Chinese companies that are engaged in financial technology, or fintech, are increasingly collaborating with banks, some of them even helping banks acquire retail customers, as the financial institutions build out their digital banking services and technology. That is a fundamental shift from several years ago, when fintech companies entered the market with the aim of using digital technology to disrupt and disintermediate traditional banks from the financial business. Tighter regulations such as the 2018 asset management rule governing banks’ wealth businesses have squeezed banks’ income sources, pushing them to tap the retail banking business for revenue. Early movers such as China Merchant Bank and Ping An Bank reported that retail loans contributed to over half of their entire loan book in 2018.

Such transformation towards retail banking has benefited fintech groups, with companies like Lexin Fintech and 360 Finance positioning themselves as banks’ technology partners, rather than disrupters that compete against them. “Chinese banks are still at the Banking 1.0 stage, as most of them serve clients offline,” said DBS Group Research’s Analyst Cindy Wang. “Fintech companies could help banks serve clients through their online platforms, using mobile apps to expand their customer base and shorten new account approval time through artificial intelligence (AI) and big data analysis.”

It has taken less than a decade for early fintech movers such as the Alipay service by Ant Financial Services Group and Tencent Holdings’ WeChat Pay to dominate China’s mobile payment market, together accounting for 94% of the USD12.8 trillion market for online transactions. Other fintech companies have been keen to ride the retail banking wave, selling banks their risk management technologies and refer borrowers to banks and earn a service fee. Nasdaq-listed Lexin announced last month a partnership with 19 banks and consumer finance companies including Industrial and Commercial Bank of China (ICBC), China Minsheng Bank and Bank of Tianjin to help match borrowers with creditors in real time. Nasdaq-listed 360 Finance has also partnered with banks to provide its digital revolving credit line to over 12.5 million users between 18 and 35 years old, the South China Morning Post reports.

In other financial news, JPMorgan could become the first foreign company to own a majority stake in its Chinese mutual fund business China International Fund Management (CIFM), after its joint venture partner Shanghai International Trust put a crucial 2% of the business up for sale. Under new rules announced in late 2017, foreign asset managers can own up to 51% of their Chinese mutual fund joint ventures, though, so far, no company has managed to do so. “This is a very, very critical step because this potentially could open the door for a number of other deals to begin working their way through the process,” said Peter Alexander, Founder and Managing Director of fund consultancy Z-Ben Advisors.