Investments in venture capital-backed Chinese financial technology companies hit a record high in 2016, bucking a global decline in such spending, consulting firm KPMG said in a new report.
The record setting pace is yet another sign that the country’s digital financial services industry is undergoing explosive development, especially in mobile payments.
“Tech giants in China have become very active in fintech, leading to significant large deals which tend to boost the fintech sector,” Arthur Wang, Partner and Head of China Banking at KPMG China, said in a statement.
The report said that investment in venture capital-backed fintech firms in China breached US$6.7 billion in 2016. The number of deals declined to 25 last year, from 40 a year earlier, but the value increased 42.6 percent.
The strong performance was largely the result of three mega-deals in the first half of 2016, with the record-setting funding round of $4.5 billion to China-based Ant Financial.
Payments and wealth management dominated, with some 70 percent of all investments falling into these sectors. “This is an interesting trend, as payments have begun to ‘cool’ in Europe and the US, while picking up steam in Asia”, the Pulse of Fintech report said.
Global investment activity in VC-backed fintech firms fell 14% to 1,076 deals, while the value declined 46.8% to US$ 25 billion. The consulting firm said that this was largely due to the absence of merger and acquisitions and private equity investment.
In China, the surge of fintech services is a growing headache for traditional banks which have been left painfully behind in the competition for e-commerce and new payment methods.
The world’s four most valuable fintech unicorns – a startup company worth more than US$1 billion – are Chinese. The largest is Ant Financial, an arm of e-commerce giant Alibaba, which is valued at US$60 billion. Second is the peer-to-peer lender Lufax at US$18.5 billion). That’s followed by JD Finance, a joint venture between e-commerce site JD and Tencent, valued at US$7 billion, and then instalment payment firm Qufenqi worth US$5.9 billion.
￼“After experiencing significant success domestically, larger fintech players in China are beginning to look globally to fuel their continued growth and expect collaboration to be a critical part of their success,” Wang said. “It is expected that further collaboration between fintech giants in China and companies in other regions will likely continue throughout 2017.”
The big Chinese tech companies are also investing heavily in smaller startups to access the next generation of financial services, including blockchain technology, as used by Bitcoin, and artificial intelligence.
The report said data and analytics is set to be a key focus of fintech investment in Asia in 2017.
The ability to access and analyse customer data is an important enabler to the success of many fintech product offerings. Interest in internet of things (IoT) technologies that provide adjacent value — such as home automation technologies that can be used by the insurance industry — is also expected to grow.