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Fintech is taking the world by storm, and investors have already begun to notice. In 2018, overall investment in fintech totalled US$111.8 billion, according to KPMG. That figure is impressive enough on its own, considering funding more than doubled from the US$50.8 billion invested in 2017.
Over the last several years, investment in fintech has been on the rise. For instance, in 2013, the market only saw US$4.05 billion in investment. While there was a dip in 2016, the global market is expected to grow at a compound annual growth rate (CAGR) of 54.83 percent between now and 2020, according to WiseGuyReports. The growth in venture capital investment, investor interest and private equity investment have helped fuel financial innovation.
Investment in fintech is no doubt poised to grow. Continue reading to learn more about the scale of growth in this flourishing market.
Investment in fintech: Global market breakdown
As KPMG suggests, 2018 was marked by a number of major deals that were characterized by growing deal size and geographic diversity. Blackstone invested US$17 billion in Refinitiv, while Silver Lake and P2 Partners acquired Blackhawk Network for US$3.5 billion.
“Fintech start-ups in markets as diverse as Germany and Brazil are attracting larger and later stage rounds, while the more established fintech leaders in the US, UK and Asia are making their own investments and acquisitions in order to expand their product and geographic reach,” Ian Pollari, global co-lead of KPMG Fintech, said in the report.
More specifically, in the US, investment in fintech rose to US$54.5 billion in 2018. This marked a significant increase from US$29 billion in 2017. The research firm highlighted that the overall increase in investments came from an uptick in mergers and acquisitions (M&A); cross-border M&A deals brought in US$28 billion.
Fintech deals in Asia were also on the rise in 2018, reaching US$22.7 billion compared to US$12.5 billion in 2017. Fuelling that growth in part was Ant Financial’s US$15 billion deal in the second quarter of 2018.
In Europe, fintech investment witnessed record growth in 2018, with a total of US$34.2 billion invested in 536 deals.
Investment in fintech: Current market status
As the sector continues to mature, a number of trends are characterizing the fintech industry.
“The growing deal sizes, higher levels of M&A activity and the geographic spread of deals all highlight the increasing maturation of the fintech sector on a global scale,” said Pollari.
In 2018, the US, Asia and Europe concurrently posted record financing in the sector. Canada and Brazil also reported notable gains in the industry, with 28 and 119 fintech deals taking place, respectively.
KPMG highlighted that artificial intelligence (AI) and automation are subsectors of the fintech industry with anticipated growth in 2019.
According to the Fintech Growth Syndicate, paytech accounts for the largest segment of the Canadian fintech ecosystem, standing at 25 percent of the industry. A paytech company is defined by Payments Canada as a company that uses technology to enable the electronic transfer of value. As of the third quarter 2018, the report noted there were 995 fintech companies in Canada, and over 70 percent of fintech firms in Canada are small businesses, meaning they have less than 50 employees.
Globally, 41 fintech unicorns were reported as of the first quarter of 2019 according to CB Insights, and they are cumulatively valued at US$154.1 billion. McKinsey reports four trends that are shaping the capital market infrastructure side of fintech: distributed ledger technology, AI and advanced analytics, quantum computing and post-trade products.
The financial technology sector is producing a wide array of advancements in fintech innovation, both on local and international levels, in real estate, peer-to-peer lending, cross-border payments and general lending. Both the wealth management sector and portfolio companies are recognizing the benefits of fintech. For example, a number of firms, including Citigroup (NYSE:C) and Goldman Sachs (NYSE:GS), are applying cryptocurrency and blockchain technology to their operations.
Making an investment in fintech
Finally, if you’re serious about making an investment in fintech, there are a number of ways to step into the sector, including exchange traded funds (ETFs) and stocks.
- The Global X FinTech Thematic ETF (NASDAQ:FINX) launched in September 2016; contrary to its name, it is primarily focused on US companies.
- Tortoise Digital Payments Infrastructure Fund (CBOE:TPAY) began trading in February 2019 and contains companies that are focused on the digital payment sector, including mobile payments. It tracks the Tortoise Global Digital Payments Infrastructure Index.
The fintech sector has grown considerably over a number of years as more private equity and fintech investors enter the space. Companies continue to innovate in finance, the financial industry, fintech trends and, ultimately, capital markets.