Asia is rapidly developing a vibrant financial technology (fintech) sector, due to a high demand for services, which is gradually attracting increasing investor interest. It is clear that Asia is quickly becoming the world’s most valuable fintech market, with recently released figures indicating that the value of Asian fintech deals came second only to the US’ in 2016. Htet Tayza comments.
There’s a major gap in the Asian financial market, which fintechs are increasingly filling. Its unbanked rates are higher than anywhere else, creating demand for fintech such as digital payments services, which promote financial inclusion. Recognising this trend, Asian governments such as Hong Kong are fuelling fintech growth, by developing favourable “sandbox” fintech regulatory regimes. This enables major firms to develop new financial technologies in their country, largely free of regulatory burdens.
Hong Kong is the perfect example of a thriving Asian fintech hub. According to Fintech News, an industry portal, the city-state has not only adopted a favourable regulatory environment, but its financial institutions are setting up incubators and acceleration programmes, to supply entrepreneurs with the knowledge they need to start new fintech businesses. As of mid-2016, Hong Kong now has around 1,500 fintech ventures and is home to rising regional leaders. This notably includes one of Asia’s biggest online finance firms – WeLab, which operates China’s largest lending platform, Wolaidi.
Due to this potential, venture capital investors are flocking to the burgeoning Asian fintech scene. These investors typically devote capital to new projects which carry significant risk. Data released by consultancy KPMG and CB Insights, a financial research firm, shows for example that global venture capital fintech investment rates dropped by 17% in Q3 2016. The only continent that saw a rise in fintech venture capital investment in this period was Asia, illustrating the vitality of its fintech sector.
Asian fintech venture capital investment kept growing across the rest of 2016, news site Fin Extra writes. Fresh data from CB Insights indicates that last year, venture capital investment in Asia-based finch start-ups climbed to US$5.4bn, while the equivalent figure for the US was US$5.5bn. In terms of fintech deals, Asia saw a rise from 162 to 165 in 2016, while there were 422 in the US. Asia now accounts for 20% of fintech deals, representing 43% of fintech venture capital funding globally.
Role of China
Asian fintech venture capital investment was boosted massively by the colossal Chinese market last year. According to CB Insights, fintech start-ups based in the People’s Republic gathered US$4.8bn in venture capital funding in 2016. Meanwhile, nine of the world’s top ten most valuable fintech deals of 2016 were struck in mainland China. This includes the year’s two largest deals…
- US$1.2bn raised by Lufax, an online lenderm for its second round funding, which was led by Ping An Insurance, an insurance provider based in Shenzhen, one of China’s most prosperous cities.
- US$1bn invested into JD Finance, an affiliate of JD.com. This is a rapidly expanding online shopping portal, which is based in the Chinese capital of Beijing.
It’s important to note that there was one Chinese fintech deal which CB Insights chose not to factor into their data. This was the US$4.5bn series B share placement issued by an affiliate of Alibaba, called Ant Financial. Alibaba is one of the world’s biggest e-commerce firms, with a value of US$60bn. Meanwhile, a consortium of private firms and Chinese state-owned companies opened a US$1.44bn investment fund in early January 2017, to bankroll fintech acquisitions and mergers going forward.
This new data from CB Insights basically shows that Asia is fast catching up to US, in terms of fintech venture capital funding. The US has the world’s largest economy, along with one of its most lucrative fintech scenes, which is based in New York City. It is also home to major fintech players such as Paypal, a California-based global digital payments service worth roughly US$46bn.
This shows that increasingly, Asia is developing the world’s most lucrative fintech sector – largely due to the colossal Chinese market – because it has more potential than established markets such as the US and Europe.