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The world of fintech — the short-hand 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 its projected to reach $698.48 billion by 2030, according to Allied Market Research. When it comes to buying stocks in a sector growing as fast as fintech is, it’s important to understand the business’s size, how it operates and what competitive advantages it has.
- 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, accounting for over 80 percent of the global fintech revenue.
- Companies in the Asia-Pacific region are projected to be the fastest growing in the fintech sector.
- Since September 2018, fintech shares have been steadily outpacing other financial services shares — after COVID-19 hit global markets, fintech share prices recovered in only four months, while traditional financial services prices still had not fully recovered as of the end of 2020.
- Visa, based in the U.S., is the largest fintech company in terms of market cap, with a total value of about $383.3 billion.
- The second largest fintech by market cap is Ant Financial, based in China, with a value of about $312 billion.
- About 3 out of 4 consumers globally have used a fintech money transfer or payment service at least once.
- China is at the forefront of fintech adoption by consumers — in 2019, it was reported that 92 percent of Chinese citizens had used fintech banking and payment services.
- In the U.S., fintech has been taking off — the proportion of U.S. consumers who use fintech increased from 58 percent to 88 percent between 2020 and 2021.
Sources: Allied Market Research, Deloitte, Centre for Finance, Technology and Entrepreneurship (CFTE), EY and Plaid
What is fintech?
Fintech describes an industry focused on using technology to develop and enhance financial services and products. Fintech companies frequently offer unique services to add ease and efficiency to consumers’ financial lives.
There’s a good chance that fintech is already 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 a few of the functions 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 the formerly incarcerated. 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
- Cloud computing
Types of fintech companies
Some of the most common types of fintech services include, but are not limited to:
- Banking: Fintech banking services consist 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 by fintechs, according to Deloitte. Digital payments allow consumers to pay bills, shop using 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 managing personal finances easier for consumers, providing services such as tracking spending and automated savings. Financial management fintechs include Digit, Mint and You Need a Budget.
- Investing: These fintech companies are designed to help investors grow their assets, track their investments and use a robo-advisor. Some popular investing fintechs include SoFi, Acorns, Robinhood and Wealthfront.
- Lending: Lending fintechs streamline the loan process for both lenders and borrowers. They may 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.
In 2021, the fintech industry experienced an increase of $89.5 billion (168 percent) in funding from the previous year, totaling $131.5 billion, according to CB Insights “State of Fintech” report. Sharp growth in funding was found in every major fintech type, suggesting a broad increase in interest across the fintech industry.
One of the largest growing categories of fintech is digital lending, which saw an increase of 220 percent, or nearly $15 billion, between 2020 and 2021, according CB Insights. The market intelligence firm also reports the U.S. leads the world in fintech funding, accounting for about $62.9 billion of global fintech funding, an increase of 171 percent from the previous year.
Top fintech companies
When choosing stocks to invest in, it’s important to do your research. Look into the company’s business model and history, what’s driving the industry and what trends are coming up in the fintech world.
KPMG, an accounting firm, notes some trends to look out for in 2022:
- Increasing mergers and acquisitions, with more fintech companies looking to expand to different markets
- More focus on companies’ social and environmental impact
- Greater demand for banking alternatives and new banking technology
The top publicly listed fintech companies on the market include:
|Company||Category||Market cap*||Stock symbol|
|Visa||Payments||$383.3 billion||NYSE: V|
|Mastercard||Payments||$291.2 billion||NYSE: MA|
|Intuit||Financial management||$115.8 billion||NASDAQ: INTU|
|PayPal||Payments||$107.1 billion||NASDAQ: PYPL|
|Fiserv||Banking||$63.1 billion||NASDAQ: FISV|
|Adyen||Payments||$43.5 billion||OTCMKTS: ADYEY|
|Block, Inc.||Payments||$36.6 billion||NYSE: SQ|
|Coinbase||Investing||$16.5 billion||NASDAQ: COIN|
|Bill.com||Payments||$15.7 billion||NYSE: BILL|
|Xero||Financial management||$7.4 billion||OTCMKTS: XROLF|
*Market cap data sourced from the CFTE.
Top fintech ETFs
An exchange-traded fund (ETF) is a type of investment in which the investor holds a small share of holdings across many different assets. Investing in an ETF is a great way to diversify a portfolio and reduce risk.
ETFs are publicly traded like stocks, and they charge a low fee based on a percentage of money invested in the fund.
With a growing fintech market, there are several ETFs focused specifically on investing in companies on the frontlines of fintech. These funds allow investors to hold stakes in the fintech industry without needing to pick through individual stocks to figure out which ones will be winners. Taking up 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 its top holdings include Shopify and Block, Inc.
- Global X Fintech ETF: One of the older, well-established fintech funds, Global X Fintech ETF’s top holdings include Intuit and Fiserv.
- ETFMG Prime Mobile Payments ETF: This fund focuses on mobile payment companies, with top holdings including Paypal and Visa.
- Amplify Emerging Markets Fintech ETF: The Amplify Emerging Markets Fintech ETF carries more risk because of its focus on emerging markets, which tend to be more volatile. Its top holdings include PagSeguro, a Brazil-based digital payments company, and MercadoLibre, Inc.
The future of fintech
Fintech has had a significant upsurge in recent years, and it’s 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.
Though digital payment fintechs account for the largest portion of global fintech revenue, other categories that have been growing rapidly include digital lending and core banking replacements. 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 focused 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, funding in Latin America reached a record high in 2021 of $13 billion, up 269 percent from the year before, according to CB Insights. These emerging markets could prove to be highly lucrative in coming years.
Fintech is one of the fastest growing and most exciting industries, offering services that help both consumers and businesses manage their finances, access lending and make payments.
As technology continues to change the way we live and impacts different areas of finance, it will be necessary to evaluate investments regularly and consider what competitive advantages each fintech has. Fintech ETFs could 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.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.