The Industry Insight: Looking at the top FinTech investment trends of 2020 and onwards.
The industry has seen rapid growth since it’s beginning, but could the curveball that has been 2020 affect the future of FinTech? In this article we explore trends that have risen over the year as well as looking at what we can expect in 2021.
FinTech companies have continued to disrupt the industry receiving more funding from investors and recognition from traditional institutions. However, the impact of a global pandemic has significantly affected industries and economies worldwide. Innovate finance shared that ‘in H1 2020, $1.84 billion was invested into 167 FinTech companies in the UK. This compares to $3 billion invested into 263 start-ups in the first half of 2019, representing a 39% drop in capital invested’. With this being said, it’s not all doom and gloom, many investors in the industry are being cautious yet staying optimistic. Jay Wilson, Investment Manager at Albion VC highlighted that “we are still to fully understand the economic impact of COVID-19, but short of a long and deep recession which governments are trying everything to avoid, funding will likely continue to flow.”
Looking to the more recent investments, in the week between the 12th-18th of October alone, the top 25 FinTech companies raised $554.17 million in major investment rounds. The high amounts raised highlights the growing market activity in the FinTech industry. The growing maturity of the industry is attracting banks, insurance firms and wealth management firms who are realising the future of the industry and the need to invest.
Here are some of the trends dominating the FinTech industry at the moment:
In recent years Blockchain has been commonly associated as the technology enabling the existence of cryptocurrency and its’ transactions, however, their use is now moving to disrupt the financial services industry in sectors such as banking, online payments and real estate.
Blockchain is a distributed ledger technology (DLT) that allows data (blocks) to be connected (chains) and stored globally on thousands of servers. The benefit of the technology is that it anyone on the network is able to see everyone else’s entries in near real-time. Looking at the FinTech Industry specifically, Blockchain has many benefits for a range of financial services. In bank use for example, blockchain can be utilised for processing consumer transactions far quicker than the current period. This means consumers could be waiting as little as ten minutes for a transaction to clear, rather than three days. European bank Santander and research partners suggested that the use of blockchain-based applications could increase potential savings at $15 billion – $20 billion a year.
Despite the uncertainty of 2020, venture capitalists and other investors have continued to fund up-and-coming companies. Digital Currency Group has made over 60 investments in Blockchain companies since they started in 2013 with total of $78 million dollars invested. However, it’s not only VCs that are getting involved in the funding, with traditional establishments such as Goldman Sachs, HSBC and Fujitsu also investing in the application of the technology.
2. Mobile Payments
In a year that has been dominated with a global pandemic, the idea of a cashless society has become a lot more realistic. One study found that around 69% of people said that FinTech was a ‘financial lifeline’ in the height of the pandemic.
Many FinTech companies have looked to the sector of mobile payments and targeted a growing market. Both companies and investors are realising that younger generations are opting for financial services that are accessible through technology with more convenient use.
In the online payment industry, global giants such as PayPal have brought ease and convenience to online purchasing. From a consumer perspective, J.D. Power found that customer satisfaction rose significantly with the integration of P2P platforms like Apple Pay and Venmo. For FinTech companies the pandemic has brought major advances in funding and investment, catering to the needs of consumers in this current climate. At the start of the year, banking giant Visa agreed to buy start-up Plaid, which allows consumers to securely connect their bank accounts to financial services apps like Venmo, Robinhood and Chime for $5.3 billion.
Even as we head closer to a post-pandemic society, cashless consumer needs highlight the scope and investment potential for fintech companies entering the market in the future.
One of the most notable sectors the FinTech industry has disrupted is banking. The rise of new solutions has gained interest from not only venture capitalists, but also more traditional institutions who are looking to get on board with a new era of banking.
Previous FinTech companies have looked to disrupt the financial service industry by unbundling banks. This means that smaller pieces of the banking value chain were taken and made it more cost-effective and user-friendly. However, more recently there has been a U-turn in this mentality as consumers now look for more efficient ways to access their finances and, therefore, so are FinTech companies and banks.
This is where the idea of rebundling appears to be the way forward for fintech’s, so consumers have the ease of accessing all their financial services from one place. One particular company taking this approach is MoneyLion, a portfolio company from Edison Partners. The company started out as a consumer-orientated lender which has now expanded its services to cover a range of areas such as robo-advising, wealth management and online banking through one solution. In the years since it’s creation the platform has achieved near unicorn status after receiving more $200 million worth of investment and a valuation of nearly $1 billion.
Experts acknowledge that not every FinTech company will rebundle in the same way, however, if a particular company is successful with their approach, they suggest that it will a predominant system in the future.
So, what kind of trends can we expect to see for the future of FinTech in a post-COVID society?
In Finch Capitals recent report of the ‘The State of European FinTech’ they highlighted that the banking and payments sector has received ‘over 80% of total FinTech funding in the last decade’ and that 2021 will see whether certain models will withstand or have to take a more sustainable approach.
Alongside the ideas of blockchain, mobile payments and rebundling, experts say that features such as robotic process automation (RPA), conversational banking and digital wallets will be developed for their applications in the financial service industry. In a world where sanitisers and face masks are now part of our everyday life, it is no surprise that most technologies are developing to grant consumers access to their finances without have to step outside the front door.
As FinTech continues to disrupt the financial services industry it will be interesting to see which technologies have been able to withstand the turbulence caused by COVID-19 and which need to rebuild for the future.
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