Fintech, or financial technology, refers to a broad range of technological applications in the financial services industry. Fintech investing enthusiasts believe the financial and banking industries will be disrupted the way that telecom, retail and media industries already have been.
Fintech companies are often startups intent on creating disruptive technologies that transform the financial sector through software innovations. Mobile payments, big data, cryptocurrencies and alternative finance are some of the big buzzwords in fintech investing today.
Size of the Fintech investing market
The global fintech market raked in approximately $49.7 billion in capital between 2010 and 2015. That reflects a steady increase in fintech investing over the past several years. For example, MARS reported $3 billion in capital investment in 2013 and $6.8 billion in 2014.
A key portion of fintech investing has come from conventional financial institutions. For instance, banks have spent a projected $17 billion on new financial technologies in 2015, and this figure is expected to reach $19.9 billion in 2017. The vast majority of this fintech investing is concentrated in the US, which has brought in $31.6 billion in the past five years.
Types of Fintech investing
So what does fintech look like in practice? It is an incredibly broad market that touches upon anything remotely finance related. From capital formation and equity financing to retail and institutional financial services, fintech is disrupting virtually every aspect of the financial system. However, some of the most vibrant subsectors of Fintech are payments and cryptocurrencies.
Payments is one of the fastest-growing subsectors of the fintech market. Payments encompass mobile apps that facilitate quicker, easier and more flexible platforms for exchanging funds, in addition to other internet-based platforms that help facilitate the payment process.
Companies like VersaPay (TSXV:VPY) fall into this category. VersaPay offers an intuitive pay-as-you-go, cloud-based service that offers payment solutions to businesses by streamlining processes and delivering clear, efficient results. TechCrunch anticipates that the next big trend in the payments sector will be efforts to embed transactional efficiency into platforms that currently don’t support sophisticated payments systems— think of big social media sites like LinkedIn (NYSE:LNKD) and Pinterest.
Cryptocurrencies are another major component of fintech. By definition, cryptocurrencies are digital currencies that rely on encryption technologies to regulate and verify transactions and the creation of new units of currency.
Michael Sonnenshein of Grayscale Investments explained to the Investing News Network that there are more than 500 digital currencies on the market today, but bitcoin has the largest market cap, venture capital and human investment. Sonnenshein described bitcoin as a type of “digital gold” because many investors view bitcoin as a store of value. Blockchain, the technology underlying bitcoin, is also gaining a following in its own right as financial institutions seek out more opaque and efficient methods of verifying and recording transactions.
Overall, the fintech market is a dynamic, multidimensional place. It’s difficult to place parameters on this market, because new technologies are continually expanding, disrupting and transforming the space. However, rather than scaring investors off, this dynamism should encourage investment. Fintech is a rapidly growing market that presents multitudes of opportunities for brave, tech-savvy investors.