Small banks seek tie-up with fintechs for survival
Collaboration with fintechs can bolster technology use in China’s banking sector
11 Mar 2019 | Derrick Hong
As the concept of open banking seeps into the financial mainstream, smaller players in China are looking to benefit from greater opportunities arising from collaboration with technology firms.
Smaller banks are considered by industry insiders to be less competitive in technology compared to large banks and technology firms. A key factor holding back small banks from developing their own technology internally is the huge capital required for sophisticated systems.
“Sometimes they (smaller banks) don’t know what they want, because they don’t know what they don’t have. They don’t know what’s wrong with their traditional long processes,” says Emma Wang, chief growth officer at OneConnect, a technology company under the Ping An Group.
“China’s city commercial banks have some apparent weaknesses in technology, operations and management. In the era of big data, how technology is able to improve business models and management philosophy is what technology companies can help us with,” says the head of personal banking at a Sichuan-based local bank in China. 
As banks continue to shift their loan application process from offline to online, the need to utilize data analytics and fully understand the customer has grown significantly among smaller banks.
Risk management is a major focus of fintech companies such as Rong 360 and OneConnect. With copious quantities of customer data, fintech companies are better able to analyze customer behaviour within different customer segments and help smaller banks with risk assessment as well as marketing activities.
“Financial institutions have to do product innovation and optimization. The biggest challenge is to price the risk for different clients and make profits from different clients. This is the core requirement of financial institutions,” says David Ye, co-founder and CEO of Rong360, in an interview with The Asset.
In a bid to improve efficiency fintechs have come up with solutions leveraging AI, big data, and biotech technology in the loan application process. The Ping An Group’s OneConnect has developed a type of microexpression technology which can help banks to detect fraud. A microexpression is a brief, involuntary facial expression that appears on a person’s face according to his or her emotions. OneConnect’s machine can capture microexpression change and tell whether an applicant is telling the truth.
“Our main business is SMEs and consumer loans. In the traditional model, we do verification offline. Everything is manual and it is very inefficient,” says the head of risk control at an Inner Mongolia-based local bank. 
Besides retail banking and corporate banking, another area that could see further collaboration is corporate treasury management. The thriving online payment market has given rise to growing mobile banking usage in the treasury sector.
“In recent years, with the popularity of online payment, people from all walks of life need banks to provide financial services that match their business needs,” says Zhiyong Zheng, deputy general manager of the corporate business department of Bank of Communications head office.
“At present, the domestic B2C (business to consumer) online market has surpassed sales, and has continuously penetrated into various personal consumer service scenarios. The growth potential of the B2B (business to business) transaction field is something to watch closely,” says Zheng.
According to 2018 Treasury Review from Asset Benchmark Research, corporate mobile banking services is another area to watch. For now, just half of treasurers surveyed in China are using or intending to use corporate mobile banking services over the next six months.
But banks like Shanghai Pudong Development Bank sees this as an opportunity. In a bid to educate the market as well as engage new SME customers, Shanghai Pudong Development Bank developed a free SME treasury management mobile banking application in 2017. The application offers comprehensive treasury management functions such as account balance inquiry and inventory management.
Seamless technology also can help win business. In 2018, China Merchants Bank offered a unified online tailor-made treasury management system (TMS) to COSCO Shipping, a Shanghai-based state-owned enterprise, to facilitate the merger of China Ocean Shipping Company and China Shipping Company. Now, over 50 billion yuan ($74.4 billion) of assets from 679 subsidiaries of COSCO Shipping are being managed on the new TMS.