Why Consider Fintech Investing?

Which countries are leading in fintech investment?

Investment in fintech has skyrocketed since 2018, bolstered by a number of major fintech deals that were characterized by their size and geographic diversity.

Many private equity firms have taken notice of this emerging technology in recent years and placed their money into fintech. Among others, Blackstone invested US$17 billion in Refinitiv, while P2 Partners and Silver Lake, a global financial technology business, acquired Blackhawk Network for US$3.5 billion.

In 2021, venture capital investment in fintech was strong despite global uncertainty. In fact, KPMG reported that fintech investment from venture capital sources totaled a record US$115 billion, pushing well past the previous record high of US$53.2 billion in venture capital investment reached in 2018.

The crypto, blockchain and buy-now-pay-later (BNPL) sectors saw the most venture capital investment in 2021. Investment in crypto- and blockchain-based fintech rose from US$5.4 billion in 2020 to over US$30 billion last year. BNPL companies attracted large deals across jurisdictions; some of those highlighted by KPMG include Klarna’s US$1.2 billion venture capital raise, PayPal’s (NASDAQ:PYPL)US$2.7 billion acquisition of Japan-based Paidy and Block’s (formerly Square) (NYSE:SQ) US$29 billion acquisition of Australia-based Afterpay.

Corporate participation in venture investment remained high in 2021, due in part to the strategic nature of these investments. Corporate investment in fintech came to US$50 billion globally during the period.

The Americas attracted the most fintech investment regionally, accounting for half the global total, or US$105 billion. All of the seven venture capital funding rounds that exceeded US$1 billion in 2021 occurred in the Americas, including a US$2 billion raise by US-based Generate and a US$1.1 billion raise by US-based Chime.

US corporations are also investing more in fintech capabilities as a means to support their business strategies. KPMG notes that the sector is marked by a “growing number of corporates and fintechs looking to leverage AI and machine learning across all fintech subsectors, including B2B, cybersecurity, and insurtech."

In the Asia Pacific region, fintech investment reached US$27.5 billion in 2021 — almost twice that of 2020 — across a record 1,165 deals. KPMG notes that in this region “banks are increasingly looking for assistance to improve their embedded finance, digital wallet, and supply chain finance capabilities.” Backend-as-a-solution technology is also gaining increasing interest from banks and startups.

In Europe, fintech investment also hit a record high, coming in at US$77 billion for 2021. This figure was due in large part to merger and acquisition activity, such as the US$14.8 billion acquisition of Refinitiv by the London Stock Exchange and the US$1 billion funding round of BNPL specialist Klarna.

How to invest in fintech using ETFs and stocks?

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.

Fintech ETFs

ETFs provide exposure to multiple companies at once. Fintech-focused options include:

• The Global X FinTech Thematic ETF (NASDAQ:FINX) was launched in September 2016; contrary to its name, 65 percent of its holdings are US companies.

• The ARK Fintech Innovation ETF (ARCA:ARKF) launched in early 2019. The fund’s stated goal is to capture “the introduction of a technologically enabled new product or service that potentially changes the way the financial sector works.”

• ETFMG Prime Mobile Payments ETF (ARCA:IPAY) launched in 2015 and focuses solely on mobile payments stocks.

• The Ecofin Digital Payments Infrastructure Fund (ARCA:TPAY) began trading in February 2019 and contains companies that are focused on the digital payments sector. It tracks the Ecofin Global Digital Payments Infrastructure Index.

Fintech stocks

Fintech companies are popping up left, right and center, and it might be overwhelming for some investors. As a starting point, check out our list of Canadian fintech stocks, learn more about what Australia has to offer and see which US fintech stocks may warrant investor attention.

Whichever investing path you choose, it’s clear the fintech sector has grown considerably in recent years as more private equity and fintech investors enter the space. As companies continue to innovate in finance and ultimately the capital markets, the industry looks likely to keep expanding in the future.