Hong Kong and China interest in AI and regtech ‘palpable’ despite soft fintech funding: report

Asia’s fintech funding in 2023 might be lagging its US and European counterparts, but interest is strong in leveraging artificial intelligence and regtech throughout the region.

Fintech companies in Asia Pacific received $5.1 billion of funding in the first half of 2023, a further drop from $6.7 billion during the same period last year, a recent KPMG report has revealed.

The figure points to a “very soft” fintech funding landscape in the region, in contrast with $36.1 billion of funding in the Americas, and $11.2 billion in Europe, Middle East and Africa (EMEA), the study showed.

In terms of number of fintech funding deals, 432 were completed in the Apac region, compared with 1,011 in the Americas, and 702 in EMEA.

“The global fintech market has seen challenges, with a decline in both funding and deals,” Barnaby Robson, deal advisory partner at KPMG China told FinanceAsia.

“Public companies have changed materially, with entire industries trading at fractions of previous valuations. But founder expectations have not moved as fast, meaning private valuations are adjusting slowly as companies seek new funding,” he explained.

The report, Pulse of Fintech H1’23, aggregated data from global venture capital (VC), private equity (PE) and mergers and acquisitions (M&A) deals in 2023’s first half, and looked into various segments including payments, insurtech, regtech, cyber security, wealthtech and blockchain.

The largest fintech deal H1 2023 in the region was $1.5 billion raised by Chongqing Ant Consumer Finance, the consumer finance unit of China’s Ant Group, which faced Beijing’s pressure to restructure in compliance with regulatory limits.

“Fintech funding in China is very dry” outside of Chongqing Ant Consumer Finance’s deal, the report noted. Businesses and investors in China tend to prioritise post-pandemic recovery, waiting for outcomes from prior investments, it explained.

Other significant deals in Asia include $304 million raised by India-based Vistaar Finance, and $270 million raised by Kredivo Holdings in Singapore.

Rebound potential

Despite slowing deal activity and slashed valuation, the intrinsic value and potential of the fintech sector in Hong Kong, mainland China, and Asia in general, remained robust, Robson told FA.

Fintech firms in the area are increasingly looking at leveraging artificial intelligence-generated content (AIGC), the report identified.

“In mainland China, the focus on AI in insurtech, creditech and wealthtech is evident. Hong Kong, with its global connectivity, needs to navigate the growing challenges of dealing two different AI regimes and mainland China data onshoring rules. The diverse financial landscape and low productivity in emerging Asia, offers a fertile ground for AI-driven fintech innovations,” Robson detailed.

“AI's potential to revolutionise fintech segments is undeniable.”

Despite the US and Europe being leaders in regtech, or regulatory technology, interest from Hong Kong and China is palpable, according to Robson.

“With the People’s Bank of China’s (PBOC) recent announcements and Hong Kong's agile regulatory framework, it's clear that the region is gearing up for a more transparent and efficient financial ecosystem,” he said.

China’s central bank released a set of draft administrative measures on data security management last month for public consultation, signalling the watchdog’s enhanced emphasis on data processing securities amid geopolitical tensions.

Many financial institutions are embracing regtech to improve the efficiency and effectiveness of addressing compliance and regulatory requirements, Robson noted.

In his view, the confluence of AI advancements, regulatory shifts, and a growing middle class could very likely help catalyse fintech funding in Hong Kong, mainland China as well as the broader Asia region.

But that would be possible only after “a more complete reset in multiples to get to where valuations reflect fundamentals, and market clearing prices exist”.

He pointed to late 2024 or 2025 as a likely timing for such a rebound, citing fintech being properly valued on a realistic discounted cash flow (DCF) or free cash flow (FCF) basis as a contributing element.

“It's a matter of when, not if.”

¬ Haymarket Media Limited. All rights reserved.
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