The value of investments in Hong Kong's fintech sector declined 65.6% during 2018, despite an increase in the total number of deals.
Analysis from professional services company Accenture shows that Hong Kong fintech startups raised US$188 million during the year, down from the record US$546 million raised in 2017.
But the number of deals increased from 19 to 15, representing a 27% year-on-year increase. According to Accenture managing director for financial services in Hong Kong Ravinder Chhabra, this figure could be a more suitable indicator of the health of the local fintech market.
“Focusing only on the fundraising figures can be deceiving, as they don’t tell the whole picture. The number of deals picked up considerably, which is a sign of a maturing market because it shows investors are more comfortable in looking at different fintech segments and diversifying the types of startups they invest, not just betting solely on big, established technology players in later rounds,” Chhabra said.
“In 2017, the various Hong Kong regulators unveiled several new measures that helped to lay the groundwork for further development of the city’s fintech ecosystem last year and Hong Kong’s appeal as a global fintech hub and investment magnet. So, it was a bit of a wait and see period last year to monitor the implication of some of these regulations and new initiatives.”
Accenture expects that with the faster payments system in place, the first digital insurer unveiled and new virtual banking licenses about to be announced, 2019 will be a strong year for the local fintech sector.
“Considering how quickly both digital insurers and virtual banks have to move once they’re granted their licenses, there should be a considerable amount of activity in those two areas for sure, after a breakthrough year for insurtechs in particular in 2018,” Chhabra said.
Hong Kong's performance was nevertheless in stark contrast to the surge in funding in mainland China. Accenture estimates that the total value of deals in China climbed ninefold during 2018 to US$25.5 billion, which was nearly as much as the total global value of fintech investments in 2017.
China accounted for 46% of global fintech investments in 2018, with more than half of the nation's total coming from the record US$14 billion funding round conducted by Alipay operator Ant Financial.
Another large transaction in China included the US$1.3 billion that wealth management platform Lufax raised in December after postponing plans for a Hong Kong IPO, Accenture added.
Global fintech investments more than doubled to US$55.3 billion over the year.