“If you can’t measure something, you can’t understand it.” - H. James Harrington
Trying to understand the latest trends in FinTech, and particularly in blockchain-based solutions, requires exactly the type of measurement that H. James Harrington referenced in his quote above. Yet measurement in this space can be particularly imprecise and often self-contradictory. A dive into some of this data though with a look past the headline numbers can guide us past some of the confusion and to at least some degree of understanding.
Fintech press articles — sometimes from industry journals that might not possess the greatest of resources for original research and fact-checking — often draw very strong conclusions from very specific figures. Plenty of recent reports mimic the tone of a South China Morning Post article headlined “Global fintech investments nosedive as Chinese fundraising falls sharply, report says” (14 Aug, 2019.) Meanwhile, there are numerous articles still telling the bull case. Why the seeming confusion, and where lies the truth?
First, it is important to note that there is no single definition of fintech, and hence measuring ‘fintech investment’ will necessarily be imprecise. Nor is this imprecision slight. As Chris Skinner pointed out in his blog article ‘Fintech’s Lies, Damned Lies, and Statistics,’ there are massive differences in numbers even between large and seemingly reputable sources. KPMG measured total fintech investment in 2018 as US$111.8bln*. For the same year, Accenture claimed fintech investment was only US$55.3bln. Meanwhile, CB Insights came up with a figure of US$39.6bln. This is nearly a three-fold spread over this range.
Starting with such massive differences in measure it should not be surprising that the numbers offer seemingly different insights. It is not however fair to say that the measures are completely devoid of meaning. For example, all three sources showed fintech investment doubling between 2017 and 2018. While the exact amount of investment is unclear amidst loose definition and is certainly not worthy of overly precise digits behind the decimal place, the general trend of a massive uptake in investment (roughly double) seems both consistent and relevant. Clearly, fintech investment grew strongly over this time.
Beyond the issue of imprecise definitions, another factor clouding the summary numbers is the massive 2018 investment round for Ant Financial. Clocking in at roughly US$14bln, that single deal constituted somewhere between one eighth to as much as one third of global fintech investment for 2018. If we remove the Ant deal and use the same figures that the SCMP used in its ‘nosedive’ article, we find that global fintech investment actually increased by a strong 28% YoY in the first half. Regardless, their US figures show fintech investment climbing 60% over the same period.
Should we disregard the Ant deal? Of course not. Should we recognize that such mega-deals only occur infrequently and are not well-matched to annual measures? Of course yes. Looking for longer-term trends we can see that the early ’19 numbers still show strong growth over the ’17 spend and this year looks set to be second highest only after last year’s Ant-boosted total. The trend of investment, no matter by what definition, appears to remain firmly upwards.
To further validate this we can look past the investment to actual use. As one example take mobile payments in China, the most successful and trumpeted fintech advance. Even here sources differ in their measures, with official People’s Bank of China figures showing 2018 payments having grown to RMB277trln (NB — that is a T for Trillion) and other sources only** claiming on the order of RMB150trln. Early indications from formal sources back what can be seen informally on-the-ground in China — that the ease and convenience continues to draw all the more people to fintech solutions.
This all links back to a point made in an earlier version of this discussion. Ultimately it is user demand that will drive fintech innovation and adoption. So long as fintech better meets the users’ end investment needs it will succeed, and in that process will draw more investment. The numbers might seem confusing, and a few resulting press articles might sound negative, but spending just a few moments looking into these measures tells us that the investment trend is continuing to follow the adoption and use of fintech — moving ever higher.
* Note the precision of the post-decimal measure here. Many years ago when I was trained in physics one of our first lab lessons was that the degree of specificity to which we report a number should indicate the extent of the accuracy our measure conveys. In cases like this, it appears to provide more of a veneer of certainty than any indication of the true trustworthiness of the measure
** If you will allow the use of the word only in a discussion of hundreds of trillions of RMB
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