JPMorgan predicts that in the next three to five years, China’s financial technology industry will grow into a market of several hundred billion yuan in scale in which Internet companies will occupy major share. Therefore, JPMorgan believes that financial technology will be the next new pillar of the Internet business model besides advertising, gaming and e-commerce.

The business opportunities in China’s financial technology market are substantial. According to JPMorgan’s estimation, the annual turnover of China’s financial technology market will reach about RMB460 billion by 2020, representing a CAGR of 44% increase over 2016. In comparison, financial technology companies focus on data collection and product distribution as their core competitiveness while financial institutions have the strength of balance sheet management and understanding of financial products.

According to JP Morgan’s analysis, the mutual cooperation between financial institutions and financial technology, coupled with the light asset model adopted by financial technology companies, will help both sides expand their potential markets and ultimately benefit the return on equity of financial institutions and financial technology companies, which is a win-win situation. Conversely, if the two firms compete against one another, the risks to balance sheets (credit, liquidity, etc.) that financial technology firms face may increase, resulting in negative influence on regulatory side.

However, it’s not necessarily a zero-sum game between financial technology companies and financial institutions: financial institutions have a robust balance sheet and a wealth of knowledge of financial products, while financial technology companies often have superior technology, data mining capabilities and user traffic. It is wise to cooperate with each other. Although financial technology companies have affected banks’ commission income in the payment field, they helped expanding the non-cash transaction market for banks. JPMorgan estimates that this area has a considerable market size, sufficient to support the simultaneous growth of financial institutions and financial technology companies. But if large financial technology companies try to get involved in asset accumulation and complex financial products, they will face the challenge of financial risk management and strict regulations.

To quantify potential markets for third-party financial technology companies, JP Morgan predicts that by 2020, the quantity of loans of online lending institutions will reach RMB 4,487 billion, online financial products distribution volume RMB 10 trillion, online payment transactions 339 trillion yuan, online premiums 800.6 billion yuan, with the CAGR increase of 46%, 25%, 56% and 23% respectively compared to 2016.