Priority of innovation in finance in China likely to drive further investment

HONG KONG SAR - 23 August 2024 - Fintech investments in China made a modest recovery towards the end of 2023 and trickled over into 2024. Among the top ten fintech deals in ASPAC, five originated from Chinese Mainland and Chinese Hong Kong. Despite the regulatory hiccups in China, fintech is poised to remain a durable investment choice with bright spots in crypto, consumer payment systems and lending platforms, according to KPMG's Pulse of Fintech H1'24 report.

Fintech investment in the ASPAC region recorded USD3.8 billion in H1'24 across 438 deals, with China recording a total fintech investment of USD624 million. Consumer finance and lending companies contributed over half of deal value in Q1. China recorded the largest deals in the region during H1'24, with USD280.9 million raised by the capital markets solutions firm Yi'an Enterprise. This was followed by USD209 million raised by the India-based personal loan platform KreditBee, and USD195 million raised by the Thailand-based digital financial solutions company Ascend.

ASPAC region focused more heavily on the development and launch of digital currencies and real-world digital asset tokenization. Major hubs including Hong Kong, Singapore and Japan in particular have been working to balance innovation and regulation in a way that protects investors rights and these jurisdictions will continue to explore and approve activities that blend traditional finance with decentralized finance.

AI continued to grow on the radar of both fintech investors and fintechs, following a trend seen broadly both across ASPAC and globally. During H1'24, the AI focus came predominantly from traditional financial institutions looking to leverage AI to drive operational improvements and efficiencies. Fintechs in the region have also enhanced the emphasis of any AI components of their solutions and offerings, although many of these solutions remain quite nascent, with more sophisticated applications yet to come.

Andrew Huang, Head of Fintech, KPMG China, says: "A number of financial institutions in China have introduced AI-driven applications, such as digital customer service providers and AI robots to help answer questions. Some have also started to use generative AI internally to help with the compilation of computer code for software design and other limited use cases. During H2'24, we will likely continue to see these kinds of activities grow, many with the help of fintechs, but it will likely take time before any applications really mature."

As part of the Five Finance strategy, China's central government is working to encourage financial institutions to support startups in technology finance, green finance, inclusive finance, pension finance, and digital finance - which could lead to additional investments over time. ESG finance came under the spotlight in H1'24 given the USD150 million raise by ESG financial solutions platform MioTech.

Barnaby Robson, Head of Value Creation, KPMG China, says: "While deal volumes remain relatively low, we feel there is a positive change in sentiment around fintech. In the Chinese Mainland, efforts are being made to better connect international payments providers into the Chinese payment ecosystems, with some companies receiving payment licence approvals."

Despite the regulatory uncertainties in the cryptocurrency space in Mainland, fintech is poised to remain a durable investment choice with bright spots in crypto, consumer payment systems and lending platforms. Crypto remain a cornerstone investment choice as blockchain is positioned as a strategic technological innovation in the 14th Five-Year Plan (2021-2025).

Meanwhile, Hong Kong is actively cultivating a regulatory framework to support cryptocurrency exchanges and other crypto-related activities. During H1'24, the Hong Kong Monetary Authority launched the next phase of its e-HKD pilot project. The city is aiming to position itself as a global hub for digital assets, with initiatives to attract crypto firms and enhance its financial ecosystem.

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