Fintech Investments: Industry Characteristics & How to Choose the Right Company
The global revolution in Fintech has already happened, creating both threats and opportunities for traditional financial market players. Significant investments in this segment only confirm this fact. Thanks to modern technologies and highly integrated markets, the revolution has affected both developed and developing countries equally.
P2P market grew by 271% to more than US$130 billion last year. This year the Fintech companies are only increasing their profit, despite COVID-19.
According to many experts, 2014 was a lucky year for the Fintech industry in terms of achieving a large scale of business shares. Today, the revolution has led to the emergence of billion-dollar companies in the world (PayPal, LendingClub, Zopa, OnDeck, etc.). There are no doubts about whether the Fintech is the future or not; indeed, we will move fully to the digital finance sector, and the idea of physical money will become a thing of the past.
Prerequisites for the Fintech Revolution
Over the past decade, the Internet revolution has completely changed and reshaped customer behavior in a variety of industries. For instance, the music industry was destroyed by the emergence of services that provide access to MP3 music, and it was later modified into electronic music stores. Retail stores have been modified by the influence of online commerce. Even the education industry was changed by online courses and platforms such as Coursera.
However, the global financial sector has remained largely untouched by Internet innovation, partly because it is a highly regulated sector, and there are many barriers to entry. However, the 2008 financial crisis was the catalyst for new changes. Banks started to research how to cut costs, reduce operations risks, and implement systems that will allow them to be more focused on capital management.
Meanwhile, because of the crisis, customer satisfaction and trust in the banks were falling to zero. The high cost of operation service, slow speed of operations, queues, lack of mobile application: all these issues made companies look for Fintech innovations. Talented entrepreneurs started to look for a way to create a comfortable service for clients in financial sectors. That is how the first Fintech start-up actually appeared.
As a result, due to Fintech companies, we will experience (or are already experiencing) the following changes:
- There will be new, more accurate adaptive risk assessment models that use SNS for credit scoring, which will reduce the risks to the financial system;
- Geographical diversification will increase, which will expand the range of clients and give them access to modern financial solutions;
- The cost will be reduced while improving quality for customers.
Fintech Trends in 2020: To Invest or Not?
1) Responsible Banking
This is perhaps the most important trend. In 2019, there was a lot of discussion about the need to take care of consumers’ financial behavior. The current debt in the US alone is already above 24 trillion dollars. Some companies are already working on establishing new ideas: for example, Apple issued a credit card with a low-interest rate and claimed it would not charge penalties for late payments.
2) Hybrid Products
The second active trend is the expansion of the line of services and the appearance of hybrids. Fintech was originated as mono products but currently makes services of the entire financial niche available to the user. To do this, companies create multi-solutions. For example, TOSS is rounding up purchases and transferring “change” to a digital account.
3) Specificity and Materiality
Money has become intangible. The perception of even simple operations has become more complex: People do not “feel” how much they pay for bills, which raises anxiety in public. Fintech firms try to deal with it by creating:
- Animated Characters. Fintechs have become more likely to use different characters to communicate with the user: In Dave, the consumer communicates with a friendly assistant – a bear.
- Objectivity. The “Goals” tool, which helps save money for something specific, has become almost a standard for financial applications and mobile banks.
- Predictability. The visualization of upcoming expenses helps reduce anxiety about the future and, in fact, it helps users plan better. For example, Monzo has a simple touch-a timeline added to the current balance: “1500 pounds for 30 days”.
How to Choose the Fintech Company for Investment
In 2020, we noticed the following investments:
- Emirates’ World Investments (WI) invested $255 million in Xinja
- ABN Amro, DXC Technology invested $80 million in Fenergo
- Bakkt received 300$ million from Microsoft and PayU
These are just a few examples of investments that were made this year. There are millions of individuals who currently invest in Fintech industries. The biggest question is how to understand which company will be profitable or will not.
Easy Strategies on How to Invest in the Fintech Industry
Try to look for an ETF that has Fintech shares. For example, Global X FinTech Thematic ETF (NASDAQ: FINX) has around 30 Fintech companies.
Independent selection of individual shares is more time-consuming, so investing in the Fund is a priority option for non-professional investors. In this case, the risks will be more stable, but the potential return may be slightly lower.
Search for the most attractive trends and technologies
If you look at the list of the most successful global Fintech startups, then at the top of it will be American companies GreenSky and Kabbage, which are engaged in developing solutions related to credit system- digital lending.
This mechanism is attractive to clients who want to receive funds as soon as possible. This applies mainly to small and medium-sized businesses, as well as mortgage loans. The response to the request is received in a few minutes. You do not need to collect a lot of documents, go to the branch, communicate with the Bank’s employees, to eventually get a refusal.
Insurtech – automation of processes of insurance
Around $ 9 billion has been invested in this industry over the past five years. A successful example of implementing such technology is the young UK based company, Kasco. Thanks to the implementation of algorithms based on artificial intelligence, it allows companies to create their own insurance products and use them in their digital channels. The company has already raised more than 2 million pounds for the idea.
If you are looking for a platform for investing in Fintech, try to use Einvestment. It is also a Fintech company with promising plans and constant support for investors. Save and invest from any part of the world.
The stage of digitalization of the classic bank ended when traditional business models were simply adapted for digital channels. The scenario in 2020 has already changed, and now we see digital-native scenarios: the world where people live the digital experience, and businesses are built among platforms and ecosystems.
In this new world, companies have the opportunity to influence user behavior more deeply and quickly. Fintech regulations become less strict year by year; the AI will multiply their efforts and bring profit for investors in the very near future.