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China activity drove US$5.4 billion in Asia fintech funding in 2016

Fintech startups in Asia raised a record US$5.4 billion from 165 deals in 2016, driven largely by large investments in China, according to a new report from CB Insights. A whopping US$4.6 billion of total funding came from just 46 deals in China.

Furthermore, the increased investment numbers are driven by huge rounds — the largest round was a US$1.2 billion round from Lufax while the tenth-largest on the list is a US$74 million round by QuantGroup. With the possible exception of a US$160 million deal for WeLab in Hong Kong, the entire top-10 list of funding rounds came out of China.

Total Asian fintech funding rose by US$600 million from 2015 when startups raised a total of US$4.8 billion. In 2014, Asia’s fintech companies raised US$1.1 billion and in 2013 it was US$300 million.

Also, the report chose to omit the Ant Financial US$4.5 billion fundraising (which was a private share placement and the world’s largest-ever tech funding round).

Asia’s fintech funding statistics approximate to the US$5.5 billion raised in the United States in 2016 — with a notable difference that it took 422 deals to reach that number in America.

Also Read: Singapore govt to pump US$1.7B to transform country into digital powerhouse

The total number of deals maintained its 5-year stretch of growth, albeit the three deal increase from 2015 to 2016 was a sizeable slowdown from the major jump between 2014 and 2015 (134 deals to 162).

For China specifically, 2014-2016 saw the number of deals flatten (44, 42, 46 respectively) while the amount raised skyrocketed (US$800 million, US$2.8 billion, US$4.6 billion).

How did it break down?

While overall Asia fintech funding increased in 2016, it dipped in the second half the year. 35 deals were inked in Q4 2016 — which was a drop from both Q4 2015 (38 deals) and Q3 2016 (37 deals).

Q4 2016 was the best quarter in 2016 for individual startups — the median amount raised was US$3.5 million. But, that was still below the US$5 million number from the year before.

Below is an “average deal share” percentage from 2016 based on the numbers from CB Insight.

It is not a perfect statistic because averaging a quarterly deal-share percentage does not take into account other rounds from the quarter (the numbers below do not equal 100). But, it is useful to get an idea of what kind of fintech deals are getting inked (for example, Series B funding never dipped below 17 per cent of deal share, a pretty high number for a late-stage round).

  • 31 per cent of deals were seed round or angel investments
  • 23.75 per cent were Series A rounds
  • 22.5 per cent were Series B
  • 10 per cent were Series C
  • Series D and Series E made up of 2 per cent of round share
  • “Other” accounted for 8.5 per cent

Despite the reality that most of the major fintech rounds happened in China, there is an impact in Southeast Asia. For example, the aforementioned Ant Financial made its first foray into Southeast Asia with an investment into Ascend Money. Also, over the weekend, Ant entered the Philippines through a strategic partnership with Mynt and Ayala.

VCs and Corporates

For deals in Asia, corporates participated in about 40 per cent of VC-backed deals and over the year it ranged from 31 per cent to 49 per cent quarter-by-quarter (by comparison Q4 2015 saw 45 per cent of deals involve corporates).

“Corporates saw slightly less deal share than the same quarter last year when corporates participated in 45 per cent of Asian fintech deals,” the report read.

Also Read: India’s True Balance recharges its coffers with US$15M funding from Korean VCs

The most active investors were, in order, 500 Startups, East Ventures, Sequoia Capital India and SBI Investments as the top-four. Tied for fifth was a group that included IDG Capital Partners, Golden Gate Ventures, Accel Partners India, IMJ Investment Partners, Arbor Ventures.

P2P lending company Lufax took home the gold as the company who raised the most money on the list with a US$1.2 billion financing.

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Fintech startups in Asia raised a record US$5.4 billion from 165 deals in 2016, driven largely by large investments in China, according to a new report from CB Insights. A whopping US$4.6 billion of total funding came from just 46 deals in China
Thomson Reuters unveils innovation lab in Singapore

Thomson Reuters has officially opened Thomson Reuters Labs – Singapore.

The innovation facility aims to collaborate with customers, tech startups, universities and the Singapore government to roll out products and solutions for professional markets in the Asia Pacific. The lab will also support Thomson Reuters’s financial & risk, tax & accounting and legal businesses across Asia Pacific.

The facility, located in Singapore’s central business district, is the first Thomson Reuters Labs to open in Asia. Thomson Reuters’s other innovation labs are located in Boston, Cape Town, London, Waterloo (Canada) and Zürich.

Areas of focus at the lab include advanced data analytics and machine intelligence, with the aim to deliver products that solve global business challenges.

Chief Fintech Officer for the Monetary Authority of Singapore (MAS), Sopnendu Mohanty (pictured, second from left), who officiated the lab’s opening, highlighted how an open architecture could facilitate financial institutions’ work around KYC and user interface. Mohanty further encouraged the lab to provide funding support for startups and expressed hope that the lab would work with partners in a mutually beneficial manner.

“Singapore is one of the world’s most innovative cities thanks to its focus on collaboration between corporations, government, financial institutions, regulators, and academia,” said Sanjeev Chatrath, Managing Director, Financial & Risk, Asia Pacific at Thomson Reuters. “With our established footprint across Asia and a strong presence in Singapore, the new Lab will serve as a hub for growing our innovation efforts and fostering co-innovation with our customers and partners within the region.”

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“Singapore is one of the world’s most innovative cities thanks to its focus on collaboration between corporations, government, financial institutions, regulators, and academia,”
Singapore fintech investment down 65% in 2016: KPMG

Overall investment falls to US$214m; number of deals dips by 2 to 28, indicating slide in average deal value

In 2016, there was a 65 per cent drop in overall investment in Singapore-based fintech companies, down from US$605 million to US$214 million, according to a KPMG International study Pulse Of Fintech. 

IN 2016, there was a 65 per cent drop in overall investment in Singapore-based fintech companies, down from US$605 million to US$214 million, according to a KPMG International study Pulse Of Fintech.

Interestingly, the number of deals decreased by only two to 28 during the same period, indicating an overall fall in average deal value.

"In 2016, we saw Monetary Authority of Singapore (MAS) drive the evolution of Singapore into a prominent fintech hub. But we've yet to see an impact on the levels of venture capital (VC) funding here," said Chia Tek Yew, head of Financial Services Advisory at KPMG in Singapore.

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He added that looking to 2017, he believed that MAS would fast-track the proposals to simplify authorisation process for VC funds in a bid to attract more VCs to Singapore.

SEE ALSO:AXA steers clear of big deals, manages risks stemming from French politics

Despite the fall in investment, he noted that Singapore continued to make its fintech presence known in Asia, with both government and MAS "working to foster a fintech ecosystem in the country".

KPMG noted that in Singapore, many of the larger VC fundings were concentrated among online payments, remittances or foreign exchange trading platforms.

Sopnendu Mohanty, MAS's Chief FinTech Officer, told BT recently that fintechs can "potentially help the financial industry regain its dynamism but the fintech phenomenon is not without risk". Regulators need to provide regulation conducive to innovation while fostering safety and security, he added.

The official said MAS had the regulatory tools to facilitate fintech experiments by financial institutions and fintech players. "We recognise that failure is often a feature of such experiments and the purpose of the regulatory sandbox is to provide appropriate safeguards to contain the consequences of failure on the financial system rather than to prevent failure altogether. This can help to reduce regulatory friction and provide a supportive environment for safe fintech experiments," Mr Mohanty said.

Benjamin Mah, co-founder and CEO of Singapore-based V-Key, which provides digital security for financial transactions, told The Business Times that the Singapore fintech sector is going through the "normalisation curve" where the industry is figuring out which solutions work and which don't.

Agreeing with Mr Chia, Mr Mah said the MAS was building up the credibility of Singapore as a fintech hub and that its move to accreditate VCs will set the "gold standard" for the region. This will position Singapore at the heart of the fintech industry in South-east Asia.

"If I'm a VC, I would want to park my money where the financial hub is and where it is easy to bring in and take out money. That is a smart position for Singapore to take," he said.

The Pulse Of Fintech report said that during 2016, Singapore moved forward with numerous initiatives, including the development of a regulatory sandbox for fintech companies, the introduction of a fund to encourage corporate collaborations with fintechs and the hosting of a major fintech conference.

KPMG added that blockchain continued to be a big bet in Singapore in 2016, with the MAS announcing in the fourth quarter the development of a blockchain innovation lab in partnership with global fintech start-up R3CEV. Cybersecurity is also expected to be a key focus for VC investors heading into 2017.

Ng Chong Yang, CEO of fintech start-up ACE FinTech Holdings, told BT that there would always be funding interest for the fintech sector in Singapore. This is in reference to the KPMG report mentioning the fall in investment in 2016.

"It is a sector that is ripe for disruption and, as an extension, a fertile ground for the next billion dollar organisation to sprout," he said.

Mr Ng explained that since fintech is a new "disruptive sector", typical valuation metrics that VCs employ have broken down and that there is a lot of confusion in the minds of VCs. Hence "there is a wait-and-watch" phase in the local VC space, but 2017 should see things moving.

"I am optimistic that the solid fintechs will get VC funding going forward," he said.

Mr Ng's own start-up, formed a few months ago, aims to re-imagine how remittance should work for the "newly bankable", or poorer customers who are not very well-served by the formal financial network.

He added that ACE FinTech was still in self-funding mode and was planning for its first round of VC funding very soon.

The KPMG report noted that in Asia, thanks largely to Ant Financial's massive US$4.5 billion funding in early 2016 and two other mega-deals, fintech investment in the continent reached a new high of US$8.6 billion, up from US$8.4 billion in 2015.

Though the number of VC-specific deals in Asia went down from 171 in 2015 to 149 in 2016, the investment amount was US$7.1 billion, up from US$5.2 billion in 2015.

The report added that VCs were still seeing opportunity within Asia and remained quite active throughout 2016. Total transaction value was driven largely by mega-rounds.

Large corporations were also playing an active role in venture financing, said KPMG, adding that they were looking to stay abreast of innovations pertinent to their specific product lines.

One other reason could be that the corporates were looking to gain a foothold with an eye towards future acquisitions or partnerships.

Globally, after 2015's record-setting US$46.7 billion in total global funding to fintech companies, 2016 experienced a 47.2 per cent slide in fintech investment to US$24.7 billion, while deal activity dropped from 1,255 to 1,076.

But the report noted that the 2016 fintech funding total of US$24.7 billion was still significant when compared to pre-2015 investment levels.

VC funding in fintech companies across the globe reached a record US$13.6 billion compared to US$12.7 billion in 2015, with 840 deals recorded. The report noted that corporate VC investment in fintech rose for the seventh straight year, reaching 145 deals totalling US$8.5 billion in 2016.

Sequentially, quarterly global VC funding to fintech companies increased from US$1.9 billion to US$2.1 billion between the third and fourth quarters of 2016 - still weak when compared to first two quarters.

Asia VC funding rebounded during the fourth quarter to US$680 million after reaching a low of US$200 million in the third quarter, primarily driven by a more than US$384 million mega-deal during the quarter.

KPMG noted that global venture capital investment in bitcoin and blockchain technologies reached a high of US$543.6 million in 2016, compared to US$441 million in 2015. But the deceleration in deal count of 132 versus 191 deals closed in 2015 likely signifies that some initial hype in blockchain is fading and greater evidence of robust applications will be required for future investment.

Insurtech (a term coined for the use of innovative technology to disrupt the insurance industry) is predicted to continue the strong growth witnessed in 2016 as the insurance industry plays catch-up with the innovations seen in the banking industry.

Mr Mah noted that in 2017 and beyond, the "next level" of fintechs would need to be clear about their value proposition.

"2017 will see a certain level of maturity in VC funding, and the new fintech player will need to be sharper and clear on their value proposition. The return of value is going to be critical - the value proposition has to be tested on the ground," he said.

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Despite the fall in investment, he noted that Singapore continued to make its fintech presence known in Asia, with both government and MAS "working to foster a fintech ecosystem in the country".
The FinTech World is Looking East

The trend has been confirmed — Asia is the leading region in the world, as measured by FinTech investment. Globally VC-backed FinTech funding (down 13% to $12.7BN) and deals (down 1% to 836) are on the downturn. Asia is the only part of the world where FinTech investment is increasing. Last year, the top 10 Asia-based FinTech deals were worth in aggregate around $4BN. 2016 Asia mega-round deals ($50MN+) were dominated by Chinese firms. Ant Financial raised $4.5BN in private placement, Lufax.com raised $1.2BN in Series B funding, and JD Finance raised $1BN in a Venture Round.

There are different ways to analyze the above numbers. On the justification side, Asia is the most populated part of the world with the most discrepancy regarding wealth distribution and the fastest growth of the middle class. Said differently Asia is a market of unmet demand where there is room for incumbents and new players to target some of the next 1.2 billion digital banking customers. However, while impressive, it is important to see who is raising the money. The Ant Financials, Lufax or JDs of the world are by no mean young companies. They have been building on over ten years of pre-existing traction and user base to develop a new FinTech Layer.

Let’s look at their business model.

· Baidu connects People with information

· Alibaba connects People with products

· Tencent connects People with People.

Each of these companies has hundreds of millions of users, and for them, FinTech is just a commoditized layer that is used to enhance their core product:

· Baidu can better sell information by letting you not only search for your favorite restaurant but also handle the reservation of the table, the payment of the menu and the taxi ride back home.

· Alibaba can better sell products by facilitating express checkout via Alipay and can assist the number of products available by financing the SMEs that it knows will sell

· Tencent can better connect people by splitting bills in a restaurant via WeChat Wallet or reconnecting families millions of kilometers apart during Chinese New Year simply by digitizing red packets

Each of these FinTech layers within their products is incredibly valuable and valuated, and this is what the most recent numbers are reporting. Therefore, we need to distinguish that from the activity we see in Europe and the US. Imagine if the GAFA (Google, Amazon, Facebook, Apple) were to raise to create a FinTech spin-offs. Wouldn’t they also raise US$50m+ in the process? Most likely.

The good news is that while so far the FinTech activity has been biased and driven by large pre-existing tech conglomerates, there is still space for smaller players to benefit from the regional fragmentation at the regulatory, infrastructure and behavioral level. FinTech in Asia has arguably started 5 to 7 years after the USA and Europe, and therefore we are just at the very beginning of a broader ten year cycle for the Industry. This is very healthy provided that we can maintain the speed at which capital, technology, and people are deployed. During this period we will, as in all new industries, witness a concentration of players and bankruptcy of start-ups.

This should be celebrated as second time entrepreneurs are typically ten times better than their first venture. It is fair to assume that across the region, at least two fintech companies go bust every week. By extension, this means that if we accept a typical company size of five employees, there are ten talented, trained and smart people that can be re-hired by companies with a better focus, traction and business model. In practice, this means over 1,040 people that investors, start-ups, and banks should look out for each year to keep pushing FinTech in Asia forward.

Asia can leapfrog the world regarding FinTech and do so for the next decade ahead, but this is because Asia is not bringing efficiency in markets but thoroughly reforming how financial market operate and interact in the first place. The later point raises a broader and more pressing question, what regulatory framework is needed to spur the stable growth of a booming industry.

While defining the regulatory perimeter of the current eco-system is clearly a work in progress, one can use some rule of thumbs. Digitizing a process, or streamlining it using technology is not a fundamental change in business model justifying the creation of new rules and regulation. At most, we may ask for a proportionate application so that the cost saved by using technology is not offset by the regulatory burden.

What is new is what we see at the junction between Digital Identity, Data Protection, and Financial Regulation. Practically the ownership of credit score means that people should not only be able to get a loan but even get a hotel room and benefit from an express checking without putting on a deposit thanks to your credit worthiness. However, this is a new application of credit scoring that goes outside of the financial services industry. This example, which is happening in China, is breaking the current siloed regulatory approach that is taken by most jurisdiction. If this is not resolved, it will create an opportunity for regulatory arbitrage that ultimately will be detrimental.

This is the next regulatory frontier that needs to be considered if Asia not only wants to lead regarding nominal FinTech investment but also expand its standards beyond its region and suggest a new regulatory model for the 21st century to another part of the world such as Europe or the USA.

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The good news is that while so far the FinTech activity has been biased and driven by large pre-existing tech conglomerates, there is still space for smaller players to benefit from the regional fragmentation at the regulatory, infrastructure and behavioral level. FinTech in Asia has arguably started 5 to 7 years after the USA and Europe, and therefore we are just at the very beginning of a broader ten year cycle for the Industry. This is very healthy provided that we can maintain the speed at which capital, technology, and people are deployed. During this period we will, as in all new industries, witness a concentration of players and bankruptcy of start-ups.
Singapore Snags Another Insurtech Hub

Singapore is now recognised as having one of the most developed fintech environments in the Asia-Pacific which includes an expanding «Insurtech» scene.

Insurance Australia Group (IAG) is the parent company of a general insurance group with controlled operations in Australia, New Zealand, Thailand, Vietnam and Indonesia. Its businesses underwrite over $11.4 billion of premium per annum, selling insurance under many leading brands.

IAG has announced it will launch an Insurtech innovation hub in Singapore, in a move that will connect the insurer to Singapore's global innovation network and vibrant entrepreneurial community.

The hub will be called «Firemark Labs», and acts as an incubator for IAG to work with top talent, start-up, research and technology partners to co-create new products and services that will improve customer experience across Australia, New Zealand and Asia.

MAS Support

The opening of the new hub is supported by the Monetary Authority of Singapore (MAS), as part of its broader efforts to promote a culture of innovation in the financial sector. The partnership with MAS will help IAG create new roles in Singapore and establish the insurer as part of its world-class innovation community.

«As the first Australian insurer-backed lab, IAG’s Firemark Labs will add to the diversity of our vibrant FinTech ecosystem,» commented Sopnendu Mohanty, Chief FinTech Officer for MAS.

IAG’s initiative presents an exciting platform for both the insurance and innovation community to come together and co-create innovative InsurTech solutions across retail and reinsurance applications for the region, and will further bolster Singapore’s development as the global insurance hub.”

The Expansion of Insurtech 

Firemark Labs is part of IAG’s wider business strategy to create great customer experiences through data, innovation and digital technologies. It will be supported by IAG’s $ 75 million venture fund which was set-up in December last year to invest in, and partner with start-ups and emerging growth businesses.

Earlier this week one of the largest global insurers MetLife, announced its Singapore-based innovation center, LumenLab, had shortlisted 8 finalists for its inaugural tech matchmaking program, Collab.

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IAG has announced it will launch an Insurtech innovation hub in Singapore, in a move that will connect the insurer to Singapore's global innovation network and vibrant entrepreneurial community
An ex-Deutsche Bank MD who made $1 billion for clients built an app to teach students to invest

Kerim Derhalli likes to joke that he spent most of his career at banks that "have either gone bust, almost gone bust, or should have gone bust.""JPMorgan merged with Chase. Bankers Trust got brought out of Deutsche Bank. Lehman Brothers went bust. Bank of America bought Merrill Lynch and then Deutsche Bank is Deutsche Bank — who knows!" Derhalli told Business Insider recently.

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Derhalli spent 35-years in investment banking and spent his final 11 as a managing director at Deutsche, which is now struggling to deal with historic conduct issues and balance sheet woes.

"I wasn’t aware of any of the things that were going on," said Derhalli, who left in 2012. "What I always tell people is don’t leave a job for negative reasons, always do something positively. There was a lot that was wrong in the industry but, actually, I thought there’s just this massive opportunity."

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