Financial Technology (fintech) is one of the most exciting new business sectors on the planet. Investors are crucial for the continued innovation and success that fintech is famous for.
The State of Fintech Investment
Investment in the fintech sector is on the rise as more investors discover the potential for financial technology. In 2015, BI Intelligence, Business Insider's premium research arm, reported that global fintech funding hit $19 billion. By the middle of August 2016, international investments already stood at $15 billion, suggesting the year's tally would certainly eclipse the previous year's investment sum.
There are a number of key reasons this industry is so hot right now. Accelerators and incubators established by legacy players and their technology partners have helped develop firms and put them in the spotlight of interested investors. In China, local fintech firms have also benefited from their significant funding rounds. New technologies like insurtechs, which are new digital insurance programs, and robo-advisors, which help investors manage their money from their mobile devices, have also excited investors.
It's interesting to note the changing landscape of fintech. At one time, venture capital investors were the largest source of fintech funding. However, today we see many more private and corporate investors competing with or coordinating with venture capital to invest in these companies.
The Future of the Financial Services Industry
Fintech is one of the world's most rapidly growing markets, according to Syndicate Room, an online equity investing platform. This impressive growth is spurred by a number of factors, including growing online commerce, increasing use of mobile internet technology, and rising concerns about the security of our online data. Mobile payments, cross-border money transfers, and online lending are all key areas for the continued growth of the industry.
As it achieves significant growth, this industry is becoming recognized as an increasingly disruptive force in the broader financial services industry. In its March 2016 report "Blurred Lines: How Fintech is Shaping Financial Services," PwC (formerly PricewaterhouseCoopers) stated that these companies are "shaping financial services from the inside out."
As these new companies shape their industry, many traditional firms will not survive. PwC claims that, due to the rise of these businesses, up to 28 percent of banking and payments companies and up to 22 percent of insurance, asset management, and wealth management firms will not survive until 2020. Investors want to put their money into disruptive forces like this, not the companies at serious risk of future failure.
Firms Are Well-Placed When People Don't Trust Banks
Financial technology companies seem to have come along at the right time for investors. Vibrant, youthful firms have appeared at a time when consumer confidence in banks is at nearly an all-time low.
Still smarting from the impact of the Global Financial Crisis and frustrated with a perceived lack of innovation, only 32 percent of Americans have "a great deal" or "quite a lot" of confidence in 14 of the nation's leading banks, according to a 2016 Gallup Poll. That sentiment is echoed by people around the world, including in Puerto Rico.
It's difficult for banks to change the common perception that they're focused on the bottom line rather than on their customers. This mindset continues to endure amid news reports of banks making massive profits and their executives commanding large salaries.
Customers want to feel like they're put first, and with these firms, they feel they are. Just as people embraced Airbnb as an alternative to hotel chains and Uber as an alternative to taxi cab providers, investors in-the-know feel confident that these firms can prove just as popular among consumers looking for a new way to manage their money. People love that these emerging companies seem to cater to them in ways that larger banks fall short.
Consumers of All Ages Embrace These Firms
While confidence in traditional banks is low, enthusiasm for the technological financial options offered by fintech companies is strong, according to the "2017 Connected Banking Customer Report: Insights Into the Expectations of Today's Retail Banking Customer" issued by marketing firm Salesforce.
As you might expect, millennials have been quick to try these new providers, with 83 percent of young people stating they've used a fintech firm for basic payment services. However, uptake was also strong in older users.
Seventy-nine percent of Generation X and 62 percent of baby boomers said they'd also tried one of these company's basic payment services. This enthusiasm shown by consumers across a broad spectrum of ages should appeal to potential investors.
However, don't underestimate the importance of strong millennial support. Generation Y is the first to grow up with the internet and smartphones. To them, needing to visit a brick-and-mortar financial institution to manage their money is frustrating. To their children, the idea that they can't complete financial transactions from their phones will be absurd. As Millennials and later generations become the dominant force in society, their early support should see firms like Sol Partners strengthen their position in the financial landscape. The investors who supported early growth will be glad they got in on the ground floor.
A Future-Proof Industry?
An investment in fintech is an investment in the future. This dynamic field is constantly innovating and improving, aiming to make money management more accessible, simpler, and more secure for individuals and businesses. While banks are struggling to find ways to stay relevant, these firms enjoy a privileged position on the cutting edge of the finance industry. This makes them especially attractive to investors looking for the next big thing.
Financial services and tech-based solutions are coming together to create valuable investment opportunities. The financial technology sector has already infiltrated retail banking models, and investment banking is next on the horizon. If you're ready to get in on this emerging trend, the professionals at Sol Partners can help you realize all the benefits that are available when these two things come together.
Fintech Investment Banking Opportunities
Financial technology started small, aiding in things like mobile check deposit and online account management. As technological capabilities have improved, so too has the potential for this industry.
Fintech has already made significant progress in market funding platforms, market data services, and social trading strategies. Within these areas, emerging companies have already played a disruptive role, shaking up business for traditional brokers who are seeing the relevance of their jobs fall to the wayside.
Market Funding Platforms
Start-ups once had to rely on investment banks to get their initial funds. The process was complex and fraught with potential hazards. Innovative fintech companies have entered the space and now make funding quicker, easier, and less stressful. These businesses connect entrepreneurs with investors who range from individuals to major institutions. Stepping away from the traditional brick-and-mortar investment bank has allowed entrepreneurs to turn their dreams into a reality more quickly and easily than before. It's easy to see the appeal of tech-based solutions in this scope.