Citi analyses VC investments in fintech for fresh insights
Citi’s global perspectives and solutions team has issued a 100-page report on digital disruption in the fintech industry. It has analysed venture capital (VC) investments in the fintech industry between 2010 and 2016, as well as the emerging technologies across the globe.
A significant chunk of the report discusses the growing interest of VC in China’s fintech start-ups. Figures indicate that China dominates investments in Asia and attracts almost all investors looking for deals over $50 million. In the first nine months of 2016, seven of the top ten fintech VC funding rounds saw $3.533 billion flow into China. The country is also home to eight of the top 27 fintech unicorns in the world, says Citi, cumulatively valued at $96.4 billion.
The report attributes the massive fintech boom in China to high digital penetration and rapid growth of mobile technology and internet, its growing middle class, regulatory impetus, and low penetration of financial services for consumers and SMEs in the country.
In the US, data suggests that insurance technology (insurtech) companies enjoyed the spotlight in 2016. Key winners were New York-based Oscar Health Insurance, and San Francisco-based Clover Health, which raised $400 million and $160 million, respectively. Insurtech companies are not just trying to improve distribution but are also looking for innovative ideas to make use of big data and wearable technology to improve the customer experience and improve the underwriting process.
Europe, the report suggests, no longer seems to be an attractive destination for fintech start-ups or VC investments, compared to other locations. Only about $1 billion was invested in the region in the first nine months of 2016, and all of the deals netted less than $50 million. However, it describes Sweden as a “bright spot” in Europe since Stockholm is home to a number of fintech unicorns, and has the ingredients to help facilitate the development of strong fintech companies in the future.
Citi’s analysis shows VCs favour B2C fintech companies in Asia over the B2B ones, with only 11% of funds being invested in entities serving the B2B market.
In North America, the split was more even, with 44% funds going to companies with a B2C proposition and 56% funds flowing to fintechs serving B2B clients.
The report also scrutinised the prospects of start-ups creating solutions using artificial intelligence (AI), big data and advanced analytics, and highlights projects already underway in this area, such as Santander’s SmartBank and DBS digibank.
The report identifies real-time analytics, machine learning, deep learning, video/image/graph analysis, and natural language processing as some of the innovative applications of these emerging technologies.
By Soumik Roy, editorial contributor to Banking Technology