israeli innovation can accelerate china's fintech revolution

Israeli Innovation Can Accelerate China's FinTech Revolution

Esther Loewy

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.

China’s Economic Growth is in Decline

Source: Embassy of Switzerland in China "China Economic Report", 2016

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

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

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

Banks Reduce HeadcountBank* # 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

Key Talent Flee to DisruptorsExecutive Former Position & Bank Current Position & Internet Finance

Li Renjie Industrial Bank, President Lufax, ChairmanWang Yongli Bank of China, VP LeEco Finance, CEOHuang 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

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

What Happens When You Ignore 80% of your Potential Customers?

Internet Finance Delivers Where Banks Fail

Low Fees 24/7 AvailabilityPersonalization of Services

The Ignored 80% Rush to Internet Finance

Creating Competiton for 100% of the Market Entrant

ServiceAlibaba Tencent JD PingAn Baidu Xiaomi 360

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

The Chinese Digital Finance Disruption

China’s Digital Finance Delivers Full Service

Source: Deloitte, "The New Journey of "Internet +", Online Overhaul: Banking in the Digital Stage", 2016

\

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 funds2.Including mutual funds

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

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

Stoking Disruption

“Internet Plus” Declared a Chinese National Strategy in 2015

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

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"

The Disrupters

New Entrants to Internet Banking

Created by: Ant Financial (Alibaba) TencentFounded: 2015 2014Customer base: Alibaba's business customers &

TaoBao e-commerce retailersWeChat & QQ

Focus: SME financing and personal loans big data, blockchain, consumer financing and machine learning

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

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

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

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

"Banking is necessary, banks are not"

Bill GatesMicrosoft Co-Founder

Chinese Banks Fight Back andAdopt Their Own Digital Strategy

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

Everbright: Pioneer in Big Asset Management

Sunshine (Online) Bank Cloud Payment Digital Mall and E-Wealth Mgmt.

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

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

China’s Insurance Industry is Facing Upheaval

Traditional Products and Sales Don’t Deliver

Long Reimbursement

Process

Non-Personalized

Sales

Poor Product Design 

Insurance Forced to Innovate To Address Customer Pain Points

"Data is revenue"

Chen Dongsheng, Taikang Life Chairman & CEO

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

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

ZhongAn | IT Dipping into InsuranceA 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

Chinese Financial Institutions Must Innovate or Die

Winners Will Incorporate and Acquire Leading Global Technology

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

...And Tackle the Breadth of Fintech

Source: Deloitte "The New Journey of "Internet +", Online Overhaul: Banking in the Digital Stage", 2016

Israeli Innovation Excels at Transformative Technologies

Which Attracts Multi-Nationals to Israel

Source: Israel's Ministry of Industry, Trade and Labor, 2016

To Harness a Broad Range of Innovations

Israeli FinTech Delivers Core Technologies

For Critical Infrastructure

Cyber Security Insurance Tech Other Banking Tech

To Deliver Customer Experience

SME Lending Personal Finance Engagement

To Invest and Enhance ReturnsTrading and Investment Platforms and Technologies

And Improve the Money Trail

Blockchain Payments

Funding for Israeli FinTech Startups Exceeded $100M

in Q3 2016 Alone

China's Role

China-Israel Collaboration Since 2013Bilateralincubators

Pure financialinvestment

Acquiring mature enterprises

China-Israelindustry park

Strategic investment in Israeli funds

Market penetration and tech transfer

Joint research lab & innovation center

Chinese Investments in Israeli Technology

*Representative Sample

Time is Ripe for China to Accelerate with Israeli Fintech

Can China Become The Global FinTech Leader?

YES!

China Dominates The Internet

Source: Citi GPA "Digital Disruption" March 2016

Ecommerce Digital Finance

China's Financial Incumbents Lag Behind U.S. Peers and

Seek Innovation

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

Upround. Disruptive Israeli Tech. China First.

esther@uproundventures.com; shir@uproundventures.com; yequ@uproundventures.com