China captured a fifth of FinTech VC funding in 2015

Global investment into venture capital-backed FinTech startups hit a record high in 2015, with China accounting for almost one-fifth of the total funds raised, finds a recent KPMG report.

According to the report, FinTech companies attracted a total investment of US$19.1 billion in 2015, with US$13.8 billion invested into VC-backed FinTech companies, a 106% jump compared to 2014. Last year marked a record year for VC-backed FinTech investment, according to Pulse of FinTech, a quarterly global report on FinTech VC trends jointly published by KPMG and CB Insights.

China’s FinTech investment saw a significant increase last year, growing from US$619 million in investment in 2014 to almost US$2.7 billion in 2015 despite a lower number of deals (26 deals compared to 37) the previous year. This significant rise is attributed to a number of mega deals valued at over US$100 million each.

The United States meanwhile topped the rankings with US$2.72 billion in 36 deals.

“The spike in investment activities in China is fuelled by the large market it represents - it has a huge  appetite for innovative products, supported by the rapid pace of technology development,” said James Mckeogh, Partner, KPMG China.

The analysis found that major cities in China such as Beijing, Shanghai and Shenzhen recorded a number of deals, an indication that FinTech hubs are likely to expand across the country.

China saw strong performance in lending technology such as peer-to-peer lending platforms and underwriter and lending platforms that utilize machine learning technologies and algorithms to assess creditworthiness. A total of US$538 million was invested into 10 deals in China’s lending technology sector last year. The analysis also found that banks and insurance providers are active in China’s FinTech space.

“Chinese banks are focusing their strategies around the small and mid-sized enterprise space, an area  that has been underserviced by large banks in the past,” said Irene Chu, Partner and Head of High Growth  Technology and Innovation Group, KPMG China. “There’s also increasing interest in FinTech companies that offer alternative financing arrangements, giving consumers alternatives beyond traditional banks. This is especially true in remote areas where large percentages of the population are under-banked.”

Overall, global funding momentum in the FinTech sector experienced a pullback in the last quarter after reaching record highs in Q2 and Q3 2015. Not counting the contributions from mega deals, VC-backed FinTech transactions declined slightly to 154 in Q4, from 165 in Q3, while deal values slumped 63.8% to US$1.7 billion. These figures are in line with the broader slowdown for VC-backed companies.

KPMG noted that interest in FinTech remains strong, however funding is expected to be tougher to come by and valuations will retreat in line with the underlying fundamentals; some consolidation among FinTech companies in China is therefore expected.

“The Chinese government is conscious of the need to stabilize the market while enabling companies to innovate and expand,” said Chu. “It is expected that over time, there will be more consolidation within FinTech in China as non-performing startups fade away and larger ones grow and prosper as a result of corporate investment and partnerships.”

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