With China and India leading the way, investment in the Asian fintech space quadrupled year-on-year to $4.5 billion in 2015 owing to the 130 deals during the year as compared to 119, a year ago.
According to a report The Pulse of Fintech, 2015 by KPMG and CBInsights, investment in Asia’s fintech rose from $1.1 billion in 2014 to $4.5 billion in 2015, a majority of which came in the second and third quarter of the fiscal year, when investment reached $2.2 billion and $1.6 billion respectively.
Deals in the $50 million-plus category including the mega $680 million investment in India’s One97 and $931 million in Chinese insurance firm Zhong An propelled the investments in the second and third quarter last year. The momentum however tapered in the last quarter of 2015, with only $400 million worth of investments in Asian fintech firms as compared to $1.6 billion in the preceding quarter.
According to the data available, the steep drop of 75 per cent came despite a smaller decrease of just 18 per cent in deal activity, with 31 deals done in the fourth quarter as compared to 36 a quarter ago.
The slow fourth quarter can be attributed to the global slowdown in that period, however as per the report the tapering of pace is not expected to affect fintech for long given investor interest all over Asia.
Despite the perception that while money is readily available at the seed level, Series A upwards the funds are tightening, Asian fintech seed deal share fell steadily to a five-quarter low to 16 per cent after accounting for 39 per cent in the first quarter of 2015.
The deal activity has now shifted toward the mid-stage, which was visible in the fourth quarter that saw Series B and Series C stage activity combine to take 29% of activity. While Series A dominated the third and fourth quarter, when compared with the first two quarters where seed funding had a larger piece of the pie.
This is also evident in the fact that the median early-stage fintech deal size in Asia rose for the fourth straight quarter to $4.5 million in the fourth quarter of 2015 where the deal size high was 543 per cent larger than the median early-stage fintech deals in the same quarter last year.
Asia charts its own path in fintech
When it comes to fintech, companies in Asia are spurred by a diverse range of market drivers and incentives. According to the report, while corporates in more mature regions of the world typically see fintech companies as a disruptor to traditional banking, in Asia there is a much broader focus on fintech as an enabler for existing companies to extend their market share and to gain customers among the non-banked and under-banked populations.
Companies in Singapore and India have been leading this charge– buoyed by digital opportunities and the increasing use of mobile, even in remote regions.
“In the past, companies looked at western business models as best practices and tried to figure out how to replicate them in Asia. I think you will increasingly see new business models coming out of Asia looking to take on enterprise market or consumer market. This is being driven by mobile technologies,” says Irene Chu, Partner, Head of High Growth Technology & Innovation Group, KPMG in Hong Kong.
While China and India lead the way in Asia, Singapore and Hong Kong are also emerging as fintech hubs. Even Japan and Taiwan, that were considered laggards in fintech investment, are trying to catch up. Their local regulators are currently investigating fintech opportunities in order to see how they can use fintech to accelerate innovation, the report said.
“In Asia, each country is developing its own fintech agenda. Some are more mature than others. All are trying to understand how they can leverage fintech to build a sustainable ecosystem and accelerate their support of regional and global markets without negatively impacting existing financial services,” said James McKeogh Partner, Management Consulting, KPMG in Hong Kong.
In China, for example, partnership and collaboration is seen as a major driver of fintech with many banks and insurance providers active in the space. In particular, Chinese banks are focusing their strategies around the small and mid-sized enterprise space, an area that has been under serviced by large banks in the past.
Also, the Chinese government is taking a particular interest in driving fintech in a responsible manner. The government has realised the need to stabilise the market while enabling companies to innovate and expand. It is expected that over time, there will be more consolidation within fintech in China as non- performing startups fade away and larger ones grow and prosper as a result of corporate investment and partnerships, according to the report.
Therefore, in 2015 China’s fintech grew exponentially from around $600 million in investment in 2014 to almost $2.7 billion in 2015, thanks to the numerous $100 million+ deals, including $931 million private equity funding in Zhong An, $485 million PE funding in Lu.com and $207 million Series C funding in Dianrong.
Similarly, India’s fintech investment also witnessed robust growth from $247 million in 2014 to over $1.5 billion in 2015.According the report, this growth can be linked to the positive take the country’s banking regulator has taking on alternative banking providers. In 2015, it issued 21 banking licenses primarily to companies looking to harness technology to serve underbanked and non-banked populations.
The country’s traditional banks have also increased their focus on fintech opportunities and using fintech to spur internal innovation.The large presence of corporate funding was also evident in 2015. With the presence of Alibaba, Tencent, Baidu, Rakuten and others, corporates participated in 40 per cent of all financing deals to Asian VC- backed fintech companies in the fourth quarter.
Corporates participated in nearly half of all deals to VC-backed fintech companies in the third quarter.On the VC side, there was a three- way tie for most active VC in Asian fintech companies since 2011 between Accel Partners, East Ventures, and Sequoia Capital China. 500 Startups and Sequoia India rounded out the top five.