1 Mar 2018
Accenture analysis also shows value of mainland fintech investment halved, but numbers grew to 146 deals last year, compared with 54 in 2016, to US$2.8 billion
Investment in Hong Kong financial technology (fintech) firms more than doubled last year compared to 2016, as government support and their wider acceptance made companies in the sector more attractive to investors.
Amid what has been a global surge in interest, Hong Kong-based fintech investment jumped to US$545.7 million in 2017 from US$215.5 million in 2016 and US$107.5 million in 2015, according to an Accenture analysis of data from CB Insights, a global venture-finance data and analytics firm.
In 2017, global investment in fintech companies reached an all time high of US$27.4 billion, a rise of 18 per cent year on year, though investment in mainland Chinese fintechs bucked the trend, declining by 72 per cent, year on year, to US$2.8 billion.
The largest fundraising in Hong Kong last year was by WeLab, a peer to peer lender, which raised US$220 million in November.
Musheer Ahmed, interim general manager of the FinTech Association of Hong Kong, said two developments in the past two years had made Hong Kong’s burgeoning fintech community more attractive to investors.
“Banks went from being sceptical about fintech, to realising it can be beneficial to them. Following on from this, they moved from reviewing proofs of concept to actual implementation and adoption of fintech solutions, meaning start-ups now have a steadier revenue stream, making them more attractive.
“Secondly, the Hong Kong government and regulators now have a more active agenda to push for innovation across sectors, as highlighted in Wednesday’s budget speech, particularly in fintech.”
Paul Chan, Hong Kong’s financial secretary said in his 2018 budget he would allocate HK$500 million (US$63.9 million) to the development of financial services over the next five years, including fintech.
While their investment in Hong Kong last year was dwarfed by that into other markets, such as the US ($11.3 billion), India (US$2.4 billion) and mainland China, Hong Kong received greater fundraising than both Singapore – sometimes seen as its rival in fintech – and Australia, and across a longer time frame.
Since 2010, Hong Kong fintechs have raised US$940 million, compared with US$387 million raised by Singapore-based start-ups and US$714 million for those in Australia, according to Accenture’s analysis.
While investment into Chinese fintechs declined, year on year, Adrian Seto, Accenture’s senior director, innovation & fintech, Asia-Pacific, said this was not a true reflection of a deteriorating environment.
“You can’t just look at the overall value, which did go down, without taking into consideration that the number of deals actually almost tripled,” he said.
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There were 146 fintech deals in China last year, compared with 54 in 2016 which were worth US$10 billion.
“You’re talking about a more active ecosystem, which is actually better. As an investor, you’re de-risking by spreading your money into different deals, the quintessential ‘not putting all your eggs into one basket’.”
Seto added 2016 was a poor benchmark, as some unusually large deals took place, including the multibillion-dollar financing rounds from Ant Financial and wealth management platform Lufax.
Nonetheless, a shift is taking place in fintech on the mainland, as the industry is responding to government attempts to reduce financial risks, the study showed.
“As China’s central government continues to tighten controls around customer-facing internet finance activities, we have seen a major shift in fintech business strategy,” said Arthur Wang, partner, head of banking KPMG China, in a separate report published this week.
“Fintech companies that might have started with a customer focus are now embracing a B2B model, providing their solutions to traditional financial institutions to avoid growing compliance requirements.”