Investment in fintech is thriving in the Asia-Pacific region, with total investment in APAC’s fintech sector more than doubling to record levels in the first half of 2022.
This comes amid declining global investment in fintech, falling from US$111.2bn in 2021 to US$111.2bn in 2022, and a drop in investment in both the Americas and EMEA.
APAC’s new record high was driven almost entirely by three large corporate M&A transactions: Block’s US$27.9bn mega acquisition of Australia-based Afterpay; the US$2.1bn buyout of Japan-based Yayoi by KKR; and the US$1bn merger of Australia-based fintechs Superhero and Swiftx.
“Given the increasing pressure on valuations, we could see more M&A activity in 2022 2H as corporates look for good opportunities to buy out mature markets and startups look to consolidate in order to gain market share and improve their profitability,” Barnaby Robson, Partner, Deal Advisory at KPMG China said.
The region saw a diversity of jurisdictions attract good-sized deals. As well as Australia and Japan, big deals included Singapore-based Coda Payments which raised US$690m, Indonesia-based Xendit which raised US$300, and India-based fintechs Stashfin and Oxyzo, which raised US$270m and US$237m, respectively.
Fintech investment in China however remained limited, with the largest fintech in the country a US$140m raise by corporate expense management company Fenbeitong – taking the corporate spent startup to unicorn status. Interest was also tempered in China as many companies are focused on infrastructure plays and partnerships with traditional financial institutions.
Subsectors cooling – insurtech, regtech, crypto
Investment in subsectors that saw significant interest and hype during the height of the pandemic, namely retail payments, insurtech, and B2C solutions, took a considerable step-back during H1 2022 across APAC, with crypto, NFTs and blockchain also cooling.
APAC saw little insurtech investment, with India-based Turtlemint’s US$121m raise the largest in the region, while regtech investment also declined. That said, regulatory regimes in jurisdictions like Hong Kong, China and Singapore are expected to keep regtech on the radar of investors over the longer term.
Payments sector and cryptocurrency strong regionally
The payments space, which continues to be strong across numerous jurisdictions, accounted for the largest share of fintech investment in the APAC region during the first half (US$43.6bn), followed by crypto (US$14.2bn).
As well as Block’s acquisition of Afterpay, and investments in Singapore-based Coda Payments and Indonesia-based Xendit, India-based Slice raised a US$220m Series B round.
Other subsectors, those that continue to align with rapidly evolving global issues – such as rising inflation, increasing interest rates, geopolitical uncertainty, and supply chain challenges – continued to see investment too.
Supply chain management, cybersecurity and privacy, identity management, and governance and compliance were areas of significant investment in the last six months, while open data also saw solid investment.
In many parts of the region, outside of China, the infrastructure underpinning existing financial markets is viewed as quite aged, and this is driving a significant amount of investment towards the innovation of financial market infrastructure and the digital last mile of transactions.
Anton Ruddenklau, Global Fintech Leader at KPMG Singapore says that in the Asia-Pacific region, there’s been a big focus on modernisation, so it’s not surprising a good number of investments are focused on digital modernisation and infrastructure.
Looking to the remaining half of 2022
Ruddenklau says that while uncertainty permeating the market is expected to continue into the second half of 2022, the diversity of subsectors, combined with the diversity of jurisdictions across APAC, could help keep investment in the space relatively solid over the near term.
He points to areas like green finance, cybersecurity, and B2B solutions as those expected to remain attractive to investors in the region, as we head into a recession, particularly as fintech subsectors such as retail-focused crypto and B2C-focused fintech likely to take a big hit.
Regulators are also continuing to focus on making industry changes to support open banking and decentralised finance in an orderly and safe way.
In China, for example, while investment was slow in the first half it is expected to pick up as regulation evolves. Digital transformation continues to be a significant government priority, with The People’s Bank of China recently releasing its Fintech Development Plan (2022-2025), which stressed its commitment to appropriate regulation, privacy and data protection, low carbon and green fintech, and fair and inclusive services.