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China’s FinTech funding activity declined 7x at $4.9 billion while India doubled

The global investments into Chinese FinTech start-ups have declined sharply by over seven times at $4.9 billion in 2019, after reaching a peak of $34 billion in 2018. The investments have declined for both the B2B and B2C financial technology start-ups and companies in Asia’s largest economy, as per data by business intelligence firm Tracxn.

Declining funding activity

As per the Tracxn data,  B2C and B2B FinTech firms raised a mere $2.15 billion and $2.75 billion respectively in 2019 as compared with $16.78 billion and $17.92 billion the previous year. The investments in 2019 dropped to a three year low. In 2017, about 218 companies raised a total of $8.4 billion. With a decline in funding, the total number of FinTechs that raised funds in 2019 has also declined by over two times.

According to experts tracking the FinTech ecosystem, the decline in PE/VC investments in China is due to an ongoing trade war between that country and the US. Besides, a slowing global economy is also playing a spoilsport.

“China has been facing challenges in terms of trade war threats from the US and stringent fiscal measures arising from the recent breakdown of the lending industry of the country,” said Tanul Mishra, Founder, and CEO of Afthonia Lab, an incubator for FinTech start-ups.  Goldman Sachs, Sequoia Capital, and Morgan Stanley are among the top American investors in China.

However, a few feel that that the reduced fundraising activity in China is not of an alarming concern as the market is currently well-capitalized.

Naveen Surya, Founder of India’s FinTech Convergence Council, a body representing the FinTechs in the country, told IBS Intelligence that, “China’s evolved FinTech ecosystem comprises ten large Unicorns. Most of the companies are already in their high growth stage and need not require more funding as they have already raised enough capital in the last few years. Many of the players are already profitable and might go public soon.”

Surya further added that China’s Unicorns were also valued higher than those in countries such as the US and the UK, which is the world’s FinTech hub. Ant Financial, Lu.com, JD Finance,  Rong360, China Rapid Finance, and Qufenqi are among the ten FinTech Unicorns in the country.  A few others such as Tongdun, Tiger Brokers, TDW, and Lakala are on their path to become Unicorns soon.

Another primary reason for the reduced funding is the debacle of the Person-to-Person (P2P) lending segment due to a massive crackdown by the Chinese government in 2018. Once seen as an essential vehicle driving the credit story in China, pyramid-scheme scandals hit the segment due to the absence of any regulations in the sector following which thousands of online P2P lenders had to shut shops. According to reports, the section peaked in 2015 with 6,000 players, and by the end of 2019, around 400 are still struggling to stay afloat with investors shying away from this space.

Chinese FinTech is mature and robust

However, Chinese VCs have a different view of reduced funding activity. According to Oscar Ramos of Chinaccelerator, a leading accelerator in China and a part of US-based venture capital firm SOSV, the decline in FinTech funding in Asia’s largest economy is due to various reasons including a slowdown in overall funding activity. Hence, this doesn’t necessarily depict a negative sentiment for the segment.

“The FinTech ecosystem is pretty robust in China and is evolving by the day. Payments and lending start-ups dominated the segment a few years ago. We see sub-segments such as InsureTech, Trade Finance, FinTech-enabling other sectors, and enterprise FinTechs receiving increased funding and traction in the coming months,” Ramos said. He also added that Chinaccelerator is already mentoring and has invested in a few start-ups in these segments.

Many of these start-ups are into niche segments and working with market leaders in that particular segment. For example, TheCarevoice,  an InsurTech SaaS start-up founded by an ex-pat in China, has recently raised a Series A funding and already has leading local insurance Ping An Insurance as its client.

Another interesting example that Ramos mentioned was TravelRight, a company that helps travelers claim flight delay compensation. It is already working with two of the top five Online Travel Agencies in China and has recently signed with market leader Ctrip.

India vs China

Meanwhile,  the funding activity in neighboring India has soared. India’s evolving FinTech ecosystem has doubled at $4.5 billion in 2019 as compared with $2.32 billion in 2018. While in China, the lesser number of companies raised more funds, in India, it was the reverse. Around 227 companies raised a total of $4.5  billion last year. Of this, around a billion-dollar went to Alibaba-backed Paytm. Experts feel that the Indian FinTech ecosystem is booming with global investors doubling down their commitments in the country on the back of a transparent regulatory environment, plus the growth of tech-savvy and financially aware populations is also playing a pivotal role in its evolution.

“India is at a stage when China was a decade back both in terms of growth and investments. As and when the market starts saturating or maturing, the private investor sentiment also declines as the returns in matured companies would be much lower,” said Naveen Surya.  India is currently home to a mere 7 FinTech Unicorns compared with 22 in China.

“The Indian FinTech ecosystem has effectively imbibed emerging technologies and has significantly benefited from supporting regulatory policies in the country. Further, owing to IoT, AI, and Blockchain technologies constantly evolving the start-up space, the Indian FinTech industry is operating on a futuristic perspective and thus is also becoming an important contributor to the country’s GDP,” said Mishra of Afthonia Lab.

Besides, the paradigm change in India Inc’s attitude towards FinTech developments such as neo-banking, endless collaborations with existing insurance and banking service providers, and international payment giants such as Google Pay, WhatsApp Pay, and others is paving the way for more growth.

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