【正文】 party payment panies is growing and now prise 40% of retail. (US: thirdparty 7%。 total cashless 75% by 20xx). We expect this to rise to 68% by 2020. (p. 5556) In China, traditional bank cards? average transaction size of US$930 is almost 10X larger than thirdparty payment?s average transaction size of $88. (p. 24) 10x USER BASE There are in total thirdparty payment accounts in China (20xx). (p. 47) GAMIFICATION OF CASH 14bn virtual ?red packets? (China?s traditional cash filled red envelope that people give each other during festivals) were exchanged via WeChat Pay on Chinese New Year?s Eve Alipay: 520mn (Mar 2017) Tenpay: 600mn (Dec 20xx) For context, Paypal has 197mn users globally (Dec 20xx) in 2017. (p. 43) Future of Finance: The Rise of China FinTech August 7, 2017 Goldman Sachs Global Investment Research 4 Portfolio Manager?s Summary Why read this report? See five realworld case studies for payments on pages 2526, 43, 48, 53 Infographic on China FinTech ecosystem: Pages 67 List of key players: Page 9 Total addressable market Trend 1: Integration Ne w conglom er ate Ecosystem Closedloop Trend 2: Regulation Progrowth Risk management Private capital participation Regulatory changes and new technologies are reshaping China?s banking activities. The pace and magnitude of the development is vastly different versus the rest of the world. A group of hybrid tech/finance panies, such as Ant Financial, Tencent, JD and Ping An have emerged at the heart of China?s financial industry, making financial services more convenient and accessible for consumers. This has resulted in China leapfrogging from a world where consumers largely relied on cash, to cashless or even cardless transactions, paying, borrowing and investing, all through their smartphones. We expect the changes to continue over the next 510 years, with new entrants emerging and new profit pools being created. Within this report – our first in a series – we lay out addressable markets with large untapped consumer demand, then explain three key shaping trends that investors need to understand about the China FinTech space before looking at individual business lines, such as the high integration, evolving regulations and internationalization. Lastly, we focus on thirdparty payment, an area with the most innovations so far, through ?realworld? cases and a deep dive into business models. In our view, payment is a crucial gateway to most other services, and where the innovators have gained the strongest footholds in China. Untapped consumer demand drives FinTech opportunities: Historically, the traditional banks in China focused more on serving the stateowned enterprises, leaving the financial needs of consumers and SME?s underserved. As China?s economy slows, consumer spending has bee pivotal to transform the economy that was heavily reliant on investment. Some innovators, before they enter the financial sector, had already built a sizeable consumer (and SMEs) user base in their core businesses. To name a few: Ant Financial (33% owned by Alibaba, China?s largest emerce platform) and Tencent (tech giant who owns China?s most popular messenger app WeChat), or Ping An (China?s largest nonstate owned financial pany with a focus on consumer). With the help of technology and the initially supportive regulatory environment, the innovators were able to tap into and expand their existing user base, and capture the unique opportunity set of Chinese consumers. We highlight these addressable markets: Payment: US$ trillion in 2020E in consumptionrelated thirdparty payment value, from US$ trillion in 20xx. The key drivers would be emerce growth and increasing peration in offline retailers as thirdparty payment replaces cash. Lending: US$764 billion in 2020E in loan balance from nontraditional players (inter lenders and consumer finance panies), from US$156 billion in 20xx. The majority of the addressable market es from consumers (US$480 billion) – China?s consumer credit is only 7% of GDP vs 20% in the US in 20xx (excluding mortgages). Investing: US$ trillion in 2020E in financial asset under management, from US$ trillion in 20xx. We note that the innovation in the asset management industry is still at an early stage – much of it is happening within or driven by the incumbents themselves. So it would be too early to define what is nonbank and what is not. Key trends that are shaping the China FinTech Ecosystem Integration: A few hybrid tech/finance panies have started to dominate the space by owning the entire supply chain and distinctive ecosystem around it. Others are trying to enter as they strive to close the loop of their own. The ?integration? mindset defines how Chinese entrepreneurs view their strategy, petition and profitability. Regulation: Regulation plays a vital role in determining the future evolution. In China it is still progrowth, but getting more sophisticated in risk management/customer protection. Private capital has uncharacteristically high participation in the FinTech infrastructure buildout vs other industries. We will pay particular attention to the evolving regulations and dynamic balance between regulators and innovators. Future of Finance: The Rise of China FinTech August 7, 2017 Goldman Sachs Global Investment Research 5 Trend 3: International User base DM vs EM International: Chinese FinTech players started to expand overseas for a broader user base. Local conditions – legacy infrastructure, regulation, demographic and culture norms – will dic