Investment in Fintech in 2022
The world of fintech – the short term for financial technology companies – can offer exciting opportunities for investors. Fintech companies include those that create and manage applications for peer-to-peer (P2P) payments, as well as those that create innovative digital banking tools.
The fintech industry was valued at $110.57 billion in 2020 and is projected to reach $698.48 billion by 2030, according to Allied Market Research. When it comes to buying shares in a sector that is growing as fast as fintech, it is important to understand the size of the business, how it operates and what competitive advantages it has.
Investing in fintech with numbers
- The fintech industry is projected to grow to $698.48 billion by 2030, an increase of $587.91 billion from 2020.
- Digital payment services are the most prominent among fintech developments, and account for over 80 percent of global fintech revenues.
- Companies in the Asia-Pacific region are estimated to be the fastest growing in the fintech sector.
- Since September 2018, fintech stocks have consistently outperformed other financial services stocks – after COVID-19 hit global markets, fintech stocks rallied in just four months, while traditional financial services prices had still not fully recovered by the end of 2020.
- Visa, based in the US, is the largest fintech company by market capitalization, with a total value of around $383.3 billion.
- The second largest fintech by market capitalization is Ant Financial, based in China, with a value of around $312 billion.
- About three out of four consumers globally have used a fintech money transfer or payment service at least once.
- China is at the forefront of consumer fintech adoption – in 2019, it was reported that 92 percent of Chinese citizens had used fintech banking and payment services.
- In the US, fintech has taken off – the proportion of US consumers using fintech increased from 58 per cent to 88 per cent between 2020 and 2021.
Sources: Allied Market Research, Deloitte, Center for Finance, Technology and Entrepreneurship (CFTE), EY and Plaid
What is fintech?
Fintech describes an industry that focuses on using technology to develop and improve financial services and products. Fintech companies often offer unique services to make consumers’ financial lives easier and more efficient.
There is a good chance that fintech is already a part of your life. If you’ve ever sent a payment through Venmo, traded stocks with Robinhood, or tapped your debit card at a store that uses Block to process payments, you’re already familiar with at least part of fintech’s scope. Banking services, investment apps and payment processing services are just some of the features of fintech.
Some more niche fintech companies have also developed financial services with a focus on social causes in recent years. Stretch, for example, is a fintech that offers bank accounts and financial resources to formerly incarcerated people. Meanwhile, Atmos is a fintech dedicated to combating climate change by using its deposits to lend exclusively to renewable energy and other climate-positive initiatives.
Fintech development is driven by various types of technology, including:
- Artificial intelligence
- Blockchain
- Cloud computing
- Data
Types of fintech companies
Some of the most common types of fintech services include, but are not limited to:
- Banking services: Fintech banking consists of a variety of apps and software that enable consumers to open accounts, protect their accounts from fraud and receive direct deposits faster. Examples include Chime and Current.
- Payments: Payment services are the most common offering of fintechs, according to Deloitte. Digital payments allow consumers to pay bills, shop with contactless payment methods and send money to peers. Some examples include Venmo, Zelle, PayPal, and Block.
- Financial management: Fintechs in this category are designed to make it easier for consumers to manage their personal finances, by offering services such as spending tracking and automated savings. Fintechs for financial management include Digit, Mint and You Need a Budget.
- Investment: These fintech companies are designed to help investors grow their assets, track their investments and use a robo-advisor. Some popular investment fintechs include SoFi, Acorns, Robinhood, and Wealthfront.
- Lending: Lending fintech streamlines the loan process for both lenders and borrowers. They can give lenders access to potential borrowers’ information to make lending decisions, and provide borrowers with early payday loans or flexible payment plans. Some examples of these fintechs include Plaid, Affirm and Klarna.
Fintech’s expansion
In 2021, the fintech industry saw an $89.5 billion (168 percent) increase in funding from the previous year, totaling $131.5 billion, according to CB Insights’ “State of Fintech” report. Strong growth in funding was found across all major fintech types, indicating a broad increase in interest in the fintech industry.
One of the biggest growing categories of fintech is digital lending, which saw an increase of 220 percent, or nearly $15 billion, between 2020 and 2021, according to CB Insights. The market intelligence firm also reports that the US is the world leader in fintech funding, accounting for around $62.9 billion of global fintech funding, a 171 percent increase from the previous year.
Fintech companies to invest in
When choosing stocks to invest in, it’s important to do your research. Take a closer look at the company’s business model and history, what drives the industry and what trends are coming in the fintech world.
KPMG, an accounting firm, notes some trends to watch for in 2022:
- Increasing mergers and acquisitions, with more fintech companies looking to expand into different markets
- More focus on companies’ social and environmental impact
- Greater demand for banking alternatives and new banking technology
The top listed fintech companies in the market include:
| Visa | Payments | 383.3 billion dollars | NYSE: V |
| MasterCard | Payments | 291.2 billion dollars | NYSE: MA |
| Intuit | Financial management | 115.8 billion dollars | NASDAQ: INTU |
| PayPal | Payments | 107.1 billion dollars | NASDAQ: PYPL |
| Fiserv | Banking operations | 63.1 billion dollars | NASDAQ: FISV |
| Adyen | Payments | 43.5 billion dollars | OTCMKTS: ADYEY |
| Block, Inc. | Payments | 36.6 billion dollars | NYSE: SQ |
| Coin base | Investment | 16.5 billion dollars | NASDAQ: COIN |
| Bill.com | Payments | 15.7 billion dollars | NYSE: BILL |
| Zero | Financial management | 7.4 billion dollars | OTCMKTS: XROLF |
*Market value data obtained from CFTE.
Fintech ETFs
An exchange-traded fund (ETF) is a type of investment where the investor holds a small proportion of the holdings across many different assets. Investing in an ETF is a great way to diversify a portfolio and reduce risk.
ETFs are traded like stocks, and they charge a low fee based on a percentage of the money invested in the fund.
With a growing fintech market, there are several ETFs specifically focused on investing in companies at the forefront of fintech. These funds allow investors to own stakes in the fintech industry without having to sift through individual stocks to determine which will be winners. Taking a passive investment strategy with a fintech ETF can lead to high returns.
Fintech ETFs that can give you exposure to cutting-edge advances in finance include:
- Ark Fintech Innovation ETF: The fund is a leader in fintech ETFs, and top stocks include Shopify and Block, Inc.
- Global X Fintech ETF: One of the older, well-established fintech funds, the Global X Fintech ETF’s top holdings include Intuit and Fiserv.
- ETFMG Prime Mobile Payments ETF: This fund focuses on mobile payments companies, with top holdings including Paypal and Visa.
- Amplify Emerging Markets Fintech ETF: The Amplify Emerging Markets Fintech ETF carries more risk due to its focus on emerging markets, which tend to be more volatile. Top holdings include PagSeguro, a Brazil-based digital payments company, and MercadoLibre, Inc.
The future of fintech
Fintech has seen a significant rise in recent years and it is not expected to slow down anytime soon, with Allied Market Research predicting that the global fintech industry will be a $698.48 billion market by 2030.
Although digital payments fintech accounts for the largest share of global fintech revenue, other categories that have grown rapidly include digital lending and substitutes for core banking services. Affirm, Klarna and SoFi are some of the leaders in digital lending, while Thought Machine and Temenos are top core banking fintechs.
KPMG also predicts that companies with a focus on climate change and sustainability will experience significant growth in the coming years. Investors may want to keep an eye on those companies that appeal to such global issues.
Meanwhile, many fintechs are making more deals in underdeveloped regions. For example, financing in Latin America reached a record high in 2021 at $13 billion, up 269 percent from the previous year, according to CB Insights. These emerging markets could prove to be very lucrative in the coming years.
The bottom line
Fintech is one of the fastest growing and most exciting industries, offering services that help both consumers and businesses manage their finances, access loans and make payments.
As technology continues to change the way we live and impact different areas of finance, it will be necessary to regularly evaluate investments and assess the competitive advantages each fintech has. Fintech EFT can be a good opportunity for investors who want access to the growth potential of companies at the forefront of innovative technology with a somewhat lower risk.
