Fintech in the Era of Global Entrepreneurship

On January 27th-28th, I attended the CREDIT Conference, a fintech and marketplace lending event at Pier 27, San Francisco dedicated to Sino-US collaboration. There were prominent speakers and attendees from leading financial institutions, fintech companies and lending platforms such as Lending Club, Prosper, Kabbage and Avant; and San Francisco’s mayor, Edwin Lee, even spoke.

Fintech is revolutionizing China’s finance industry and presents tremendous opportunities for entrepreneurs, professionals, and investors in both China and the US. The Credit Conference helped to connect the eco-system of the world’s two largest economies in this bourgeoning industry.

My colleague, Jeanine Swatton, Director of Developer Evangelism at Envestnet | Yodlee, was there to moderate a panel with fintech thought leaders, as they shared their views on global entrepreneurship and the risks and rewards of lending to small businesses and consumers. The panelists included:

Below are some key takeaways from the panel discussion.

China is an emerging market that American fintech companies would be wise to invest in. Fan Zhang predicted their market would keep growing “explosively.” He said that Chinese banks are old-fashioned, and not used to dealing with small business or consumer loans, and are instead more focused on large corporations. Based on my conversations with customers and partners, especially in the marketplace lending space, this is an area ripe for disruption and growth.

Zhang’s company, Phoenix Internet Finance, also partners with traditional financial services to do background research on borrowers, as using online data only to evaluate loans in China has its own problems. Again, this could be another growth area for US-based fintech companies, like Jeff Stewart’s Lenddo, which uses social network data and alternative data to make lending decisions.

Another interesting idea to consider is that while there are high costs associated with international expansion in fintech, especially related to compliance, they’re a fraction of what they once were, which means the market is much more open to foreign investment and development. Of course, legal counsel in different countries will also be a growth area, as Lawrence Gilioli also mentioned, in order to navigate the tricky waters of global regulation.

Regulation and security were the watchwords for the day, as Andrew Tang mentioned investing in China or the US was onerous for startups in both countries. He said that lending companies starting in the US and going abroad face regulatory challenges that other startups don’t. Unlike other early stage investing spaces, the regulatory hurdle for lenders is higher, so partnerships with local companies are critical. This is also where digital currencies like Bitcoin can make a big difference.

Gilioli mentioned the value of Blockchain, an electronic apparatus which stores transactional data for digital currency, and verifies the integrity of the transactions. Blockchain helps to increase the security and trustworthiness of digital currency exchanges, which can also help avoid high regulatory hurdles, as well as fraud.

Stewart said that a combination of data and technology can also be used to wipe out fraud. He discussed how new fintech companies will compete with large global institutions like Tencent and Alibaba, as well as Apple and Samsung. The Chinese government is even considering allowing their telecom providers to get into banking.

David Kawata confirmed Stewart’s ideas and indicated that he’s looking forward to the opportunity of using data to help reduce risk by changing the credit modeling. He said that traditional lenders would even begin creating more traditional cash flow models with alternative data as a way to evaluate risk.

Stewart recommended having data scientists work closely with risk modelers. There’s plenty of data and computing power, which can be used in risk management. They actually use their data to determine a borrower’s character, by looking at their social media data.

Are you looking to learn more about trends driving change in marketplace lending and credit risk management? Join this VentureBeat webinar on February 24th and find out how to drive profitability in lending through technology and data.