As London’s trading FinTech rockets ahead, investment in APAC fintech down in H1 2019

The new wave of FinTech companies that have begun to produce high profile alternatives to traditional banks and electronic financial services companies have absolutely captured the limelight over the past two to three years, resulting in a dynamic which is very unusual in the financial sector, that being vast investment from venture capital funds into absolutely new and untested ideas.

Particular technological and financial centers across the world have risen up to become extremely dominant in the development of new non-bank regions of excellence, including Singapore, Shanghai, Silicon Valley and the world’s leading force, London.

This year, some astronomical figures in terms of venture capital investment has poured into the fintech startups which consist of challenger banks, app based mobile-first trading platforms and new methods of managing overseas payments and receipts for businesses among other integrated, tech-led initiatives that aim to do away with reliance on third party systems or physical branches.

The over-zealous eagerness to fund these entities is interesting, however, as challenger banks and new age trading platforms are not yet tried and tested as actual businesses that can sustain themselves without investor funding.

Currently, almost all of them have very little capital of their own, and are still running on the resources provided from various rounds of VC investment, and whilst most certainly some of the new entrants to the market are paving the way forward for the electronic trading industry in that a move toward ownership of client bases, mobile-first integration with other financial services solutions on one platform and an alternative to banks for cross border trading or settlement are all very important ways for firms to scale their businesses and attract premium client bases in good jurisdictions, especially in the current regulatory environment, however when the venture capital rounds run out we will see who stands firm and who falls.

This in effect will be the litmus test as to whether companies can actually challenge banks not only in terms of better user experience, but in terms of being a bona fide corporate entity that can scale, adapt, own its own IP and list its assets publicly.

Today, data relating to the first half of 2019’s investment in global fintech has been announced, and interestingly there has been a general slowdown, however the regional split is particularly relevant.

International investment in fintech ventures dropped significantly over the first half of this year, as fundraising and deal activity in China that had surged in 2018 came to a halt. The total value of fintech deals worldwide during the six-month period fell to $22 billion (€19.9 billion), down from $31.2 billion in the same period last year.

The decline of nearly 30% was partially offset by strong gains in the US, the UK and several other European countries, according to a report by professional services consultancy Accenture.

In the UK, fintech investment nearly doubled to around $2.6 billion, with the number of deals jumping 25% to 263 as challenger banks and payments companies continued to draw interest from investors. In June alone, digital bank Monzo raised $144 million, the study found.

The value of deals in the US jumped 60% to $12.7 billion over the half, even though the number of deals remained virtually unchanged. The largest deal in the US was the $1 billion deal secured by consumer finance fintech Figure Technologies Inc in May.

Strong gains were also made in Germany, Sweden, and France, according to the firm. “There’s been a lot of interest and demand from consumers for new fintech propositions, particularly in the UK and elsewhere in Europe, which helps explain the big jump in investments there,” said Julian Skan, a senior managing director in Accenture’s financial services practice.

“Fundraising is also moving to support the scaling up of challenger and collaborative fintech, which will cause lumpiness in some rounds as we get to the business end of the investment cycle where investors look for returns based on a sustainable bottom line, rather than another buyer,” he said.

As China becomes more true to its communist ethos of not allowing overseas business to operate within its borders, added to a draconian crackdown on any dissenters in once-free Hong Kong as the island nation becomes increasingly ruled by the communist party, investors from overseas and new ideologies which would effectively interact with Chinese traders are now no longer feasible.

With the entire Asia Pacific region no longer in the picture, Singapore stands out as the “London of the Far East” and the figures gained by Accenture demonstrate this clearly, finding there were large investment gains in with FinTech deals in Singapore nearly quadrupling to $453 million in the first half of 2019.

London, however, has continued to receive massive inflows of capital, some of which has been directed at very experienced FX industry executives who have taken their interbank expertise and channeled it into challenging the exact structure which they once led.

If anyone needs any encouragement that the way forward for the electronic trading industry is to branch out into technologically advanced self-directed new products and platforms, then British FX trader Aritra Chakravatry’s experience can certainly be used as a yardstick.

Mr Chakravarty, who comes from HSBC, where he was Global head of Digital FX and investment products, he decided to go the modern route and combine his expertise with London’s incredibly empowering new age financial technology environment to create a challenger bank, majoring on high end fully digital solutions.

Whilst it is very difficult to get investors to look closely at retail FX and brokerage businesses, all-encompassing challengers and new platforms are very ripe for investment, with Mr Chakravarty having got a deal in May this year totalling £3.8m via crowdfunding resource Seedrs.

The new company, which is called “Dozens”, had initially set a target of £3.5m, but exceeded that amount with more than 2,150 investors in 42 countries.

The funding will be used to power further growth initiatives, new product development, such as business banking and child accounts, and the first phase of its banking license application.

Another example is Curve, a company that consolidates multiple bank accounts and cards into one smart card and app. It has over 500,000 customers, and is supported by teams of more than 150 people in its London and Bristol offices, Bristol being another center of financial services. Once home to the majority of Britain’s insurance companies, Bristol is home to the largest retail financial services company in Europe, Hargreaves Lansdown.

Curve’s Israeli CEO Shachar Bialick considers the company to be totally different to others. He said “Curve is playing a completely different ball game. It is not a challenger bank which means that we can focus on creating a radically better customer experience, without asking customers to trust their salaries with us, or the significant overhead of becoming a regulated bank. Receiving this level of investment from such prominent investors is a fantastic endorsement of the value and experience Curve brings.”

It is virtually impossible to get seed investment to establish an electronic trading firm, even if the board are 30 years in the industry and very experienced and astute, yet these new faces are taking huge cash.

The future of this, if there is to be a future beyond the VC euphoria, is definitely in London though, and not the APAC region. The number of deals in China and India declined by 49% and 21% respectively.

This was offset by increases elsewhere. “Increased activity in many markets is a good indicator of the level of confidence many investors have in the fintech industry,” said Piyush Singh, head of Accenture’s financial services practice in Asia-Pacific and Africa.

“Startups and the solutions they offer are maturing, which bodes well for traditional institutions partnering with fintechs and for innovation in the financial services industry as a whole.” Accenture’s analysis included global financing activity from venture-capital and private-equity firms, corporations and corporate venture-capital divisions, hedge funds, accelerators, and government-backed funds.