New figures show that global venture capital funding volumes for the financial technology (fintech) sector dropped in the third quarter of 2016. However, Asia managed to buck this trend.
Asia is fast-developing a thriving fintech scene. Asia is home to many of the 60% of people worldwide who do not have a bank account, according to the Wall Street Journal. Fintech firms are now capitalising on rising internet access to increasingly provide convenient financial services to these unbanked Asian citizens. The region also contains thriving economies such as China, the largest growing economy on earth and together, these factors provide fertile ground for fintech investors.
In the first half of 2016, the Asia-Pacific (APAC) drove global fintech funding. Within this period, fintech investment was higher in APAC (at US$9.6bn, around double the total for the year before), than in North America (US$4.58bn) and Europe (US$1.85bn). This progress was supported by China, which accounted for 90% (US$8.75bn) of APAC fintech investments in the opening six months of 2016.
Bucking the trend
KPMG and CB Insights recently released their Pulse of Fintech report, shedding light on international venture capital fintech financing. Industry news portal Finews Asia writes that according to this research, globally venture capital fintech funding decreased by 17%, to hit US$2.4bn in the third quarter of 2016. Meanwhile global fintech deal activity dropped by 12% in Q3 – the second consecutive quarterly decrease, to 178, reaching its lowest volume since the second quarter of 2014.
It is important to note that due to due to the current geopolitical background, Asia, Europe and North America all saw fintech deal activity drop in the third quarter of 2016. However within this period, Asia was the only continent to see venture capital-backed fintech funding increase, meaning that investment is expected to climb to new heights here by the close of 2016. Also various authorities in Asia are currently examining ways to attract more venture capital funds, the report noted.
Commenting, the Head of Financial Services Advisory in KPMG Singapore, Chia Tek Yew, said: “Asian investors are seeing the potential of fintech amidst global uncertainty in an environment of moderating growth, as businesses continue to embark on the journey of transformation, interest and investment in Asia’s fintech sector will continue to be strong, particularly in areas like payments technology, insurance technology and regulatory or risk technology.”
Fostering economic growth
We are living in uncertain times. Long-terms trends such as climate change, along with recent political shock events, such as the election of Donald Trump as US President, are combining to create a very unstable global economic environment. This raises questions over how Asia’s small to medium-sized enterprises (SMEs), which are critical to the region’s economy, can access start-up and growth financing, to power the area’s economy forward. Compounding this problem, venture capitalists are beginning to pull away from the continent, due to this same unstable global economic climate.
In its booming fintech sector, Tan Sri Andrew Sheng, a Trustee at the Malaysia-based Khazanah Research Institute recently argued, the Asian economy could find a champion. With these latest figures, it is clear that the region’s fintech scene is attractive enough to draw cautious venture capitalists. As Asian nations develop their fintech sector with venture capital investment, they could broaden funding options for their entrepreneurs, potentially boosting economic progress.
Image courtesy of Mstyslav Chernov.