Now, thanks to the rise of mobile payments and e-commerce, China's technology companies have hordes of data on consumer behavior that can determine the risk of lending to someone. Some firms are already extending credit using that information. But, amid increased government scrutiny on financial technology companies and banks' desire to reach more retail customers, both sides are increasingly working together.

State-owned or state-affiliated lenders account for the majority of the local banking system. They have historically preferred to lend to state-owned enterprises because those are essentially risk free compared to consumers in a society that lacks comprehensive credit histories.

Lack of investment options, high smartphone and internet penetration, and rapid growth in household wealth have created a unique environment for financial services in China.

It's not that banks in the world's second-largest economy are at risk of being replaced or disrupted. Rather, they are under pressure to work closely with financial technology partners so they can beat competitor banks, according to Nicholas Zhu, vice president and senior analyst at Moody's financial institutions group in Beijing.

In another sign of the growing clout of Chinese technology giants, many local banks are looking to the firms for help rather than build their own in-house services.

Almost all the mid-sized and commercial Chinese banks have signed commercial agreements with technology giants Alibaba, Tencent and Baidu in the last two to three years, according to David Yin, vice president and analyst at Moody's financial institutions group.

That contrasts with U.S. banks' focus on developing technology from within. J.P. Morgan is set to roll out this week free trading for its more than 47 million mobile or online users. The leading free trading app in the U.S., Robinhood, has more than 5 million users.

"Integrating a customer's entire financial life, from their credit/debit cards to mortgages and (now) investments gives a financial institution the chance to collect an entire data-driven picture of what other services they might want. That allows for more intelligent cross selling and new product development," Nicholas Colas, co-founder of DataTrek Research, said in a note about J.P. Morgan's forthcoming product.

Mobile payment apps in China already have much of that data thanks to a mix of promotional deals and convenience that helped mobile pay become the primary means of daily commerce in the country.

Alipay, run by Alibaba-affiliate Ant Financial, has grown to at least 520 million users in less than 15 years. Its penetration has reached more than 51 percent of mobile phone users in China, according to data from app developer services company Aurora Mobile. In comparison, the data showed that apps for three of China's largest banks have penetration of about 7 to 11 percent.

On that customer base, both Ant Financial and Tencent have built an array of financial services. Notably, the Yu'e Bao fund integrated into Alipay became the world's largest money market fund in four years. Assets under management have moderated to around 1.45 trillion yuan ($213 billion) as Yu'e Bao launched other money market funds to address concerns from regulators on the size of a single fund. Meanwhile, more than 4,000 wealth management products are available on a dedicated app called Ant Fortune, according to the company.

Ant Financial can forecast customer redemption behavior based on its data, said Junhua Mao, executive assistant to the company's CEO. He added there was a 70 percent increase in Yu'e Bao users buying other types of financial products after the launch of an artificial intelligence-based investment recommendation feature on Ant Fortune.

Ant Financial expects technology service fees will become a key pillar of its business in the next three to five years, according to a spokesperson. In the last few months, the company has partnered with several Chinese banks, including Shanghai Pudong Development Bank, Huaxia Bank and China Everbright Bank.

The banks could not be reached for comment, but they did discuss collaborations with technology firms in their latest annual reports. For example, Huaxia noted in its 2017 annual report it "entered all-round partnerships with Tencent Group, JD Finance, PICC Financial Services Company Limited and other companies."

That said, the banks may not be completely immune from technology-driven competition: Tencent and Alibaba have both backed online-based lenders. Meanwhile, some financial firms are, in fact, successfully creating their own tech: Chinese finance and insurance giant Ping An says its technology unit, OneConnect, has partnered with 441 banks and has served nearly 89 percent of urban commercial banks across China.

Navigating government regulation also remains a challenge for both technology and financial institutions. But the smartphone-driven Chinese consumer will remain a key driver of business, both at home and abroad.

Chinese financial technology firms are going to turn into "very, very powerful financial entities as a result of dominating the mobile payment system," said Ben Bystrom, a former Tokyo-based executive for Morgan Stanley and Merrill Lynch, and an instructor at the University of Hawai'i at Mānoa's Shidler College of Business. From a global perspective, he said, those Chinese firms are "competing better than they ever have."