Why should we expect further regulatory tightening on fintech?
China has generally taken an accommodative approach towards fintech innovation so far, which has enabled enhanced financial inclusion. But as BigTech firms leverage network effects to rapidly grab market share in the financial industry, regulatory concerns over monopoly and systemic risks start to surface. In framing the future fintech regulatory framework, regulators are likely to focus on a few key policy objectives, in our view: 1) containing potential monopolistic power and protecting consumer interests; 2) fending off potential systemic risks that come with unchecked fintech innovation; and 3) promoting financial inclusion to micro and small enterprises (MSEs).
Financial businesses by BigTech firms could receive heightened scrutiny
In the near term, we think greater emphasis and efforts may be placed on the first two objectives above, which may subject BigTech’s business models in financial services to more in-depth review and heightened scrutiny. Given rising regulatory concerns over possible monopoly, unconstrained BigTech growth, unchecked innovation and potential consumer right infringement, we expect upcoming measures to involve: 1) case-by-case intervention to limit growth; 2) capital requirements and firewalls under a financial holding regulatory framework; 3) inclusion of lending partnership into the macro prudential assessment framework on banks; and 4) more stringent rules to regulate data-sharing and mis-selling of financial products, in particular consumer credit.
Tougher regulatory environment for online lending a risk to watch
Amid regulators' concern on consumer over-leverage and revisit of BigTech firms' credit business, there is risk of broad-based industry tightening on online lending, although we do not expect a complete ban on the loan facilitation model in the next one to two years. Comparatively speaking, fintech lenders that focus on MSE credit should be better positioned for a more accommodative stance by regulators.
Retail banks likely long-term beneficiaries of eased competition from BigTech
We expect eased competition from BigTech firms, and a healthier and more disciplined consumer credit market.