CCB is the only Big Four state-owned bank to have set up a dedicated fintech unit. Industrial and Commercial Bank of China, Bank of China and Agricultural Bank of China have not launched fintech divisions despite tech firms competing with bricks-and-mortar banks on product offerings, distribution channels and even cannibalising their customers.

And now they are increasingly showcasing their newly developed fintech capabilities, launching retail and corporate banking services in the Greater Bay Area (GBA), which encompasses Hong Kong, Macau, and nine cities in Guangdong province, as they seek to deliver cross-border services via digital banking.

Zhang Lilin, executive vice president of CCB, said the bank’s investment in fintech development last year reached 2.2 per cent of its operating income, 22 per cent higher than in 2017.

“Fintech has quickly transformed the operations and commercial model of the financial sector,” Zhang said on the sidelines of the bank’s 2018 results in Hong Kong last week.

He said CCB has developed an app specifically targeted at clients searching for apartments in the GBA. It connects builders, apartment owners and tenants, while offering clients loans for long-term leasing through the platform.

China Merchants Bank, which is also striving to transform itself into a “digital bank”, said in its 2018 annual report that IT expenses rose 35.2 per cent from a year ago to 6.5 billion yuan (US$968 million), accounting for 2.3 per cent of its net operating income.

It has taken part in the development of the People’s Bank of China-led trade finance blockchain platform in the GBA. The Shenzhen-based bank has also worked with the construction industry on a blockchain-based centralised procurement supply chain finance platform.

Observers say Chinese banks’ decision to set up fintech units stems from the fact that, through an independent unit, their management would have more flexibility in recruiting talent with attractive pay packages on par with those offered by private tech companies.

The importance of having in-house talent also reflects growing competition from internet giants, such as Baidu, Alibaba Group Holding, Tencent Holding and JD.com, according to a Minsheng Bank research paper on the development of Chinese banks’ fintech units issued in January.

“Since 2013, these internet firms have entered China’s financial services sector through a series of user-friendly online financial products that have lower eligibility criteria [for borrowers]. They pose positive competition for commercial banks,” the study said.

But some of these six banks that have set up their dedicated fintech units have also chosen to partner with leading Chinese internet giants to tap their technology and build their in-house services.

In May 2018, Ant Financial, the fintech unit of Alibaba, which owns the South China Morning Post, signed a cooperation agreement with China Everbright Bank to help the bank’s digital transformation effort.

Ant Financial is helping China Everbright’s fintech unit develop its cloud platforms, internet finance and mobile architecture. Ant Financial will also sell its artificial intelligence-related applications and biometric verification technology to the bank.

Liu Weiguang, vice-president of Ant Financial, told the Post that its partnership with banks’ fintech units is “a complementary relationship”.

“Partnerships like [China Everbright Bank] enable banks to develop and launch new products and services for their customers more quickly, without having to worry about fundamental technologies,” Liu said.