Nurturing a FinTech ecosystem: The case of a youth microloan startup in China


By Carmen Leong, Barney Tan, Xiao Xiao, Felix Ter Chian Tan, Yuan Sun


Financial technology, or FinTech, involves the design and delivery of financial products and services through technology. It impacts financial institutions, regulators, customers, and merchants across a wide range of industries. Pervasive digital technologies are challenging the fundamentals of the highly regulated financial sector, leading to the emergence of non-traditional payment systems, peer-to-peer money exchanges and increased turbulence in currency markets. This case study explores the development of a FinTech company in China that offers microloans to college students. Five lessons learned are presented for organizations to better manage the challenges and to leverage the opportunities amidst the disruption of financial sector. Our findings also shed light on how digital technology 1) offers the strategic capability for a firm to occupy a market niche in financial sector, 2) enables the generation of alternative credit scores based on non-traditional data, and 3) improves the financial inclusion of previously excluded market segments.

With the inexorable march of technological advances and digital transformation, we are now witnessing rampant disruptions in highly regulated sectors such as banking and finance, especially with the development of FinTech, a broad umbrella term that describes disruptive technologies in the financial services sector. Globally, investments in FinTech have grown exponentially from $1.8 billion in 2010 to $19 billion in 2015 (Citi Group, 2016). It is regarded as a form of alternative finance, and its progression is precipitated by a few trends. First, trust and confidence in incumbent service providers have waned since the 2008 financial crisis and the occurrence of a number of high-profile financial scandals has led to a growing appetite in the market for an alternative finance (Gelis, 2016). Second, innovations in new financial products and services (e.g., digital wallet) offer better convenience, efficiency, and inclusion at a lower cost, thus eroding the reliance on traditional establishments. Third, FinTech is largely propelled by the convergence of multiple advances in technology: the availability and affordability of infrastructure (e.g., Internet, mobile technology, sensors), the maturing technological applications (e.g., platform, big data analysis), and business operations (e.g., sharing economy), among others.

In this case study, we examine the emergent microloan service in FinTech and how the various changes in financial systems play out. According to a report by KPMG and H2 Ventures (2015), lending is one of the four key financial services affected by FinTech, along with payment and transactions, wealth, and insurance. Although the notion of microloans is not novel (e.g., the borrowing and lending of money especially in small amounts have occurred between family and friends for centuries), it happens primarily through informal channels because the costs of serving this customer segment would be relatively too expensive considering the small amounts of money involved. Nonetheless, companies are now able to offer small loan services as technology reduces the transaction costs.

Our paper will present the case of 007fenqi, a FinTech start-up in China that offers microloans to college students. This paper is organized as follows: a brief literature and the details of the research method will first be provided, followed by our case analysis. Next, the key lessons learned from the case will be presented before a discussion of the implications in the concluding section of this paper.

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