The U.S. has traditionally maintained dominance in the global fintech market but the dynamics might be changing this year. The Money of the Future 2016/2017 fintech report revealed that Asia booked 47% of global volume in Fintech funding and investments. To zero in on the data, China booked 78% of all the capital invested in Asia with about $7.6 billion invested in top Chinese fintech firms. By implication, China had 39% fintech funding in global volume for the year under review.

Critics could argue that China’s fintech market only recorded a marginal increase in the number of deals from 221 in 2015 to 257 in 2016. In fact, India is actually ahead of China in terms of the number of deals closed. However, the monetary value of fintech deals in China has grown exponentially bigger with a 60% year-over-year increase in funding.

One of the main reasons behind the rapid growth in China’s fintech ecosystem is the mega deals that happened in the country in the last one year. China has witnessed the incredible meeting point of many large local players who had threw their hats into the fintech game. We saw interesting deals between Chinese traditional banks, insurance firms, IT conglomerates, ecommerce giants and venture capitalist to create a buzzing fintech hub.

China’s fintech industry is still under the shadow of the banks

China’s major fintech firms such as Alibaba’s AliPay, Ant Financial, Lufax, WeLab and Tencent Holding’s WeChat Pay are doing a great job of disrupting the financial landscape in the country. However, it appears that mobile payments and its ancillary services are still a long way off from competing effectively with traditional Chinese banks.

To start with, only account for about 3% of revenue at Chinese banks come from credit card fees based on data from Moody’s Investors Service.  Hence, efforts by fintech firms to create alternative financial products don’t have a material effect on the bottom line of the banks. In fact, in Mainland China, credit card adoption stands at 0.31 credit card per capita compared to about 3 credit cards per capita in other developed parts of the world.

If Chinese fintech firms can’t make a headway with credit cards, one would expect that they’ll find it much easier to make headways savings, investments, or other money management services.

However, Chinese banks are the custodians of money for the average Chinese; hence, it is hard to get your money out of the hands of traditional banks into the care of fintech firms. For once, the salaries of most Chinese folks are paid into their bank accounts; hence, they’ll incur costs (up to 10 basis points) when they want to move their money from banks to fintech services.

Interestingly, Chinese banks are also waking up to the reality that we live in a digital world; hence, they’ve been launching digital products and services to compete with offerings from nimble fintech firms. More so, Fintech firms also need to forge alliances with traditional financial firms in order to get symbiotic relationships that offer protection in face of increased regulatory scrutiny. Going forward, it would be interesting to see how Chinese fintech firms are able to weather the storm for long-term viability and profitability.