Uncovering New Opportunities in Fintech

The banking and finance industries don’t have great reputations when it comes to innovation. And why should they? Their products and services – including both personal and commercial banking, lending, advising and investment services – are tried and true businesses, having stood the test of time and returned profits for generations.

Frankly, for many years there was no good reason for finance to try new things.  But that’s changing, and the age of technology-driven financial services has officially arrived. It’s changing how and where we bank, how consumers borrow and even how assets are transferred internationally.  Legacy institutions like JPMorgan are on board, investors are pumping billions into the space and, as of 2018, there were 39 VC-backed unicorns in fintech worth a total of $147 billion.  For those interested in investing in this fast-growing sector, however, there are a few details to understand first.

What is Fintech?

At the highest level, financial technology – aka fintech – refers to the application of digital and online technologies to the banking and financial services industries.  But that means far more than just mobile access to your checking account.

According to the World Bank, the industry is: “creating new opportunities and challenges for the financial sector – from consumers, to financial institutions, to regulators. Fintech offers many opportunities for governments, from making their financial systems more efficient and competitive to broadening access to financial services for the under-served populations.”

Why Invest in Fintech?

As mentioned, the industry is growing very rapidly.  According to a 2018 report from Deloitte, a total of 668 fintech companies were founded in 2014, the high watermark to date, encompassing those working on technologies for Banking & Capital Markets, Investment Management, Insurance and Real Estate. And, although that growth has slowed in recent years, an increasing amount of venture capital investment is finding its way to larger, more established companies than in the early days, indicative of a mature market coming into its own.  And there’s room for this trend to continue.  After all, the total market cap of the fintech sector as of today is less than $300 billion, and PayPal accounts for $123 billion of that total. That might sound like a lot, but when you consider the fact that the traditional finance industry has a market cap in the range of $68 trillion USD worldwide, according to The World Bank, it becomes clear that fintech still has a lot of room to grow.

And it makes sense. To date, we’ve just begun to scratch the surface of the many ways that technology can and will disrupt traditional financial services. We’re now living in a world of digital payments, mobile services and even virtual currencies, but we’re about to enter an era of real, personalized automation that has to-date been impossible.

How to Invest in Fintech

Given all of this opportunity for growth, let’s look at a few ways to invest directly in the fintech sector. After all, the majority of the fintech companies out there today are still private and closed off to most investors. But a search on Magnifi suggests that there are other ways to profit off of the growth of this red-hot new industry.

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