As detailed in Global Fintech Report Pt. 1 – China, there’s a new sheriff in town; despite what many may think, London, Sillicon Valley and New York are not the only big market players in the FinTech industry, in fact, “the land of the red dragon” takes the title when it comes to adoption rates. As stated in EY and DBS’ collaborative report titled “The Rise of FinTech in China. Redefining Financial Services” , “unlike in the US or Europe, disruption by FinTech firms is not occurring at the periphery of the Chinese financial sector. It has gone past the inflection point, with technological innovation reshaping the financial landscape.”
However, adoption rate and eccomerce sales ( see below) are not the only metrics used to quantify a country’s position in the FinTech innovation, others include VC backed deals, regulatory support etc. In this report we will provide a brief insight into the development within the FinTech sector across the US, Europe and China.
Above: Chinese e-commerce leads the way. Source – The Rise of FinTech in China. Redefining Financial Services
Deloitte’s landmark 2016 report titled “A Tale of 44 Cities” reports on 44 different “hubs” around the world, and assesses the ease of launching a FinTech venture in each individual location. Singapore and London topped the list when it came to growing new FinTech businesses, due to a combination of innovative regulation, access to talent and a technically savvy population. But how long will this last….
Source: A Tale of 44 Cities
FinTech Venture Investment accross the US, Europe and China
Source – KPMG
Below we have three graphs published by KPMG showing venture investment in FinTech companies across the US, China and Europe, which is of course a clear indicator of confidence in future developments. At a glance, it’s obvious who the ‘winner’ is and even more obvious who the loser is. As it stands, the USA is leading the way in terms of investment by a country mile, with the second quarter of 2018 alone seeing investments of over $3Bn.
The US FinTech ecosystem is thriving, with investment and adoption both continuing to grow. A key industry driver is the increased interest in FinTechs by US banks; as of YTD 21/11/2018, “the top US banks by assets participated in a total of 49 equity rounds to FinTech start-ups. This compares to 19 in 2017 and 33 in 2016.”
In Europe, despite the volume of investments remaining relatively high, the FinTech sector has experienced recent periods of decline in investment and deal volume. According to Pitchbook Platform, by July 2018, 196 deals had been completed with a total value of €1.14 billion, which represents less than a third of the transactions completed in 2017. Research from Capgemini suggests that the cause of the slump in deal volume is because start-ups are losing confidence in the sustainability of their business models, as in comparison to more traditional enterprises, they lack both the established brand and market penetration capability. The report states that 75% of global start-ups cite partnerships as their primary business objective.
With adoption rates at an all-time high and the existing combination of an unsophisticated banking infrastructure and technologically savvy population, Chinese FinTech is making waves. Access our FinTech China Report here for more information on the rapid growth in the Chinese FinTech industry.
So what’s next?
China’s rapid success has been largely reliant on its own domestic market, it’s next step will be to expand internationally. As it stands, Chinese FinTech giants such as Ant Financial and Alipay have been making headway in countries often frequented by Chinese tourists, such as Thailand and Singapore, by implementing their systems in restaurants and shopping malls. Although catering for Chinese tourist payments is a far from a small industry (a report from the U.N World Tourism Board found that Chinese tourist spent more than $261 billion abroad in 2016) Chinese FinTechs are starting to eye up the foreign customer, not just the Chinese tourist. Alibaba has stated that it estimates that half of its growth in users will come from overseas markets within the next four years. Although the journey to expand into more developed economies like the USA is likely to be filled with obstacles and bureaucratic traffic jams.
There has already been resistance from the US government when it comes to Chinese investment; Ant Financial’s herculean attempt to acquire MoneyGram, a Texas based money transfer company took a whole year and three submissions to the Committee on Foreign Investment in the United States (CFIUS ),before being rejected.
If Chinese investment manages to break into the developed markets we will see a huge spike in both competition and users, bringing exciting possibilities to the world of FinTech.