Fintech sees fewer deals but more money in Q2

Singapore

THE value of fintech investment in Singapore increased significantly in the second quarter of 2017 when compared to the year-ago quarter, despite fewer deals being completed.

According to KPMG's Pulse of Fintech report, released on Tuesday, Singapore witnessed four fintech deals worth US$61.53 million during the second quarter, compared to US$9.53 million chalked up over five deals in the year-ago quarter. In the sequential first quarter of 2017, seven deals were transacted for a total deal value of US$17.71 million.

Commenting on the decline in the volume of fintech deals, Chia Tek Yew, head of financial services advisory, KPMG in Singapore, said the apparent decline may be a result of the move towards a more partnership-oriented fintech model in the country.

By all counts, Singapore's 2017 performance cannot be judged just on volume, but deal value is poised to show an impressive result, Mr Chia said.

He noted that the Monetary Authority of Singapore (MAS) continued to drive the majority of fintech activity in the country. What's different from the last two years is that MAS has begun shifting its focus away from education and innovation, and is now looking at promoting adoption and attracting companies to base themselves here.

This is also with the view that the fintechs will pilot their solutions in Singapore before deploying into other markets in South-east Asia such as Indonesia and Thailand.

"The success of these cross-border solutions could prove the viability of using Singapore as a springboard for Asia-based expansion," he said.

He noted that there seems to be a major push to transform Singapore into the world's blockchain leader, with an "ever-increasing number of use cases in the country aimed at testing blockchain in government trade, land registry and tax functions, in addition to traditional banking and insurance".

According to the report, total fintech funding in Asia remained relatively steady quarter-over-quarter, with US$760 million invested across 51 deals during the second quarter of 2017, compared to US$790 million across 56 deals in the first quarter of 2017.

Corporate participation continues to soar in the region, with corporate VC investment growing from a strong 22.5 per cent in the first quarter of 2017 to a record of 36.6 per cent in the second quarter, "revealing a deep interest in fintech innovation from strategic players in Asia".

The report noted that blockchain was expected to remain a relatively hot area of investment across much of Asia, in addition to payments and lending.

In China, regtech (regulatory technology) is also forecast to attract more attention from investors, particularly related to anti-money laundering and digital identity management. Regtech refers to companies that use technology to help businesses comply with regulation efficiently and inexpensively.

Interest in solutions related to financial inclusion is also expected to grow over the next few quarters, given the significant underbanked and unbanked populations in Asia, Mr Chia noted.

Globally, the report noted that total fintech investment more than doubled quarter-over-quarter in the second quarter of 2017 to US$8.4 billion, up from US$3.6 billion in the first quarter.

Global M&A (merger and acquisition) investment helped drive the fintech market rebound, with US$5.9 billion in deal value for M&A for the quarter.

Comparatively, global VC (venture capital) funding to fintech companies declined slightly, with just over US$2.5 billion across 227 deals in the quarter.

At mid-year, the global median VC fintech deal size of US$12 million for late-stage deals was substantially lower compared to the 2016 total of US$18 million. The median deal size was up for angel/seed stage deals (US$1.3 million) and for early-stage rounds (US$6.2 million).

The report noted that global corporate VC investment in fintech is on pace to near 2015's total, with US$2.6 billion invested in deals with corporate participation by the end of the quarter, compared to US$9 billion in all of 2016, which was skewed by mega-deals.

Corporate participation in fintech deals by volume was also up - with 21 per cent participation in 2017 deals so far compared to 17 per cent in 2016.

Global investment in regtech was up significantly during the quarter, with the US$591 million invested in the first half of 2017 already exceeding the US$583 million raised during all of 2015.