Who Makes Money in FinTech?

The world has become more comfortable with the faster pace of financial innovation, with institutions using data analytics more extensively, digitising processes and customers prioritising these advantages over traditional services. There are many examples of innovative ideas transferred into billion-dollar companies in US with examples such as Stripe ($9bln), SoFi ($4bln), Addepar, Avant, AvidXchange and more. These ideas have attracted a lot of attention from venture capitalists whose attention has been caught by the FinTech explosion, investing over $20bn in last 5 years.

Meanwhile, the global banking sector is becoming both more strategically focused and technologically advanced in responding to consumer expectations, whilst trying to defend market share against an increasing array of competitors. Great emphasis is being placed on digitising core business processes and simplifying it to meet customers’ needs. The importance of innovation and developing new solutions that take advantage of data, advanced analytics, digital technologies and new delivery platforms has never been more significant. We are seeing organisations innovate in targeting, expanding services, re-configuring delivery channels, delivering proactive advice, integrating payments and everything else that a consumer might require from the financial sector. 

These efforts will continue to increase in 2019 and FinTech’s will continue to revolutionise the financial services arena to provide flexibility for their consumers. Given the increasing number of transactions moving to digital channels, more and more companies are introducing digital-only banking entities where they are using digital platforms to provide lending, investing and speciality services. In each instance, the focus is on increased value to the consumer and innovative experience, supported by customer data and advanced analytics that can personalise engagement while also introducing highest security level for customers. 

The financial innovation field not only attracted big institutions’ and entrepreneurs’ attention but also venture capitalists and private equity companies are fishing for success stories to invest in. $39 billion of growth capital has been deployed to FinTech’s over the last year with expected of over $150 billion still to be invested in FinTech companies over the next 3-5 years. 

Some success stories are great examples of the scale in which investors support innovative ideas. Stripe, Inc is one of the most successful FinTech companies ever with an approximately $9 billion valuation. What started as two brothers creating a simple payment platform and growing that company from two people to an over 1,000 employee enterprise, they have now signed a partnership agreement with one of the biggest and most influential companies: Amazon. As a startup, Stripe received $2 million as an investment from Peter Thiel and Sequoia Capital, then further $18 million led by Sequoia Capital at a valuation of $100 million. Another example to follow: SoFi (Social Finance) is an online personal finance company that mainly focuses on student loan refinancing along with personal loans and mortgage. From 2012 to 2014 SoFi raised more than $650 million in debt financing and equity from Morgan Stanley, Baseline Ventures and others. Now the Company is valued at approximately $4 billion. New business models emerge as new entrants take over traditional markets. BAEX Securities develops digital market infrastructure through acquisitions of struggling operators. The director of the company, Vlado Kysucky, notes ‘the buy-in of the existing market is the fastest way to growth in FinTech whereas the risk-adjusted discounts for the same fundamentals can reach over 40% compared to new FinTech companies.’

The success and convenience factor is powerful. Non-bank digital services allow users to easily and quickly transfer money, create auto-trading accounts, make simple payments and access information. Payment innovations not only provide consumers with convenience but make their life easier whilst saving extra cash. It’s thanks to service like this that is making this opportunity difficult to ignore.