2016 was the year that China's fintech dragons roared, dominating VC spending while investment in some previously feted leaders in other parts of the world wilted, according to a report from Citi.
In the first nine months of 2016, global fintech investments reached $18 billion, over half of which came in China, thanks in large part to a few mega-deals, most notably the $4.5 billion private fund raising for Ant Financial.
But Citi still expects full year VC funding to be down on 2015, reflecting the more cautious stance of investors in light of a volatile public stock market in the first half of 2016, especially for US-quoted online lenders, concerns around a flood of capital inflow into the sector and some "questionable" valuations.
In fact, 2016 VC funding is expected to be down by more than a third in North America, a quarter in Europe and three quarters in Asia, excluding China. Balancing this out is a 104% increase in funding in China, which has made Asia the number one fintech investment destination.
Lending continues to be the hottest fintech area for VC investors, accounting for 60% of the money invested in the first nine months of 2016 (although this discounts the Ant Financial round, which was not from VCs).
Outside of Asia though, particularly in North America, insurance has emerged as the hottest fintech sector. Citi predicts that big data, the Internet of Things, and wearable devices, among other trends, will help insurance companies use fintech to be more creative and customised.
This reflects a trend towards B2B fintech in North America and Europe. But in China, the focus will continue to be on B2C.
"The simple call for us to make is that Alipay will grow internationally as it follows the ongoing expansion of overseas Chinese tourism. The harder call is how many non-Chinese clients will Chinese companies like Ant Financial and WeChat gain in payments and associated products," says the report.
Read the full paper here