As one venture capitalist with deep fintech exposure said, “my views on fintech have not changed: despite what many consultants are saying it is laughable in my view to expect start-ups to 'cooperate' or seek 'synergies' with banks - that is a completely one sided trade with the banks as the winner and start up as the loser…”
“Banks don't cooperate with anyone, the dominant culture is one of control (phrased as “risk”) and domination. Just look at the history.”
Of course, many fintechs are seeking such alliances and many banks are encouraging them.
According to the Innovate Finance survey, fintech in the first half of 2017 attracted $US6.5 billion of VC investment with 787 deals, a 45 per cent decrease year on year (based on statistics compiled through Pitchbook by Innovate Finance, a not-for-profit membership association for global fintech).
China, which raised the largest amount of VC investment in 2016, dropped to second place with $US1 billion of investment compared with $US7.0 billion in the first half of 2016, an 86 per cent year-on-year decrease.
That, however, is the rub: Abdul Haseeb Basit, CFO of Innovate Finance noted “the investment data for the first half of 2017 shows that global fintech investment is down versus the same period in 2016”.
“However if you adjust for the exceptional mega-deals in China in H1 2016, where three companies - Alipay, Lufax.com and JD Finance - raised over $US1billion each, we see that global investment has gone up 28.4 per cent. The sector continues to thrive.”
Over at CB Insights, the data show VC-backed fintech companies raised $US5.2 billion across 251 deals in the second quarter of 2017.
Investment dollars to VC-backed fintech companies in 2017 are on pace to rise 19 per cent from 2016, at the current run rate. According to CB Insights, global fintech deal activity could surpass 2016’s all-time high if the rest of the year sustains the first half’s deal pace.
Boom or no boom, as the fintech investment universe expands, becomes better known, and suffers the cold force of Darwinian fitness, the sector is evolving. As are those investing in it.
The vast majority of money flowing into fintech still comes from VC firms. According to CB Insights, more than two third of the funding is from traditional VC. However there has been a steady increase in the share of corporate investors and their venture firms in the fintech space and that now stands at 31 per cent.
While some of this is from corporate funds set up to be investment funds, it also contains funds set up by institutions to invest in this disruptive world and is often a precursor to more formal partnerships.
Falling in Asia
Interestingly this trend is pronounced in the US and Europe but is currently falling in Asia.
The first generation of fintech tended to be concentrated in payments and peer-to-peer or alternative lending platforms.
The fast growth at the moment according to CB Insights is in more specialised areas such as insurance tech and wealth tech. We should make mention too of regulatory tech although the numbers there are still smaller.
In Asia, mobile payments continue to be an area of great interest and also one of the most diverse battlefields as QR-code based systems, ubiquitous in China, expand into sectors traditionally dominated by cards and potentially – but not certainly – the mobile phone version of global payment cards like Visa and MasterCard. In China, Alipay and WeChatPay are behemoths.
Celent has released a new report titled The State of Mobile Payments in Asia-Pacific: The Impact of Fintech, by KyongSun Kong. She argued mobile payments growth has been slower than expected but is expected to accelerate.
About 80 per cent of respondents to her survey said fintech plays an important role in the Asian mobile payments market.
More significantly, 80 per cent of respondents said after five years the penetration of mobile payments in their countries will be high.
“Asia’s mobile payments market is expected to expand further. It is used for payments of goods and services, but also person-to-person payments and cross-border remittance,” Kong said.
Once again, the growing diversity of the market is notable, in Asia amplified by the vastly different stages of development of economies.
“Mobile payment markets in Asian countries are diverse, and the level of growth and speed of adoption of fintech vary,” Kong said. “However, there is no doubt that every country is progressing step by step.”