By Michael Tegos for TechInAsia
2016 was the year fintech became legit in Asia. Startups and entrepreneurs have fought in the financial technology trenches long before 2016. But this was the year everyone from big banks to governments started paying attention.
Asia surpassed the US and Europe on fintech investment in Q3 2016.
Venture capital investment may have dropped year-on-year in Asia both in terms of value and number of deals, according to KPMG and CB Insights’ The Pulse of Fintech report for Q3 2016. But even so, Asia ended up surpassing the US and Europe on that front, with investment in the year’s third quarter reaching US$1.2 billion versus US$900 million in the US and US$200 million in Europe.
The other two territories recorded a higher number of deals, which points to a higher average value for deals in Asia. It’s an interesting reversal from the overall funding situation in Asia in 2016, where there were more deals of smaller value. Asia was also the only territory to mark a quarter-on-quarter increase, up from US$800 million in Q2 2016.
KPMG’s impression is that market uncertainties caused by world events including Brexit and the controversial US elections dampened investors’ interest in fintech – expecting, however, things to stabilize by the time Q4 numbers are in.
Here are some key trends that drove fintech growth in Asia this year:
China led fintech investment despite P2P lending brouhaha
There’s no hiding from China’s massive gravitational field that pulled the vast majority of investment toward its companies this year. In fact, Chinese companies comprised the top 10 fintech investments in our database for 2016.
And they don’t come more massive than Ant Financial’s US$4.5 billion series B round back in April. Alibaba’s payment subsidiary scored the largest funding round ever recorded for a consumer tech company.
Other notable investments included Ant Financial rival JD Finance’s US$1 billion series A round and payment-by-installment services Qufenqi and Fenqile, which raised a series F round worth US$448 million and a series D round worth US$235 million, respectively.
But nothing rocked China’s fintech world like the shipwreck of its peer-to-peer lending industry, triggered by the revelation that P2P startup Ezubao was engaged in fraud – US$7.6 billion was cheated out of 900,000 investors’ pockets, according to police.
This resulted in the Chinese government taking steps to regulate the market and sent public P2P lending company Yirendai’s stock price reeling.
Singapore government opened the door to fintech, inspiring other countries to follow
Given that Singapore is a trade and financial hub in the region, the government wouldn’t mind at all if they could make it a fintech center to rival London – generally considered to be leading in innovation and talent when it comes to fintech.
There’s no shortage of fintech startups in the city-state or in Southeast Asia, and a lot of those companies’ mission is to upend current industry norms. This leads to clashes with regulations and with established financial institutions.
It’s a big shift from fintech being just a glint in tech entrepreneurs’ eyes.
The Monetary Authority of Singapore decided to remove that barrier. First, it pledged to create a regulatory sandbox and an innovation lab for fintech startups to try out their ideas without compromising their users’ security or running afoul of local laws. Then it set up an entire conference around fintech, aiming to bring the banking world closer to the tech startups.
The private sector hasn’t sat idle either, with most major banks in Singapore setting up their own innovation labs and accelerators. Other private initiatives have included the launch of fintech community enablers like Tryb and Lattice80.
Whether this will benefit the fintech startup ecosystem in the country and the region in the long term remains to be seen, but it’s definitely a big shift from fintech being just a glint in some tech entrepreneurs’ and investors’ eyes.
Meanwhile, other countries in the region like Thailand and Hong Kong are looking to follow Singapore’s example and create regulatory sandboxes of their own. Japan has moved to regulate digital currency exchanges, while the Japanese Ministry of Finance and the Bank of Japan have established working groups to dig deeper into the country’s fintech potential.
Payments and services for the unbanked continued blossoming in Southeast Asia
The year saw growth and opportunities for companies trying to digitize banking services in Southeast Asia. Several startups in Southeast Asia raised funding in 2016, whether to take advantage of the region’s ecommerce potential or to serve unbanked populations.
China also made its presence felt in the region, with Ant Financial in particular expanding its Southeast Asian footprint by partnering with Thai payment provider Ascend Money and investing in Singaporean multi-currency trading startup M-Daq.
The fintech opportunities for 2017
The coming year will shape fintech as evolving technologies impact established ways of doing things. For example, insurance will be affected both by big data analytics and the internet of things.
Artificial intelligence and machine learning are already used in wealth management and investment advice.
Banks are eager to explore blockchain applications.
And regtech, which aims to help businesses navigate the regulatory maze through technology, looks like the next big thing – in terms of changing the way tech companies work with governments and institutions, and generating funky new word portmanteaus.
First appeared at TIA