The world of fintech, the shorthand term for fintech companies, can offer exciting opportunities for investors. Fintech companies include those that create and manage applications for peer-to-peer (P2P) payments, as well as those that create innovative digital banking tools.
The fintech industry was valued at $110.57 billion in 2020, and is projected to reach $698.48 billion by 2030, according to Allied market research. When it comes to buying stocks in a fast-growing sector like fintech, it’s important to understand the size of the business, how it operates, and what competitive advantages it has.
Invest in fintech in numbers
- The fintech industry is projected to grow to $698.48 billion by 2030, an increase of $587.91 billion from 2020.
- Digital payment services are the most prominent among fintech developments, accounting for more than 80 percent of global fintech revenue.
- Companies in the Asia-Pacific region are expected to be the fastest growing in the fintech sector.
- Since September 2018, fintech stocks have consistently outperformed other financial services stocks: After COVID-19 hit global markets, fintech stock prices rallied in just four months, while financial services prices Traditional financials had yet to fully recover as of the end of 2020.
- US-based Visa is the largest fintech company in terms of market capitalization, with a total value of around $383.3 billion.
- The second largest fintech by market cap is China-based Ant Financial, worth around $312 billion.
- Around three in four consumers globally have used a fintech money transfer or payment service at least once.
- China is at the forefront of consumer adoption of fintech: in 2019, 92 percent of Chinese citizens were reported to have used fintech banking and payment services.
- In the US, fintech has been taking off, with the proportion of US consumers using fintech rising from 58% to 88% between 2020 and 2021.
Sources: Allied Market Research, Deloitte, Center for Finance, Technology and Entrepreneurship (CFTE), EY and Plaid
What is fintech?
Fintech describes an industry focused on the use of technology to develop and improve financial products and services. Fintech companies often offer unique services to add ease and efficiency to consumers’ financial lives.
It is very likely that fintech is already part of your life. If you’ve ever sent a payment through Venmo, traded stocks with Robinhood, or used your debit card at a store that uses Block to process payments, you’re already familiar with at least some of the reach of fintech. Banking services, investment applications, and payment processing services are just some of the fintech functions.
Some more specialized fintech companies have also developed financial services with a focus on social causes in recent years. Stretch, for example, is a fintech that offers bank accounts and financial resources to former inmates. Meanwhile, Atmos is a fintech dedicated to fighting climate change by using its deposits to lend exclusively to renewable energy and other climate-positive initiatives.
Fintech development is driven by various types of technology, including:
- Artificial intelligence
- block chain
- Cloud Computing
Types of fintech companies
Some of the most common types of fintech services include, but are not limited to:
- Banking: Fintech banking services consist of a variety of applications and software that allow consumers to open accounts, protect their accounts from fraud, and receive direct deposits faster. Examples include Chime and Current.
- Payments: Payment services are the most common fintech offering, according to Deloitte. Digital payments allow consumers to pay bills, shop with contactless payment methods and send money to their peers. Some examples include Venmo, Zelle, PayPal, and Block.
- Financial management: Fintechs in this category are designed to make it easier for consumers to manage their personal finances, providing services such as expense tracking and automated savings. Financial management fintechs include Digit, Mint and You Need a Budget.
- invest: These fintech companies are designed to help investors grow their assets, track their investments, and use a robotic advisor. Some popular investment fintechs include SoFi, Acorns, Robinhood, and Wealthfront.
- Loan: Lending fintechs streamline the lending process for both lenders and borrowers. They can give lenders access to potential borrowers’ information to make lending decisions and provide borrowers with payday advance loans or flexible repayment plans. Some examples of these fintech include Plaid, Affirm and Klarna.
The expansion of fintech
In 2021, the fintech industry saw an $89.5 billion (168%) increase in funding from the previous year, for a total of $131.5 billion, according to CB Insights.State of financial technologyreport. Strong growth in funding was found in every major type of fintech, suggesting a broad rise in interest across the fintech industry.
One of the fastest growing fintech categories is digital lending, which saw a 220 percent increase, or nearly $15 billion, between 2020 and 2021, according to CB Insights. The market intelligence firm also reports that the US leads the world in fintech funding, accounting for around $62.9 billion of global fintech funding, an increase of 171 percent from the previous year.
Fintech companies to invest in
When choosing stocks to invest in, it’s important to do your research. Discuss the business model and history of the company, what is driving the industry, and what trends are emerging in the fintech world.
KPMG, an accounting firm, points out some trends to watch out for in 2022:
- Increase in mergers and acquisitions, with more fintech companies looking to expand into different markets.
- More attention to the social and environmental impact of companies
- Increased demand for banking alternatives and new banking technology
The top publicly traded fintech companies on the market include:
|New York Stock Exchange: V
|New York Stock Exchange: MA
|New York Stock Exchange: SQ
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*Market capitalization data obtained from the CFTE.
An exchange-traded fund (ETF) is a type of investment in which the investor owns a small portion of holdings in many different assets. Investing in an ETF is a great way to diversify a portfolio and reduce risk.
ETFs are publicly traded like stocks and charge a low fee based on a percentage of the money invested in the fund.
With a growing fintech market, there are several ETFs specifically focused on investing in companies at the forefront of fintech. These funds allow investors to own stakes in the fintech industry without the need to pick individual stocks to determine which ones will win. Adopting a passive investment strategy with a fintech ETF can yield high returns.
Fintech ETFs that can give you exposure to cutting-edge financial developments include:
- Ark Fintech Innovation ETF – The fund is a leader in fintech ETFs and its major stocks include Shopify and Block, Inc.
- Global X Fintech ETF – One of the oldest and most well-established fintech funds, the leading stocks in the Global X Fintech ETF include Intuit and Fiserv.
- ETFMG Prime Mobile Payments ETF – This fund focuses on mobile payment companies, with major holdings including Paypal and Visa.
- Amplify Emerging Markets Fintech ETF: The Amplify Emerging Markets Fintech ETF carries more risk due to its focus on emerging markets, which tend to be more volatile. Its main holdings include PagSeguro, a Brazil-based digital payments company, and MercadoLibre, Inc.
The future of fintech
Fintech has seen a significant uptick in recent years, and it’s not expected to slow down any time soon, with Allied Market Research predicting that the global fintech industry will be a $698.48 billion market by 2030.
Although digital payment fintechs account for the largest share of global fintech revenue, other categories that have been growing rapidly include digital lending and core banking replacements. Affirm, Klarna, and SoFi are some of the leaders in digital lending, while Thought Machine and Temenos are the top banking fintechs.
KPMG also predicts that companies focused on climate change and sustainability will experience significant growth in the coming years. Investors may want to keep an eye out for those companies that appeal to these global issues.
Meanwhile, many fintechs are making more deals in underdeveloped regions. For example, financing in Latin America reached a record in 2021 of 13,000 million dollars, 269% more than the previous year, according to CB Insights. These emerging markets could prove very lucrative in the coming years.
Fintech is one of the fastest growing and most exciting industries, offering services that help both consumers and businesses manage their finances, access loans and make payments.
As technology continues to change the way we live and impact different areas of finance, it will be necessary to regularly assess investments and consider what competitive advantages each fintech has. Fintech EFTs could be a good opportunity for investors who want to tap into the growth potential of companies at the forefront of innovative technology at a slightly lower risk.