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Modest fintech investment in China in H1'19, but still dominates top 10 deals ranking in Asia Pacific, according to KPMG's Pulse of Fintech

Hong Kong makes major strides towards the development of fintech

HONG KONG, Aug. 8, 2019 /PRNewswire/ -- Fintech investment in China has got off to a modest start in 2019 following record levels of investment last year, according to the Pulse of Fintech H1'19, a bi-annual report on global fintech investment trends published by KPMG.

Investment into fintech companies in China (including VC, PE and M&A activity) amounted to US$2.5 billion across 32 deals in the first half of 2019, down from the US$16.3 billion across 77 deals seen in the first half of 2018. The lack of megadeals in the country was the main driver of the decline, which affected total investment into fintech across Asia Pacific - dropping from US$18.3 billion across 256 deals in the first half of 2018 to US$3.6 billion across 102 deals in the first half of this year.

The fall in China and Asia reflected the wider trend globally, with US$37.9 billion invested into global fintech across 962 deals, falling from US$62.9 billion seen in the first half of 2018 across 1421 deals. This was also attributed to a pullback in mega deals.

Despite this, China still had a strong presence in the ranking of top 10 Asia Pacific fintech deals, taking four spots. NCF Wealth Holdings Limited's US$2 billion merger with Hunter Maritime Acquisition Corp topped the deals in the region, followed by the US$100 million Series F financing for information services provider Shanghai Dianrong Financial Information Services, the US$94.8 million Series A financing for consumer finance firm Wiseco Technology, and crowd funding platform Shuidichou's US$74 million Series B financing.

Fintech market maturing and evolving in China

Relatively quiet fintech investment activity in the first half of 2019 is in part a reflection of the significant maturation in China's payment sector, following two years of ongoing investment and mega deals. Despite this, a number of less mature areas within fintech are rapidly growing, including microfinance and consumer finance.

At the technology level, China is also seeing significant interest in AI, cloud-solutions, big data and blockchain. Blockchain is expected to gain more attention from fintech investors, particularly in microfinancing. AI, big data and cloud services are also expected to remain attractive and Regtech is poised to see growing investment given the strong focus being given to it by China's central government and provincial government authorities. As these burgeoning areas of fintech evolve and gain more traction, fintech investment in China is expected to rebound.

Tracy Zhang, Lead Partner and Head of Tax Transformation at KPMG China, said, "China's fintech market is unique. Baidu, Alibaba and Tencent dominate and are making acquisitions to try to cover all the major sectors. We therefore expect the minority market to see more participation from small and medium-sized fintech players."

Hong Kong pushes forward fintech market with virtual banking licenses

The Hong Kong Monetary Authority's decision to issue its first batch of virtual banking licenses to eight companies represents a major stride in the development of fintech in the city. These companies reflect a diverse mix of non-traditional banking organizations, including insurance companies and telecoms, with several of China's tech giants also represented in the first batch. Hong Kong will likely see increased investment both from traditional banks and non-traditional players looking to capitalise on the drive in virtual banking started this year. 

The city's innovation ecosystem also expanded during the first half of 2019, with digital start-up community Cyberport signing a deal with Ping An OneConnect to gain access to its Gamma API platform, which should spur innovation.

Avril Rae, Director and Head of Fintech at KPMG China, said, "The new Hong Kong virtual banking licenses are a very exciting development. As the virtual banks start to implement their strategies over the next year, we will see the major traditional banks strive to keep up in response. The expectation is that the virtual banks will be able to grow over time."

About KPMG China

KPMG member firms and its affiliates operating in mainland China, Hong Kong and Macau are collectively referred to as "KPMG China". KPMG China is based in 22 offices across 20 cities with around 12,000 partners and staff in Beijing, Changsha, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Wuhan, Xiamen, Xi'an, Hong Kong SAR and Macau SAR. Working collaboratively across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 153 countries and territories and have 207,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such. In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland /China. KPMG was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong firm can trace its origins to 1945. This early commitment to this market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in KPMG's appointment for multi-disciplinary services (including audit, tax and advisory) by some of China's most prestigious companies.