In brief

  • Macroeconomic headwinds due to Covid-19 have caused VC dollars in Asia to plummet in Q1.
  • Challenges include losses at Softbank Vision Fund, and India closing its doors to inbound foreign capital.
  • Challenger banks remain an investor favorite, but they need new rounds of capital.

Once a bright spot in many VC firms’ portfolios, Asia’s fintech sector has struggled to raise capital this quarter. According to a report from S&P Global Market Intelligence, the industry saw a significant drop in deals closed, due to the combination of COVID-19’s macroeconomic impact and new rules on inbound investment in India.

The amount of venture capital raised by fintech firms in the Asia Pacific region dropped 58.5% consecutively, to $1.3 billion in the first quarter. 

S&P points to major losses at Softbank’s Vision Fund, and its struggles to attract new investment for future funds as "an indication that technology startups around the world will face difficulties in raising money in the months ahead."


Mobile payment draws in the most investments

During this quarter payment companies came out on top as the segment with the most amount of funding, seeing $403 million raised across 22 closed deals.

“Within the payments sector, mobile payment apps are drawing in the most investments,” Celeste Goh, an analyst at S&P, told Decrypt. “However, it is also the segment that saw the sharpest drop in investments with total funding falling by $1.8 billion.”

Goh explained that this drop was due to the lack of mega funding rounds that culminated in the last quarter of 2019. Indeed, CrunchBase’s funding data says that fintech firms closed $6.4 billion in deals in 2019, with megafunds leading the way. Goh points to India-based One97 Communications, the parent company of mobile wallet provider Paytm, raising a total of $1.7 billion across two funding rounds in November and December as an example.

bar chart: APAC fintech investments by segment in Q1 2020
Image: S&P Global Market Intelligence

Closing the doors to capital

Although India-based firms led the region in attracting the most amount of funding, approximately $543.4 million or 43% of the region’s total, the country’s recent move to clamp down on inbound foreign capital, requiring a review for every foreign-sourced investment, will create significant problems for Indian firms looking to raise their next round later this year.

The report explains that the move was to ensure that foreign investors did not exploit depressed asset prices to make opportunistic takeovers of local firms. 


Challenger banks continue to succeed  

While some firms have struggled to get VCs to return their calls, the report notes that challenger banks continue to attract interest from investors and also from legacy financial institutions via partnerships. 

South Korea's NHN Payco raised $64.4 million in January, while India's PhonePe closed $59.7 million from Flipkart in February, and Japan's Kyash, which raised a $43.7 million series C in March. 

Large banks in Asia-Pacific have been forging alliances with technology players either to jointly launch virtual banks or as proactive measures to stay ahead of the game, S&P’s Goh explained to Decrypt

In Hong Kong, ICBC has teamed up with Tencent to jointly operate Fusion Bank. In Thailand, where a virtual banking framework has yet to be established, Kasikorn Bank has been forming alliances with ecosystem players who will likely be strong virtual banking contenders if the banking scene opens up to technology players.

Digital banking licenses are a good proxy to see how fast the industry is moving from concepts to usable products. Hong Kong’s Monetary Authority has issued eight new digital banking licenses for banks expected to launch this year. Singapore has capped the number of licenses available for 2020 at five, and has 14 companies competing for the slots, including ride-hailing company Grab and gaming outfit Razer.

But digital banks are a new and unproven business model, that will require many subsequent rounds of capital before they prove profitable and investors can exit. In a challenging macroeconomic environment where funds don't want to commit like they did last year, they could have a tough time expanding.

This story was produced in collaboration with our friends at

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