Global investment in financial technology (fintech) ventures more than doubled in 2018, to US$55.3 billion, led by a surge in funding in China and strong gains in several other markets as investors placed larger bets in more mature startups, according to Accenture (NYSE: ACN) analysis of data from CB Insights, a global venture-finance data and analytics firm.
The tremendous growth was due in large part to a nine fold increase in the value of deals in China, to US$25.5 billion — nearly as much as the US$26.7 billion from all fintech investments globally in 2017. China accounted for 46 percent of all fintech investments in 2018. More than half of China’s fintech investment came from the record US$14 billion funding round in May of Ant Financial, which manages the world’s largest money market fund but is perhaps best known for its Alipay mobile payments service.
The single Ant Financial fundraising, which Accenture categorised under wealth and asset management, makes up the vast majority of all funding for that category, catapulting investment into wealth and asset management start-ups to lead position, with 30 percent of total investments globally. Payment start-ups accounted for 23 percent of the fintech financing, and those in lending accounted for 19 percent.
“Even with the current volatility in global markets and ongoing macroeconomic concerns, investment in the fintech sector remains strong,” said Richard Lumb, group chief executive – Financial Services at Accenture. “The demand for fintech innovations by banks and other financial services companies continues to grow as they face regulatory and capital pressure; competition spurred by Open Banking from new entrants, including Big Tech and neo-banks; and new and evolving security threats.”
Another Chinese heavyweight
After Ant Financial, the next-largest fundraiser was China’s Du Xiaoman Financial — spun off from Chinese search engine giant Baidu in April — which raised US$4.3 billion in two separate transactions to bolster its consumer finance business and strengthen cooperation with domestic lenders. Another large transaction in China included the US$1.3 billion that wealth management platform Lufax raised in December after postponing plans for a Hong Kong IPO.
The value of deals in the U.S. also rose sharply, up 46 percent to US$16.6 billion. Despite historically being the biggest and busiest market for fintech financing, the U.S. had no deal larger than US$1 billion in 2018, with the top deal being the US$600 million that online lender LendingPoint raised from a credit transaction in May. Fintechs in payments accounted for 24 percent of U.S. funding, those in lending raked in 22 percent, and insurtechs accounted for 19 percent.
In the U.K., fintech investment jumped more than 50 percent, to US$3.9 billion. Challenger banks were among the biggest beneficiaries of U.K. fintech financing, underscoring investors’ outlook for the sector just as the launch of Open Banking regulations in the country made it easier for consumers to share their financial data with third-party providers. Atom Bank received nearly US$200 million in March, Revolut raised US$250 million in April, and Monzo raised about US$110 million in October. In addition, Prodigy Finance, which provides cross-border loans to postgraduate students, raised US$1 billion from a group of banks and other investors.
Lumb continued: “There was much talk about how uncertainty due to Brexit would grip the success of fintech from the UK. However, our analysis shows that London, a pioneer in Open Banking, remains the fintech capital of Europe, capturing 56 percent of total European investments in 2018. It’s vital that London continues to foster an environment that encourages competition in the banking industry, irrespective of uncertainty, and that banks continue to modernise their services for the digital age.”
Fintech investment grew world over
There were broad gains elsewhere around the world as well, with record fundraising in Canada, Australia, Japan and Brazil. Specifically, investments in Japan jumped more than fivefold, to US$542 million; fundraising in Australia more than doubled, to US$757 million; investments in Canada rose 53 percent, to US$961 million; and in Brazil investments grew 38 percent, to US$587 million.
The number of fintech deals also grew significantly, to 3,251 globally — up approximately 19 percent from 2017 — as venture capital investors, private equity firms, traditional banks and insurers combed the world for the newest technologies in payments, banking and wealth management. In China, the number of deals more than doubled, to 348 (from 154 in 2017), underscoring an active fintech ecosystem in the country that still has a lot of room to grow compared with the U.S., where more than 1,100 deals took place. Activity also rose sharply in the U.K., with 24 percent more deals; in Singapore, with 16 percent more deals; and in Japan, where the number of deals nearly tripled.
“Even if you discount the massive Ant Financial transaction, we’d still have a record year for global fintech fundraising, with strong activity in many corners of the world, so these are broad-based gains,“ said Piyush Singh, a managing director at Accenture who leads its Financial Services practice in Asia-Pacific and Africa.
“It’s hard to tell whether we’ll be able to keep up with this pace of torrid growth, but one thing is for sure: Many investors have woken up to the fact financial technology can add a lot of benefits to businesses and consumers alike both in developed and developing markets, which is why we keep seeing an increase in fintech activity.”
How are fintech startups doing in Australia?
Australian research highlights (all US$):
- Fintech start-ups in Australia raised $756.7 million last year, more than double the $322.3 million raised in 2017 (+135 per cent).
- This was driven by $350 million line of credit round to Judo Capital.
- There was a total of 51 deals in Australia in 2018 (-14% vs 2017).
- The vast majority of investments in Australia went into lending start-ups, accounting for 68 percent of the fintech financing in Australia in 2018, with those in payments accounting for 17 percent ($512 million; $131 million).
- Though growing strongly, investments in Australia paled in comparison to the $16.6 billion that went into U.S. fintech firms last year or $3.9 billion for UK start-ups and $25 billion for Chinese companies, the analysis found.
- Since 2010, Australian start-ups have raised $1.472 billion.
Alex Trott, Banking Lead, Accenture Australia said, “With the Australian banking industry experiencing challenging times, suffering from diminished trust and against a demand for greater customer experiences, there’s a significant opportunity for financial technology firms, as recognised by this analysis, to partner with, as well as compete with, traditional financial firms.
“As the introduction of open banking fast approaches and with new banking licenses in the pipeline, further investment in Australian fintechs is likely to accelerate as the start-ups look to take advantage of their leaner and more agile structures to gain new market share in transactions, retail banking and lending.
“There is also an opportunity for financial technology innovations in the wake of the Banking Royal Commission, with various local fintech players working to improve remediation and compliance through artificial intelligence and other emerging technologies.”