Global investments in financial technology (Fintech) ventures grew 10% in 2016 reaching US$23.3 billion, according to data soured from venture capital financing database operator CB Insights.
Fintech financing in China has helped pushed Asia Pacific to the top globally, with the region accounting for 48% or US$11.2 billion in investments in 2016. By comparison, North America attracted US$9.2 billion in Fintech financing in 2016, and Europe attracted US$2.4 billion.
The number of Fintech deals rose sharply in all major geographies, to nearly 1,800 from approximately 1,200 in 2015. However, the growth in total value of Fintech investments was due mainly to China and Hong Kong, where just 3% of the deals accounted for nearly 43% of total Fintech investment globally.
Richard Lumb, group chief executive – Financial Services at Accenture, noted that investments in Fintech have grown steadily at 56% annually since 2012. Silicon Valley, New York and London no longer have exclusive hold of innovation as Fintech put Asia Pacific in the investment map.
“The swing of investment from west to east is largely driven by the greater opportunity for new entrants to use Fintech to define the new fabric of the industry than in the west. As a result, global competition among Fintech ventures has never been greater, and financial institutions that are equipped to tap these ventures for innovation are better positioned than ever,” said Lumb.
The China factor
The 10 largest Fintech investments in Asia Pacific in 2016 came from China and Hong Kong, accounting for 82% of all deals. Aggregating all investments increases the two markets’ share to 91% or US$10.2 billion.
Ant Financial Services Group, the financial services affiliate of Alibaba, secured a US$4.5 billion funding round in April. Lufax completed a US$1.2 billion round of fundraising in January while JD.com raised US$1 billion in new funding for its consumer finance subsidiary, JD Finance.
“Well aware that they’re facing disruption from outside the industry, many of China’s financial services companies are making investments in Fintech companies and exploring cutting-edge solutions such as blockchain technology,” Accenture managing director for financial services China Albert Chan said.
“The result is robust competition in payments and lending from non-traditional players and established financial institutions working collaboratively with startups to explore Fintech solutions in other parts of the business.”
More startups but fewer investment dollars
According to CB Insights the actual number of Fintech deals outside Asia Pacific in 2016 rose 48% but the value dropped 24%. The U.K.’s decision to exit the European Union added to political uncertainty in key Fintech markets, and the prospects for regulatory change in the financial sector were particularly pronounced during the 2016 U.S. election cycle.
“For mature Fintech markets like Silicon Valley, New York and London, 2016 was a year of uncertainty,” Lumb added. “The build-up of momentum-capital, high valuations and pressure-tests on the business models of major Fintechs dampened large investments in traditional Fintech hubs.
Political events raised questions about market access and opportunities for Fintech ventures, and questions lingered about the economy with regard to interest rates and currency valuations.”
Lumb said the outlook for Fintechs remains bright, but many uncertainties will continue this year. “That will set a higher bar for performance among Fintech ventures, particularly in the US and UK. The winners will be those who understand how to tailor their innovations and compress their time-to-market and are able to leverage traditional financial institutions to their advantage.”