China accounted for about half of the value of global equity financing in fintech in 2018. Startups in big data, cloud computing and blockchain attracted the most investment deals while major full-fledged financial service providers attracted the most VC dollars.
China took a big lead in global investments in fintech in 2018, accounting for 46% of the total investment value, according to a recent Accenture report citing data from CB Insights.
China's fintech industry, following a slowdown in the previous year or so, saw an enormous increase in the total value of equity financing in 2018, largely thanks to a number of big-ticket investments into full-fledged fintech developers incubated by Chinese tech giants or conventional incumbents, and rising startups stars.
A record 14 billion USD equity funding raised by Ant Financial, the fintech arm of e-commerce giant Alibaba, during the year makes it arguably the world's most valuable fintech company. It represents about half of the fundraising total in China's fintech industry for the whole year, according to the Accenture report mentioned above.
While the major fintechs attracted the most VC dollars, the majority of the investment deals of 2018 went to early-stage startups, with about one-third being seed or angel rounds and one-fourth Series A rounds, according to ITJuzi, a Chinese tech startup database.
ITJuzi collected more than 500 investment deals in the finance sector in 2018, about the same as in the previous year but about 200 fewer than in the record years of 2015 and 2016. The decrease in deal volume in the last two years were due to the fact that a few categories of services, such as online consumer lending and asset management, were almost saturated and regulatory crackdowns had been implemented to rein in risks in these red-hot segments, according to the latest report on China's fintech market by Analysys, a Chinese internet market research firm.
"A record 14 billion USD equity funding raised by Ant Financial, the fintech arm of e-commerce giant Alibaba, during the year makes it arguably the world's most valuable fintech company."
The most popular categories in terms of investment volume in China's fintech industry last year were big data, financial information services, cloud services, online lending, and blockchain, according to the Analysys report.
Almost all fintech service developers backed by major tech companies or traditional incumbents raised large equity financings in 2018.
Like Ant Financial, which was spun out from Alibaba in 2014, most Chinese tech companies and conventional enterprises that have invested big in finance technology development began raising external equity finance for their fintech businesses in the last couple of years. The move is believed to be partly inspired by the Ant Financial model and partly because of the upcoming regulation on financial holding companies, which is expected to restrict ownership and inter-group transactions.
These big company-backed fintechs have developed a wide variety of financial services. Having already registered tens of millions of Chinese consumer customers online and are making inroads into the conventional finance market by offering technology solutions and services, these fintechs had unsurprisingly high valuations when they began to raise external financing. Investment opportunities in them have attracted high-profile investors ranging from major international venture capital firms and sovereign investment funds to big Chinese state-owned financial enterprises. Before finishing the 14 billion USD Series C round of fundraising, Ant Financial had already been evaluated at a reportedly 150 billion USD.
JD Finance, the fintech arm of China's second-largest e-commerce company JD, announced 130 billion RMB (1.94 billion USD) in series B round with a post-money valuation of 133 billion RMB (20 billion USD) in July 2018.
Baidu, China's dominant search service, was the latest tech company to raise outside equity funding for its fintech business. In 2018, its Du Xiaoman Financial raised 1.9 billion USD in its first equity financing round.
OneConnect, the financial tech solution developer of Ping An, a leading insurer, raised 650 million USD during the year. Suning Financials, the fintech arm of omnichannel retail giant Suning, raised 10 billion RMB (1.5 billion USD) at a pre-money valuation of 46 billion RMB (6.8 billion USD) in its latest round of financing announced in late 2018.
Leading fintechs like Ant Financial and Chinese tech giants, including those that haven't spun out their fintech services like Tencent, are also active investors in Fintech startups in and outside of China. Business-facing solution and service was a main investment theme for these investors in 2018.
"When it comes to startups, the popular subsectors of fintech chased after by venture capital in 2018 include business solutions, big data, artificial intelligence and personal finance."
Several rising startups raised 100 million USD or more during the year. They include:
· Linklogis, a tech solution developer in supply chain finance;
· Bairong, which provides data-driven AI solutions for credit risk management and marketing services to banks and other financial institutions;
· Wecash, a big data-based consumer credit scoring service that also offers credit to users;
· Xueqiu, which operates an online investing community and provides a robo-advisor to individual investors;
· Wacai, a personal finance app;
· Lianlian Pay, domestic and cross-border payments solution provider.
Fintech offerings seem to have become must-haves for platform and technology developers in China. A number of companies that offer such products or services also attracted big investments from investors including fintech companies in 2018.
For instance, Huitongda, which provides a variety of financing options to rural merchants on its e-commerce platform for rural areas, obtained 4.5 billion RMB (6.7 billion USD) investment from Alibaba.
A number of AI startups that have developed data analytics and risk management solutions for the finance sector also announced big investments in 2018.
Keking, which offers payments and financial services solutions to small logistics businesses or individuals raised over 100 million USD during the year.
Chinese startups focused on computer vision and machine learning offer the finance sector identity verification and fraud prevention solutions. Several leading players in this area received big investments in 2018. SenseTime, YITU and Cloudwalk, raised 600 million USD, 100 million USD and 500 million RMB (75 million USD), respectively.
"Blockchain has still been a hot target for investment in China even though the Chinese authorities declared ICO illegal and banned cryptocurrency exchanges in mainland China in 2017."
Chinese tech developers in this field are now focused on business-facing blockchain applications. Major tech companies and fintechs have all established companies or business units dedicated to blockchain application development.
China took the lead in terms of both value and volume of 2018 global investments in blockchain, according to local finance news outlet 01Caijing. Blockchain ranked third in terms of the total volume of investments in China in 2018, according to the Analysis report mentioned above.
Bitmain, the global leading player in crypto mining hardware, raised more than 730 million USD, valued at about 15 billion USD, in 2018 before it filed for an IPO on Hong Kong Stock Exchange.
Since November 2017 China has seen a second wave of fintechs to raise funds from IPOs in the U.S. and Hong Kong. Similar to the first wave, the second batch is mainly from relatively mature sub sectors such as peer-to-peer lending (aka. marketplace lending), online consumer and small business lending, payments and personal financial services.
Tracey Xiang is a tech writer, specializing in ChinaTech, Digital Economy, FinTech and AI.