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Israeli Innovation Can Accelerate China's FinTech Revolution

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Upround Ventures continues to play a major role in the Israel – Asia innovation nexus. That means we invest heavily in building both our organization and our portfolio companies – and a lot of frequent flyer miles to China and Hong Kong and the region. For our Asian relationships, we identify and select the right Israeli startups to help them become, or maintain, their market leadership through innovation.

Finance, to no surprise, is a major industry in Asia with Hong Kong and Singapore vying to be the international hub for APAC. Within Mainland China, we see the largest institutions, state owned enterprises and new financial players embracing a pure digital banking experience. This report shows why traditional financial institutions need to innovate to stay relevant and why the disrupters are on a constant search for the newest technologies to stay ahead of the game.

Global banks have established or joined fintech hubs in NY, London, Hong Kong , Silicon Valley, Singapore and yes, Tel Aviv. Citi’s first (and only?) innovation center is in Tel Aviv. Barclays (where I mentor) added Tel Aviv after their tech initiatives in London, NY and Capetown. The list of global banks and financial institutions that visit Israel, keen to learn, cooperate and invest runs the gamut of continents.

Israel is home to some of the world’s strongest technologies needed to fuel the growth of China’s financial institutions. We’ll embark on that journey with How Israeli Technologies Can Accelerate China’s FinTech Revolution

A special thank you to Shir Bodner and Ye Qu of Upround Ventures who played an integral role in this collaborative project.

Published in: Technology

Israeli Innovation Can Accelerate China's FinTech Revolution

  1. 1. Israeli Innovation Can Accelerate China's FinTech Revolution Esther Loewy
  2. 2. A slowing Chinese economy has stimulated the disruption of local financial institutions. The tool of disruption is financial technology and the race is on for adoption.
  3. 3. China’s Economic Growth is in Decline Source: Embassy of Switzerland in China "China Economic Report", 2016
  4. 4. Chinese Bank Revenue in Decline Source: EY China, "Banking Industry Report: Decline in profit growth drives transformation of listed banks", May 2016; Translated by: Upround Ventures
  5. 5. Bank Profits Slide to Negative Source: Bloomberg, Company Statements, China's Banks Are Running Out of Ways to Keep Profits Growing. 2016 figure based on estimates in a Bloomberg Survey
  6. 6. Loan Defaults on the Rise Source: EY China, "Banking Industry Report: Decline in profit growth drives transformation of listed banks", May 2016; Translated by: Upround Ventures
  7. 7. Banks Reduce Headcount Bank* # of Employee Exits % of Total Employees Bank of China -6,881 -2.22% Industrial and Commercial Bank of China -7,635 -1.64% Construction Bank of China -6,721 -1.82% Agriculture Bank of China -4,023 -0.80% Bank of Communications -577 -0.63% Source: Sohu Finance, "25,000 employees leave the national-five-banks in first half year of 2016", Sept. 2016; Translated by: Upround Ventures *Representative Sample
  8. 8. Key Talent Flee to Disruptors Executive Former Position & Bank Current Position & Internet Finance Li Renjie Industrial Bank, President Lufax, Chairman Wang Yongli Bank of China, VP LeEco Finance, CEO Huang Hao China Construction Bank, Department of Internet Finance, GM Ant Financial, Executive Assistant Zhang Xuyang Everbright Bank, Department of Asset Management, GM Baidu, Vice President Cao Tong Export-Import Bank of China, Vice President We Bank, President Source: "Why Bank managements abandon their golden bowl and join Internet Finance?", ChinaVenture.cn, July 2016 *Representative Sample
  9. 9. Chinese Banks Lack “Inclusive Finance” Deferred Action for Childhood Arrivals Source: McKinsey Greater China FIG Practice, "Disruption and Connection: Cracking the Myths of China Internet Finance Innovation", July 2016
  10. 10. What Happens When You Ignore 80% of your Potential Customers?
  11. 11. Internet Finance Delivers Where Banks Fail Low Fees 24/7 Availability Personalization of Services The Ignored 80% Rush to Internet Finance
  12. 12. Creating Competiton for 100% of the Market Entrant Service Payment X X X X X X Loan X X X X Wealth Mgmt. X X X X X X X Insurance X X X X X Securities X X X X X X Banking X X X X Credit X X X X X Funding X X X X X X Crowd-Funding X X X X X Source: Layout of Internet Finance Industry in 2015, SINA Technology & IT Orange Internet VC Database, 2016 Translated by: Upround Ventures
  13. 13. The Chinese Digital Finance Disruption
  14. 14. China’s Digital Finance Delivers Full Service Source: Deloitte, "The New Journey of "Internet +", Online Overhaul: Banking in the Digital Stage", 2016
  15. 15. Leading to Soaring Internet Finance Adoption Source: McKinsey Greater China FIG Practice, "Disruption and Connection: Cracking the Myths of China Internet Finance Innovation", July 2016 1.Including money market funds 2.Including mutual funds
  16. 16. Chinese Internet Finance | $2 Trillion and Growing Source: McKinsey Greater China FIG Practice, "Disruption and Connection: Cracking the Myths of China Internet Finance Innovation", July 2016 (Units in RMB 100 million)​ Fund sales​ Other Wealth Management products(trust, PE, etc.) Small and micro loan​ P2P​ Crowd funding Insurance​ Cloud, direct banking and others
  17. 17. Digital Finance Provides a Competitive Edge Source: McKinsey Greater China FIG Practice, "Disruption and Connection: Cracking the Myths of China Internet Finance Innovation", July 2016
  18. 18. Stoking Disruption “Internet Plus” Declared a Chinese National Strategy in 2015
  19. 19. Powered by the PM "The internet market is massive in China...We can have the great acheivement if we integrate the crowd's intelligence... (with) internet innovation." Li Keqiang, Prime Minister of China Speech at Executive Meeting of State Council June 24, 2015 Source: The State Council, China
  20. 20. The Genesis of "Internet Plus" Nov. 2012: "Internet Plus" coined by Yu Yang, Chair of Analysys International @ the fifth Yiguan Mobile Internet Expo in Beijing Nov. 2014: World Internet Conference: Prime Minister, Li Keying presents on innovation & entrepreneurship March 2015: Ma Huateng, Tencent Chairman & Founder, proposes "Internet Plus" at NPC July 2015: Prime Minister acclaims "Internet Plus" in work report Dec. 2015: Alibaba, Baidu and Tencent establish "China Internet Plus Alliance"
  21. 21. The Disrupters
  22. 22. New Entrants to Internet Banking Created by: Ant Financial (Alibaba) Tencent Founded: 2015 2014 Customer base: Alibaba's business customers & TaoBao e-commerce retailers WeChat & QQ Focus: SME financing and personal loans big data, blockchain, consumer financing and machine learning
  23. 23. Baidu | Internet Search to Finance Financial Services • Financial Baidu Wallet • Baidu Finance • Baidu Wealth • Baixing Bank • Baian Insurance • Baidu's & CITIC Source: 2015 China Internet Finance Investment Analysis, China Big Data Industrial Observation, February 2016​
  24. 24. Alibaba | Extending the E-Commerce Empire Financial Services • Alipay • Yu'e Bao • Ant Financial • My Bank • Zhima Credit • Tianhong Fund • ZhongAn Insurance • Huabei • Ant Small Loans Source: 2015 China Internet Finance Investment Analysis, China Big Data Industrial Observation, February 2016​
  25. 25. Tencent | Finance Meets Social Financial Services • Tencent Pay • WeChat Pay • WeBank • Zhongan Insurance • People Loan • Tencent Credit Rating Source: 2015 China Internet Finance Investment Analysis, China Big Data Industrial Observation, February 2016​
  26. 26. JD.com | Consumer & Supply Chain Financing Financial Services • Chinabank Payment • Supply Chain Financing • Consumer Financing • JD Insurance • MOM Wealth Management Source: 2015 China Internet Finance Investment Analysis, China Big Data Industrial Observation, February 2016
  27. 27. "Banking is necessary, banks are not" Bill Gates Microsoft Co-Founder
  28. 28. Chinese Banks Fight Back and Adopt Their Own Digital Strategy
  29. 29. Traditional Banks Embrace Technology Omni-Channel Inclusive of Physical and Digital Comprehensive Platform of Products and Services Smart Bank Client Management Source: Deloitte, "The New Journey of "Internet +", Online Overhaul: Banking in the Digital Stage", 2016
  30. 30. Everbright: Pioneer in Big Asset Management Sunshine (Online) Bank Cloud Payment Digital Mall and E-Wealth Mgmt.
  31. 31. Ping An: 2016 Best Internet Innovative Bank Orange E • "Safe Loan" • Online Wealth Mgmt. Pingan Manager SaaS Platform • SME/e- Commerce • Cross-Border Pingan Orange Pocket Bank • Personal Banking Additional Innovation • IoT in Warehouse • Port & Manufacturing
  32. 32. Minsheng:'16 Leading SME Service Provider Retail Banking • Ruyi Bao: Online Wealth Management Mobile Platform • SMB one stop mobile loan processing platform Payments • Support ApplePay & developed Minsheng Pay Consumer Loans • Credit and debit card financing channel Consumer Credit • Online multi- channel platform
  33. 33. China’s Insurance Industry is Facing Upheaval
  34. 34. Traditional Products and Sales Don’t Deliver Long Reimbursement Process Non- Personalized Sales Poor Product Design
  35. 35. Insurance Forced to Innovate To Address Customer Pain Points
  36. 36. "Data is revenue" Chen Dongsheng, Taikang Life Chairman & CEO
  37. 37. Ping An Insurance | Industry Pioneer Digital Products • Life and property insurance Innovative Credit System • Merging public and in-house credit history Healthcare Insurance Reimbursement • Quick customer approval process
  38. 38. Tai Kang | Merging Internet, Insurance & Healthcare Combine mHealth Tech & Services • Train clients to form healthy habits Healthcare Endowment Community Investment • $100B RMB Introduce Big Health to Internet • Wearables I.e. diabetes detection
  39. 39. ZhongAn | IT Dipping into Insurance A joint venture funded by Tencent, Alibaba and Ping An Group Product Design • Scenario Customization Big Data Analytics • Personalized Dynamic Pricing Transparent Reimbursement Process • Built on Ali Cloud
  40. 40. Chinese Financial Institutions Must Innovate or Die Winners Will Incorporate and Acquire Leading Global Technology
  41. 41. Banks Need New Technology to Compete CLOUD TECHNOLOGY BIG DATA CAPABILITY OMNI-CHANNEL • IT cost savings • Increasing operational efficiency • Faster application process • IT risk reduction • Customer targeting • Service personalization • Fraud detection and cyber security • Seamless personalization • Digital apps • In-person and telebanking • Live person or bot
  42. 42. ...And Tackle the Breadth of Fintech Source: Deloitte "The New Journey of "Internet +", Online Overhaul: Banking in the Digital Stage", 2016
  43. 43. Israeli Innovation Excels at Transformative Technologies
  44. 44. Which Attracts Multi-Nationals to Israel Source: Israel's Ministry of Industry, Trade and Labor, 2016
  45. 45. To Harness a Broad Range of Innovations
  46. 46. Israeli FinTech Delivers Core Technologies
  47. 47. For Critical Infrastructure Cyber Security Insurance Tech Other Banking Tech
  48. 48. To Deliver Customer Experience SME Lending Personal Finance Engagement
  49. 49. To Invest and Enhance Returns Trading and Investment Platforms and Technologies
  50. 50. And Improve the Money Trail Blockchain Payments
  51. 51. Funding for Israeli FinTech Startups Exceeded $100M in Q3 2016 Alone
  52. 52. China's Role
  53. 53. China-Israel Collaboration Since 2013 Bilateral incubators Pure financial investment Acquiring mature enterprises China-Israel industry park Strategic investment in Israeli funds Market penetration and tech transfer Joint research lab & innovation center
  54. 54. Chinese Investments in Israeli Technology *Representative Sample
  55. 55. Time is Ripe for China to Accelerate with Israeli Fintech
  56. 56. Can China Become The Global FinTech Leader?
  57. 57. YES!
  58. 58. China Dominates The Internet Source: Citi GPA "Digital Disruption" March 2016 Ecommerce Digital Finance
  59. 59. China's Financial Incumbents Lag Behind U.S. Peers and Seek Innovation
  60. 60. China Needs Israeli FinTech To... Capture 80% of long tail customers Create competitive advantage to grow market share Replace the U.S and UK. as the leading fintech powerhouse Deliver enhanced products and services: better, faster, cheaper Source: KPMG & CB Insights "Pulse of FinTech Q3" 2016
  61. 61. Upround. Disruptive Israeli Tech. China First. esther@uproundventures.com; shir@uproundventures.com; yequ@uproundventures.com

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