AI innovation and adoption in China
China is becoming a major hub for global AI development. In a recent study from CB Insights, a total of US$15.2 billion was invested in AI start-ups worldwide in 2017, of which 48 percent went to start-ups in China and 38 percent went to start-ups in the United States. This is the first time China’s AI start-up funding has surpassed funding in the United States. Excluding early stage investments, a further 25% of Chinese companies are planning to implement AI within the next 12 months, according to a survey conducted by Forrester Consulting in September, highlighting the exciting and far-reaching potential for AI technologies to improve many industries in China.
How AI is reshaping the banking business
Artificial intelligence is rapidly changing the way financial services are structured, provisioned, and consumed in China. The bonds that held together the component parts of incumbent financial institutions have been weakened, and the door to a new set of competitive dynamics supported by technology has been opened. The advances in AI technologies brought on by the rapid emergence of Fintech organizations are facilitating even more cooperation between financial institutions and technology-driven companies.
“Utilizing emerging technology-based tools like AI, we are positioned to serve essentially anyone in need of financial services in China supporting our mission to become everyone’s financial partner,” says Mr. David Ye, Chairman of Jianpu Technology, a leading independent open platform for the discovery and recommendation of financial products in China. In recent years, technology companies like Jianpu fueled the explosion in access to financial services. As detailed in the company’s recent earnings report, credit card volume, which is the measure of the number of credit cards applications from which the Company generates revenues, was 2 million applications in the third quarter of 2018, representing an increase of approximately 82% from the same period of 2017.
What’s also notable is Jianpu’s big data and risk management business has seen a robust 180% year-over-year increase in revenue. This growth shows Jianpu’s collaboration with financial service providers is not limited to facilitating loans and issuing credit cards which also makes it difficult to define the company only as a platform offering diversified financial products. Further expanding its offering, in July Jianpu launched a Joint Modeling Laboratory where the company works closely with financial institutions to build models. By integrating big data and AI technology, these models will further equip financial service providers with enhanced operating efficiencies and improved decision-making processes.
Chinese banks have already begun to integrate AI capabilities into their internal and external operations to aid long-term sustainable development. Instead of competing, banks and tech companies are leveraging their own core skills to support each other, which creates many opportunities for companies like Jianpu. For example, after observing growth in multi-card holders’ application and delinquency rates, one of the top tier banks in China decided to moderate growth to improve asset quality. To aid in that effort, Jianpu leveraged the bank’s position as the largest third party provider of credit card traffic to jointly develop a model to identify and selectively remove around 15%-20% of the highest risk applications. In testing, the model successfully reduced the non-performing rate by 60%, and it is now in use at the bank and has been proven to be very effective.
Jianpu is continuing to explore more possibilities to collaborate with banks and other financial institutions by further boosting its AI technology capabilities. Recently the company appointed Mr. Yu Zou, the former Chief Scientist at Beijing Yahoo Labs, to lead its AI Research Institute and explore the AI applications and capabilities surrounding a series of technologies like machine learning, natural language processing, image recognition and voice interaction. Jianpu is rapidly expanding the market penetration of their big data and risk management services. The company’s strategy is to develop and deploy tools that will significantly enhance a bank’s financial services capabilities and help banks maintain long-term competitiveness in a fiercely competitive marketplace.
Banks and Fintechs, instead of banks versus Fintechs
Banking and technology leaders are in agreement that AI is playing a vital role in the development and reach of financial services, although banks are highly regulated and sometimes are challenged to offer fast, customer-oriented service. Fintechs, on the other hand, are flexible and generally successful at focusing on specific segments with unmet needs. As a result, many banks see AI and machine learning as a way to reduce costs with collaborations with promising Fintech companies as a means to expand globally.
Due to its large population and accommodative regulatory environment, businesses in China can have access to more data than competitors in other countries. This data is used to train AI systems, and as China introduces its obligatory social rating and citizen monitoring system in 2020, the amount of data available will explode. Companies like Jianpu are focusing on ways to utilize this data, but in the end, the biggest winner is the consumer. Further collaboration will bring better, faster, simpler, user-centric service. This will offer consumers new possibilities to improve the way they approach personal finance and newly empowered customers will lead to enhanced long-term relationships.