Fintech Investing Facts

- September 13th, 2018

You might not know it, but in simple terms fintech has been around for over a century. Here are some basic fintech investing facts every investor should know about.

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 as early as the 1860s.

Like Forbes suggests, many people often think fintech is a more recent development, such as a mobile app where people can pay for goods and services without even holding physical currency.

While that is largely true, the first signs of fintech emerged from the invention of print press, which allowed for the printing of paper currencies all around the world.

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Fast forward to the 1950s when credit cards were introduced, then then 1960s with automated teller machines (ATMs). A couple of decades later, the 1980s became instrumental in technology advancements, and in the finance sector. This included new banking computers and data which allowed for record-keeping systems. Then the 1990s saw the emergence of the Internet and e-commerce business models.

As you can see through the above Coles notes version of the financial sector, fintech has been a growing and evolving market for over a century. With that in mind, the Investing News Network (INN) breaks down what is fintech (very) briefly and an overview of how investors can step into this ever-growing sector.

What is fintech?

While technology as a whole is a rapidly growing industry, fintech has arguably seen the greatest transformation of them all.

Still, more people than not remain unfamiliar with the term. By definition from Investopedia, fintech applies to ways in which people transact business. Thanks to the evolution of the Internet, the term has altered to include any form of advancement in the sector, including retail banking, investing, and cryptocurrencies such as bitcoin and its 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. Payment apps have also surged to the forefront as examples of how the financial sector has shifted.

A whitepaper by Infosys (NSE:INFY) reveals that 64 percent of the people are preferring to transact on digital-only banks. The firm says that these digital-only banks are the ‘next wave’ in global banking.

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Established in 1998, PayPal (NASDAQ:PYPL) is one of the first digital payment and money transfer systems. The number of e-commerce payment systems has, of course, expanded since then to include hundreds of companies, including: Square (NYSE:SQ), Payline Data, BitPay and Venmo, to name a few.

In terms of digital only banks, popular players include Tangerine, a subsidiary of Scotiabank (TSE:BNS) and Simplii, a subsidiary of CIBC (TSX:CM) in Canada. The list in the US, Ally (NYSE:ALLY) and Finn, a subsidiary of Chase (NYSE:JPM).

The future of fintech

In the first half of 2018, US$57.9 billion was invested in fintech as compared to US$38.1 billion in all of 2017.

North America saw an investment of US$14.8 billion across 504 deals while much of it went to US, Canada witnessed US$263 million in investment. The future of the fintech market, however, is certainly shaping up to be prosperous. Over the next 3 years, fintech global investments is expected to reach $46 billion.

Of course, there are other contributing factors to the market’s rising success: Artificial intelligence (AI), for example, is shaping up to be a hot trend for the fintech market. Mark Cuban, a self-made billionaire, said that fast computer processors and larger data sets may very well push it “into a wealth of industries and services.”

NASDAQ is also getting in on the action. In April 2017, the exchange announced its plans to make minority investments below $1 million up to $10 million through its Nasdaq Ventures programme, with a focus on blockchain, machine learning, AI, data, analytics and content aggregation.

On that note–it’s hard not bringing up what kind of impact blockchain technology will have in the fintech market. As the Investing News Network (INN) has previously reported, a BIS Research report called “Blockchain Technology in Financial Services Market: Analysis and Forecast 2017 to 2026” highlights that blockchain applications may reach reach a per-year cost savings of between $6-$8 billion in KYC/AML, $30-$40 billion in trade finance, and as high as $50-$60 billion in capital markets.

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“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,” the report’s overview states. “The adoption of blockchain technology in financial services sector has gained traction.”

Meanwhile, KPMG said that blockchain has moved beyond the ‘experimentation’ phase while terming payments and regtech as the ‘most mature’ subsectors of fintech. Looking ahead, the firm projects a ‘strong outlook’ for the sector as ‘significant amount’ of funds are set to be injected into various subsectors of fintech.

Investing in fintech

Much like other industries, there are a number of ways for investors to step into the fintech sector, including:

  • ETFs
    • PureFundsⓇ Solactive FinTech ETF (NASDAQ:FINQ), which launched on the NASDAQ in August 2016 and includes 31 companies.
    • Global X FinTech Thematic ETF (NASDAQ:FINX) launched in September 2016, but is primarily focused on US companies and includes 38 holdings.
  • Index: NYSE Fintech Index PR (INDEXNYSEGIS:NYOMFTX) arrived in April 2016, while the NASDAQ is aiming to set up the Nasdaq Ventures programme, mentioned above.
  • Stocks: There are number of fintech players in the market including Broadridge Financial Solutions (NYSE:BR), Fiserv (NASDAQ:FISV) apart from the ones mentioned above. Meanwhile, INN has compiled a list of Canadian players in here.

This is an updated version of an article originally published by the Investing News Network in 2017.

Don’t forget to follow us @INN_Technology for real-time news updates.

Securities Disclosure: I, Bala Yogesh, hold no direct investment interest in any company mentioned in this article.

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