India tops China in fintech funding in first quarter as pandemic, US trade war prolong ‘capital winter’

27-May-2020 Intellasia | South China Morning Post | 6:02 AM Print This Post

India has overtaken China as Asia’s top destination for venture capital investment in fintech although the lead may not last, according to analysts.

The change at the top comes amid a diminished investment appetite in fintech start-ups due to the economic crisis brought about by Covid-19, with China being particularly hard hit as it was the first market to be affected by the pandemic.

In the first quarter of 2020, fintech start-ups in India attracted venture capital investments worth more than $330 million, compared with China’s $270 million, according to London-based GlobalData.

In terms of deal volume, India recorded 37 investments versus China’s 26 deals in the March quarter, according to GlobalData.

“The global economic turmoil caused by the Covid-19 pandemic has diminished the investment appetite for fintech start-ups so far in 2020,” said Ayushi Tandon, fintech analyst at GlobalData. “In Asia, although there is an overall pullback in VC funding of fintech start-ups in [the first quarter], India grabbed the top spot as China was hit by the pandemic-induced economic recession.”

In fact, China had its worst quarter for fintech since 2015 as the country shut down large parts of its economy to fight the coronavirus outbreak, according to a separate CB Insights report issued earlier this month. Singapore, Japan and Indonesia also saw deal volume dip in the first quarter as the coronavirus spread to more regions, according to CB Insights.

In the past, China’s fintech start-up ecosystem has been a breeding ground for venture capitalists thanks to its tech-savvy population, an underdeveloped banking industry, and an initially relaxed regulatory environment, according to Brookings.

However, the sector lost some of its shine after Beijing clamped down on peer-to-peer lending and the Chinese economy went through a “capital winter” starting in 2018, with a significant slowdown in fundraising activities due to the trade war with the US and economic uncertainty.

The pandemic dealt the VC sector a fresh blow as funders halted new deals because they were unable to do due diligence on site, and start-ups implemented lay-offs and job suspensions as funding dried up.

Investments targeting China’s tech-based industries saw a 31.3 per cent decline in value in the first quarter compared to the same period last year while the number of investment deals was down 44.5 per cent, according to a report by Beijing-based information service provider

In China, the fintech market is dominated by Alibaba’s Alipay and Tencent’s WeChat Pay, which together control about 90 per cent of the country’s digital payments market. Alibaba is the parent company of the South China Morning Post.

“China has already had its fintech boom phase as far as consumer payments and lending goes… [there is] little to no space for innovation [from new start-ups],” said Amit Jangir, co-founder of Karbon Card, a fintech firm with operations in Bangalore and Shanghai.

“India on the other hand has a long way to go with regards to both payments and lending. Mobile also has just started to uptik which makes it a good time to be a fintech in India.”

Syed Musheer Ahmed, founder and managing director of FinStep Asia, a Hong Kong-based fintech advisory firm, said India was also benefiting from investments from European and Japanese funds that were cautious on China amid the trade war.

However, he sees a comeback for China. “The dip in 2019 and 2020 will be overcome as the economy starts to go back to normal and I expect China to bounce back by the third quarter and be fully back on track by early next year in terms of overall VC funding as well as fintech,” he said.


Category: Regional

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