BABAF - Fintech Investing Facts
Fintech — short for financial technology — has been around for a lot longer than one might think. While the term itself is relatively new, fintech itself can be traced back to the 1860s. So what other fintech facts should investors know?
Like Forbes suggests, many people often think fintech is more of a recent development. What often comes to mind is a mobile app with which a person can make mobile payments for goods and services, removing the need to hold physical currency.
While that is largely true, the first signs of fintech innovation emerged from the invention of the printing press, which allowed for the printing of paper currencies all around the world.
Fast forward to the 1950s, when credit cards were introduced, and then to the 1960s, when automated teller machines (ATMs) came to the forefront.
A couple of decades later, the 1980s were instrumental for tech advancements in the finance sector and financial institutions, introducing new banking computers and data that allowed for record-keeping systems. The 1990s, of course, brought the emergence of the internet and ecommerce business models.
As you can see from that quick overview of financial history, fintech has been a growing and evolving market for over a century, and the impact of fintech cannot be overstated. With that in mind, here the Investing News Network (very) briefly breaks down what fintech is and gives an overview of how market participants can invest in the growing fintech market.
Fintech facts: What is fintech?
Technology as a whole is a rapidly growing industry, and fintech has seen transformations in innovation related to peer-to-peer lending, real estate, wealth management and personal finance, and more fintech companies are popping up dedicated to these sectors.
Still, more people than not remain unfamiliar with fintech and fintech solutions. By Investopedia’s definition, fintech relates to the ways in which people transact business. Thanks to the evolution of the internet, the term has changed to include any form of advancement in the sector, including retail banking, investing, cryptocurrencies and digital currencies such as bitcoin and crypto’s backing technology, blockchain.
Putting it simply, the fintech market has grown so much that it has completely changed how people use physical money. While online banking has been around for quite some time, digital-only banks are also making a name for themselves, and payment and mobile banking apps have surged to the forefront. Fintech trends continue to shape consumer behavior within the financial services industry.
For example, a whitepaper by Infosys (NYSE:INFY) reveals that 64 percent of people prefer to transact via digital-only banks. The firm says that these digital-only banks are the “next wave” in global banking.
Established in 1998, PayPal (NASDAQ:PYPL) was one of the first digital payment and money transfer systems. The number of ecommerce payment systems has, of course, expanded since then to include hundreds of companies, such as Square (NYSE:SQ), Payline Data, BitPay and Venmo.
In terms of digital-only banks, some examples include popular Canadian players such as Tangerine, a subsidiary of Scotiabank (TSX:BNS), and Simplii, a subsidiary of CIBC (TSX:CM). In the US, there are Ally (NYSE:ALLY) and Finn, a subsidiary of Chase (NYSE:JPM). In Asia, the Hong Kong Monetary Authority granted eight digital banking licenses in May 2019 to companies including Tencent Holdings (HKEX:0700) and Alibaba (NYSE:BABA,OTC Pink:BABAF).
Fintech facts: The future of fintech
In 2018, almost US$40 billion was invested in financial technology, according to CB Insights.
The US saw an investment of US$11.89 billion across 659 deals, taking the leading global spot. Over the next three years, global investment in fintech firms is expected to reach US$46 billion.
Of course, there are other factors that are contributing to the fintech market’s rising success. Artificial intelligence (AI), for example, is emerging as an instrumental feature in the fintech market. Mark Cuban, a self-made billionaire, has said that faster computer processors and larger data sets may very well push AI “into a wealth of industries and services.”
Most recently, CB Insights pegged that global fintech funding topped US$8.9 billion during the third quarter of 2019. Additionally, Q3 saw fintech raising US$24.6 billion, surpassing 2017’s annual total.
Fintech investment is also focusing on small businesses. As Forbes has reported, in the US, there are over 27.9 million small businesses in operation, accounting for close to half of the country’s GDP.
The NASDAQ is also getting in on the action. In April 2017, the exchange announced plans to make minority investments of US$1 million to US$10 million through its NASDAQ Ventures program, with a focus on blockchain, machine learning, AI, data, analytics and content aggregation. In January 2019, the program invested US$20 million into private cryptocurrency and blockchain company Symbiont.
On that note, it’s hard not to bring up the impact blockchain technology could have on fintech.
“Blockchain technology offers a secure, fast, and cheaper medium of carrying out online transaction and online transfer of information without the need of third party verification,” a BIS Research report states. “The adoption of blockchain technology in financial services sector has gained traction.”
For its part, KPMG has said that blockchain has moved beyond the “experimentation” phase, while terming payments and regtech the “most mature” subsectors of fintech. The firm projects a “strong outlook” for the sector as significant funds are set to be injected into various subsectors of fintech.
Fintech facts: Investing in fintech
There are a number of ways for investors to step into the fintech sector, including:
- Exchange-traded funds (ETFs):
- Global X FinTech Thematic ETF (NASDAQ:FINX): Launched in September 2016, this ETF is primarily focused on US companies and includes 38 holdings. Among its top holdings are Square, Intuit (NASDAQ:INTU) and Fidelity National Information Services.
- Stocks: There are a number of major fintech players in the market that have not yet been mentioned, including Broadridge Financial Solutions (NYSE:BR) and Fiserv (NASDAQ:FISV). Click here to view our list of Canadian fintech players.
This is an updated version of an article originally published by the Investing News Network in 2017.
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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.