【正文】 by GoldmanSachs Global Investment ResearchFuture of Finance: The Rise of China FinTechAugust 7, 2017Sizing the addressable market: Untapped consumer demandGoldman Sachs Global Investment Research27Thirdparty payment TAM by 2020E:Consumptionrelated TPV: US$Revenue/fee pool: US$11bnInternet lending TAM by 2020E:Consumer credit (excl. mortgages) balance: US$480bnSME loan balance: US$284bnInvesting TAM by 2020E:Financial asset under management: US$We see underpenetrated markets for underserved consumers in three core businesses of traditional financial services: payment, lending and investing…Payment: We focus on payment in the rest of this report. Whilst we estimate that the TPV of consumptionrelated thirdparty payment will reach US$ () by 2020E from US$ (Rmb13trn) in 2016 and the annual revenue/fee pool to be US$11bn (), we also highlight the importance of payment services to gain customer account relationships as well as transaction data, which in turn offer payment panies opportunities to tap into consumer lending and investing.Our analysis is based on the following key assumptions. 1) By 2020E, 68% of the retail consumption would be processed by payment panies, from 40% in 2016. This assumes that China’s digitization of money by 2020 reaches a similar level of US in 2016. This implies that China would need to acplish in 4 years what took US 14 years (20022016).2) We see further downward pressure on the take rate in the next few years, given theregulatory tightening, introduction of the new clearing house, and more petition from players in other industries trying to enter the payment space.We are also aware of a couple of caveats of our method. Please find the details in page 56.Lending: We estimate the consumer lending opportunity will be driven by the (still) fast consumption growth as well as the large underserved cohort including rural workers, migrant workers, 37mn college students as well as some of the blue collar workers. We forecast total balance outstanding of consumer credit (excl. mortgages) to grow from US$841bn () in 2016 to US$ (Rmb13trn) in 2020E, among which internet lending (incl. P2P and consumer finance from internet giants) to increase from US$100bn (Rmb691bn) to US$480bn ().China’s consumer credit is significantly underpenetrated at 7% of GDP vs 20% in the US. In particular we see untapped market in 1) subprimeborrower cash and consumption loans。 and 2) smallticket consumption loans.The core of a lending business is to price the credit and liquidity risks. We see significant potential value added for bigdatabased credit pricing to traditional lending services. However this is yet to be tested over time and through cycles. We also believe that 1) the ultimate number of winners may be much smaller than the vast number of disruptors who claim to own the best algorithm already。 and 2) A winwin scenario for incumbents and disruptors is more likely than a disruptive one, given the nature of cumbersome capital, liquidity and regulatory requirements of a lending business may not fit the aspirations of a tech pany.In addition, we also see a US$284bn TAM for underserved SMEs through internet lending by 2020E.Investing: We forecast China’s total financial asset under management should increase from US$ or Rmb57trn (incl. Rmb16trn bank wealth management products which is more of a savings product) in 2016 to US$ or Rmb82trn in 2020E, driven by Chinese households’ fast wealth accumulation as well as potentially higher wealth allocation to financial assets. We see opportunities for FinTech panies in 1) distribution of financial products。 and 2) ArtificialIntelligencebased (AIbased) investing advisory services. Incumbent asset managers have also been investing/acquiring AIbased service and expanding online distribution channels and we still see great uncertainty around final investing market structure.Exhibit 2: We expect China’s digitization of money by 2020E to reach a similar level of US in 2016.Exhibit 3: We estimate the consumptionrelated third party payment value to reach by 2020E.Increase in noncash transactions 2002 2016Share of noncash transactions as a % of total transactions in 2016 (xaxis) vs increase from 2002 to 2016 (yaxis)Consumptionrelated thirdparty payment value (Rmb trn)50%Selected Emerging MarketsKoreaFinland Norway40%Netherlands Denmark30%20%RussiaChinaItalyFrance PortugalAustraliaUKSwitzerland SingaporeUSASwedenCanada10%0%IndiaKenyaGermanyJapanNoncash transactions as % of total transactions in 20160% 20% 40% 60% 80%Note: Size of the bubble represents the number of transactions of each country in 2016.2016 2017E 2018E 2019E 2020ESource: Euromonitor, Goldman Sachs Global Investment Research Source: iResearch, National Bureau of Statistics of China, Goldman SachsGlobal Investment ResearchExhibit 4: Consumption growth and credit penetration are likely to drive consumer creditConsumer credit balance (excluding mortgage) as %Exhibit 5: We expect consumer credit balance through internet lending to grow from less than Rmb700bn in 2016 to over Rmb3trn in 2020E.14,000of GDP China vs US and Japan19% 20%18% 18% 19%17%16%20%18%Rmb bn12,00010,000Consumer Finance(mainly internet giants)P2P platformsTraditional players14% 14%3% 4%15%4% 5%6% 7%China USJapan8,0006,0004,0002,000(mainly banks)2011 2012 2013 2014 2015 201602016 2017E 2018E 2019E 2020ESource: PBOC, Federal Reserve, WIND, datastream, Goldman Sachs Global Investment ResearchSource: PBOC, WIND,