Fintech

Munich and Singapore tipped to emerge as global fintech hubs, survey finds

  • Banks, financial institutions and fintech-focused private equity and venture capital firms all prepared to spend more on deals, according to Reed Smith poll
  • Distributed ledger technology focused on non-cryptocurrency applications and on regulation compliance software best value for money
PUBLISHED : Thursday, 15 November, 2018, 8:02am
UPDATED : Thursday, 15 November, 2018, 10:02pm

Munich, Singapore and Amsterdam are likely to emerge as the top three global fintech hubs over the next two years, according to a survey of 100 senior financial executives by US law firm Reed Smith.

Nearly 50 per cent of venture capital and private equity investors and 34 per cent of bank respondents picked the German city of Munich. The next most popular pick was Singapore, chosen by 40 per cent of bankers and 33 per cent of private equity and venture capital investors.

“Munich has a significant financial sector and has been offering office space and other incentives. They are designing it to attract start-up companies,” said Matthew Gorman, partner at Reed Smith in Singapore. He added that Singapore had taken similar measures.

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“Singapore has done a good job creating a friendly ecosystem. The Monetary Authority of Singapore has been heavily engaged with the fintech sector.”

Andreas Splittgerber, Munich-based partner at Reed Smith, said Munich was home to a number of large, engineering companies such as Siemens and BMW, which meant there was more talent and more money available for research and development based start-ups.

The survey also found that merger and acquisitions activity in the financial technology sector is likely to grow substantially over the next two years globally, with banks, financial institutions and fintech-focused private equity and venture capital firms all prepared to spend more money on deals.

“Deal making is only going to increase in the future,” the report quoted a venture capital executive as saying. “With so many technological advances in the sector, we must all be prepared to invest to stay in the game.”

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The respondents from banks and financial institutions indicated the amount of capital they had set aside for fintech investment had grown in size, with 12 per cent saying they had allocated between US$500 million and US$1 billion in the past 24 months, and 25 per cent saying the same for the next 24 months.

Among private equity and venture capital firms and family office investors, the percentage who had allocated US$50 million to US$200 million had grown from 60 per cent (for the past 24 months) to 67 per cent (for the next 24 months).

Among larger institutions, 31 per cent said they had allocated US$500 million or more for the next 24 months.

The respondents indicated that the areas of fintech with the best value for money were distributed ledger technology focused on non-cryptocurrency applications and on regulation compliance software, which were considered undervalued. They also identified distributed ledger technology focused on cryptocurrencies and online payment processing as areas that would report the biggest increase in valuations over the next 12 months.

With so many technological advances in the sector, we must all be prepared to invest to stay in the game

According to KPMG, 2017 was already a significantly better year for fintech M&A than 2016, itself a record year, with transactions rising from 236 to 336 and deal values rising from US$11.15 billion in 2016 to US$18 billion in 2017.

The latest report by KPMG, called “The Pulse of Fintech Report”, released in July 2018, includes deals in the first half of 2018 and indicates an even sharper upturn in deal sizes.

Among private equity and venture capital firms and family offices, the most common challenge – cited by more than a third of respondents – was competition for suitable investment targets and the scarcity of promising businesses.

In terms of regions, 39 per cent of the executives polled favoured investing in European fintechs, 31 per cent favoured North America and 28 per cent Asia-Pacific. Within Europe, the United Kingdom and Germany were the most favoured places for fintech investment, seemingly brushing off worries over Brexit in the former.

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