China sees investments in FinTech market grow to $6.4 billion

02 October 2017 Consultancy.uk

Chinese FinTech investment has boomed, topping $6.4 billion last year. The increase in investment reflects underserved market demand (largely to support consumers) as well as continued growing pains for its financial services sector.

China has seen its economy grow rapidly over the past few decades to become the second largest in the world. The country is increasingly seeking to modernise its economy, which has been dependent on manufacturing and investment for the longest time. Like much of the rest of the world, one area that is seeing increased focus is FinTech startups – with the country’s current climate producing a raft of concerns around the security of its financial services industry.

A new report from Oliver Wyman titled ‘FinTech in China’ examines the FinTech industry in terms of the types of players, the kinds of services they offer, and the wider market in which they operate. As it stands, the FinTech industry in China is showing two sides. On the one hand, it is delivering a range of innovative business models. On the other hand, the regulatory environment, coupled with failing businesses models, has resulted in a number of high level failures in the arena in recent years.

Growth of FinTech in China

The FinTech arena has demonstrated considerable growth since 2013, which includes a relatively modest year until 2014 before rapid growth in all FinTech segments. FinTechs focused on financing were up by almost 3,000 from the baseline of 2013 to a total of RMB856 billion, largely in the peer-to-peer lending space; investing FinTech startups grew to around 1,500 off base by 2016, with a market size of RMB10,825 billion; insurance and transactions hit around 800 off base by 2016, with transactions by far the largest at RMB54,000 billion. The growth curve for many of these companies has been relatively meteoric, particularly in the peer-to-peer lending space

The research also explored the interest of global venture capital (VC) investors in the Chinese FinTech space, relative to other regions. The findings point to a rapid increase of relative interest, from almost no investment in 2013 and 2014, at $100 million and $500 million respectively, to two huge jumps, at $3.1 billion in 2015 and $6.4 billion last year.

Globally FinTech investments hit over $8 billion in Q2 this year, up from $3 billion in Q1 2017, according to a KPMG study, with North America and Europe holding the largest stakes in the total market.

Chinese FinTech market

The large increase in investment, at a CAGR of 300% between 2013 and 2016, was huge relative to the CAGR in the US in the same period, which stood at 42%. The US actually saw a decline in investment in 2016, on the back of valuation concerns in the industry. Across the globe the market enjoyed steady growth, of 20% in 2015 and 47% in 2016.

In terms of the kinds of FinTech that carry the highest value, considerable differences were noted in those kinds active on the ground in the US, Europe and China. In China, business to customer models were the most successful, focused on ecommerce and financial services products and services. In Europe, business-to-business models were noted as the most successful, focused on e-commerce merchants and payment solutions. Top performers in the US were also those that focused on the business-to-business segment.

Highest-valued Fintechs comapnies

The differences are, according to the management consulting firm, largely the result of the nature of the wider market, with China’s large, underserved, population in the eyes of many finally being served by the various FinTech propositions. The finding is in sync with previous research from Accenture, which highlighted that growth in Asia's FinTech industry is being driven primarily by corporates and large institutions, with B2C offerings still operating in their shadow.

Chinese FinTech models

The research also considered FinTech players across China, categorising them into four different types. The firm then looked at the various strengths and weaknesses of the different types.

Strength and weakness of FinTech players

The study showed that, in almost all categories, FinTech all-rounders are the strongest. This type of FinTech is largely focused on maintaining their advantage through innovation of financial services products. They considerably outperform competitors in the monetisation of their large customer base, strong financial services and risk management knowledge as well as an availability of proprietary and comprehensive products – their only shortcoming lying in tech.

FinTech niche players tend to be weak in the monetisation of large customer bases and the leveraging of data, but strong in the Financial and Technological skill sets and the availability of proprietary and comprehensive products. Meanwhile, industry players tend to have weak involvement in almost all segments, outside of data abundance and capabilities and monetisation of large customer bases. While the traditional FinTechs tend to have weak Financial and Technological skill sets, but perform well in monetisation and availability of proprietary products.

According to a recent report by Deloitte, London ranks as the best global hub for FinTech, with Singapore and New York following suit.

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