wealth management, it can be used to dig out the real risk profiles of the customers and prioritise different investment goals for investors when automation can come into play, Hong said.
He noted that this means only financial institutions with access to huge amounts of data can create useful applications. Tencent’s success largely relies on the ability to monetise the consumer data of the 900 million-plus clients that use its instant messaging tool Wechat.
Meanwhile, Hong said that global AI-related investments in 2016 were estimated to be between $30 billion and $40 billion, three times the amount spent in 2013. About $20 billion to $30 billion originated from technology giants, with the remaining 20% or so from startups. The amount of AI-driven revenue is expected to be $47 billion in 2020, he said.
Lots to explore
The three leading technology giants In China are search engine Baidu, e-commercie giant Alibaba and Tencent. Alibaba is reportedly planning to invest $15 billion in research & development laboratories in push to become a global AI leader.
The company said its fintech labs will focus on areas including data intelligence, internet of things, quantum computing and human-machine interaction.
While the three tech companies are rapidly building their capabilities, financial institutions in China have yet to fully utilise the vast amount of data that is available. They have just begun to analyse the available data, Schulte said.
In addition, the institutions have yet to fully engage with other new developments such as blockchain, the distributed ledger technology. It allows multiple organisations to access and update a ledger simultaneously, which offers enormous potential ramifications for asset trading, settlement and custody, among other areas.
"It [blockchain] is going to change everything," said Schulte.