From digital payments to lending technology, here’s everything you need to know about fintech investing and why it may be right for you.
Fintech is taking the world by storm, and many market participants have begun their investment in fintech. In H1 2019, global investment in fintech totaled US$37.9 billion, according to KPMG.
Overall investment is also up substantially on earlier years. For instance, in 2013, the fintech market only saw US$4.05 billion in investment. While there was a dip in funding in 2016, it is expected that the global market will grow at a compound annual growth rate of 54.83 percent between 2016 and the end of 2020.
Growth in venture capital investment, investor interest and private equity investment have all helped fuel innovation and investment in fintech. Read on to learn more about this flourishing market.
This article continues below the Fintech Investing Table of Contents.
Fintech Investing Table of Contents
The articles listed below provide an overview of investing in fintech from Fintech Investing News.
Start Here — Investing in Fintech
- What is Fintech?
- Why Consider Fintech Investing?
- Fintech Investing Facts
- Fintech Stocks in Canada
- 4 Fintech Companies for Savvy Investors to Watch
Investment in fintech: Global market breakdown
As KPMG explains, 2018 was a banner year for fintech. It was marked by a number of major fintech deals that were characterized by their size and geographic diversity.
Many private equity firms took notice during this time 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.
“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’s fintech division, states in a report from the firm.
In the US alone, investment in fintech rose to US$54.5 billion in 2018. This marked a significant increase from US$29 billion in 2017. KPMG highlights that the overall increase in investment came from an uptick in mergers and acquisitions (M&A); in fact, cross-border M&A deals brought in US$28 billion.
“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 all reported record financing levels in the sector. Canada and Brazil also reported notable gains in the industry, with 28 and 119 fintech deals taking place, respectively.
Fintech deals in Asia were also on the rise in 2018, reaching US$22.7 billion compared to US$12.5 billion in 2017. Fueling that growth in part was Ant Financial’s US$15 billion deal in the second quarter of 2018.
In Europe, fintech investment saw record growth in 2018, with US$34.2 billion invested in 536 deals.
KPMG highlights in its report that artificial intelligence (AI) and automation are subsectors of the fintech industry with anticipated growth in 2019 that did ultimately come to fruition.
As of the third quarter of 2018, there were 995 fintech companies in Canada, and over 70 percent of fintech firms in Canada were small businesses, meaning they had less than 50 employees.
Investment in fintech: Current market status
As the sector continues to mature, a number of trends are characterizing the fintech industry.
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.
Globally, 41 fintech unicorns were reported as of the first quarter of 2019, as per CB Insights, and they were cumulatively valued at US$154.1 billion. McKinsey states that four trends are shaping the capital markets infrastructure side of fintech: distributed ledger technology, AI and advanced analytics, quantum computing and post-trade products.
The financial technology sector is advancing in many ways, both locally and internationally, in areas like 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.
Most recently, S&P Global reported that by the end of 2019, 276 fintech deals were completed for a total deal value of US$127.99 billion.
Interestingly, the report notes that in May of last year, the total deal value for 2019 passed that of 2018 on the heels of the announcement that Global Payments (NYSE:GPN) planned to acquire Total System Services (NYSE:TSS) for US$22.15 billion.
Despite the fact that the number of global fintech deals have decreased since 2018, deal values increased in 2019, proving that the market continues to do well.
Investment in fintech: How to start
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:
- The Global X FinTech Thematic ETF (NASDAQ:FINX) was launched in September 2016; contrary to its name, it is primarily focused on US companies.
- The Tortoise Digital Payments Infrastructure Fund (CBOE:TPAY) began trading in February 2019 and contains companies that are focused on the digital payment sector. It tracks the Tortoise Global Digital Payments Infrastructure Index.
- Fintech stocks:
The fintech sector has grown considerably in recent 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. The industry looks likely to keep growing in the future.
This is an updated version of an article originally published by the Investing News Network in 2016.
Don’t forget to follow us @INN_Technology for real-time news updates!
Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.