Global investment into venture capital (VC)-backed fintech startups hit a record high in 2015, of which China accounted for almost one-fifth of the total value, finds a recent KPMG report.
Fintech companies attracted total investment of USD19.1 billion in 2015, with USD13.8 billion invested into VC-backed fintech companies, a 106 percent jump compared to 2014, and a record year for VC-backed fintech investment. This is according to Pulse of Fintech, a quarterly global report on fintech VC trends published jointly by KPMG and CB Insights.
China’s fintech investment saw a significant increase last year – growing from USD619 million in investment in 2014 to almost USD2.7 billion in 2015 - despite lower transactions (26 deals compared to 37) the previous year. This significant rise is attributed to a number of mega deals valued over USD100 million each.
James Mckeogh, Partner, KPMG China, says: “The spike in investment activities in China is fuelled by the large market it represents - it has a huge appetite for innovative products, supported by the rapid pace of technology development.”
Major cities including Beijing, Shanghai and Shenzhen recorded a number of deals, indicating that fintech hubs are likely to expand across China, the analysis finds.
In terms of sectors, China sees strong performance in lending technology such as peer-to-peer lending platforms; and underwriter and lending platforms that utilise machine learning technologies and algorithms to assess creditworthiness. A total of USD538 million was invested into 10 deals in China’s lending technology sector last year. The United States meanwhile topped the chart with USD2.72 billion in 36 deals.
The analysis also finds that banks and insurance providers are active in this space in China. Irene Chu, Partner and Head of High Growth Technology and Innovation Group, KPMG China, says: “Chinese banks are focusing their strategies around the small and mid-sized enterprise space, an area that has been underserviced by large banks in the past. There’s also increasing interest in fintech companies that offer alternative financing arrangements, giving consumers alternatives beyond traditional banks. This is especially true in remote areas where large percentages of the population are under-banked.”
Overall, global funding momentum in the fintech sector experienced a pullback in the last quarter after reaching record highs in Q2 and Q3 2015. Without the support from mega deals, VC-backed fintech transactions declined slightly to 154 in Q4, from 165 in Q3, while deal values slumped 63.8 percent to USD1.7 billion. This is in line with the broader slowdown for VC-backed companies.
KPMG notes that interest in fintech remains strong, however funding is expected to be tougher to come by and valuations will retreat in line with the underlying fundamentals; some consolidation among fintech companies in China is therefore expected.
Chu adds: “The Chinese government is conscious of the need to stabilize 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.”
Mckeogh concludes: “Interest in the market continues to be on robo advisors, blockchain enable capability around asset management, consumer payments. Meanwhile, financial institutions are also looking at additional technologies and partnerships, in order to increase affinity with their consumers and customers.”
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