For FinTech’s Sake—The Smart Post-COVID Pick

FinTech is a lesser-known name for a very well-known field. A contraction of ‘financial’ and ‘technology,’ FinTech is an invisible force in our everyday life. Since the early beginnings of systematic finance, technology has been supporting it, both fields evolving side by side.

Take, for example, the world’s first ATM, which was installed in 1967 at a Barclay’s Bank. Paul Volcker, former chairman of the US Federal Reserve, said in 2009 that the ATM was one of the most important innovations he’d seen sector-wide; that people no longer needed to visit a bank was ‘a real convenience.’ 

More conveniences were to follow: tech in the finance sphere has empowered trade processing, treasury management, advanced data analysis, and online lending. 

By the mid-1990s, the financial services industry was officially the largest single consumer of information technology, a position it’s maintained since then. 

FinTech: A Fast Rise

FinTech Investing —Since the 2008 crisis, FinTech startups have been a forward-force in the financial space. The concurrent technological revolution added an important dimension; while the world lost confidence in the big banking players, new smartphone solutions put the power of banking in our pockets.
Now, FinTech vendors and startups aren’t just enhancing our banking systems, they’re offering replacements. In 2018, $128 billion in global capital was invested in the sector, projected to grow to $310 billion by 2022. Maybe more importantly, the total amount of global capital invested in 2018 was $254 billion—that means FinTech accounted for almost half of the total VC investments for the year. In 2020, the market share across 48 FinTech unicorns surpassed $187 billion; the market boom is well underway.

Post-Pandemic Portfolio Positioning

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As the pandemic introduces new pressures to corporations and individuals alike, FinTech is well-positioned to solve increasingly urgent problems.

Artificial intelligence (AI) and machine learning (ML) platforms are empowering businesses to better manage their core operations; detecting and recovering fraud, managing compliance, and analyzing data for optimized decision making. 

Personal advice platforms, and personal finance apps, are offering better, more scalable user experiences in the investment and lending space. Blockchain is changing contracts, payment technologies are re-imagining e-commerce exchanges, and new solutions are coming to cyber-security. This list has almost no end in sight.

Beyond purpose and viability, every investor in the post-pandemic market has an eye for speed. This is arguably a once-in-a-lifetime market, and investors don’t want to miss out on the soon-to-be unicorn companies that are quickly picking up speed because they’ve solved the right post-COVID solution.
To that end, FinTech is again a great bet. According to research by CB Insights, 20% of future unicorns operate in the FinTech space. That’s an incredible number, but it’s not hard to believe considering the track record of startups becoming unicorns in the FinTech field. That number, again reported by CB Insights, is around 94 of the existing 616 unicorns in the world, making FinTech as a category second only to the Internet Software and Services sector.

Eyes Forward

Increasingly, FinTech is paving the way forward. Consider the problems brought on by the pandemic, and the opportunity they bring with them for market-winning solutions. Our financial systems have gone into overdrive to handle the new demands of the COVID-era. But there have obvious areas for improvement.
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Solutions are needed, for example, to improve the way we distribute and disburse government aid. Many Americans, depending on stimulus checks and emergency financial support, found the path from government to bank account very hard to navigate. There’s no shortage of demand for the updated technology that can better connect and prepare us for a situation of similar consequence.
Another exciting opportunity for forward progress is the innovation of solutions for underbanked populations. The proliferation of digital technologies is changing the barriers to entry with traditional banking. A lack of funds, a lack of access, too-high bank fees or a ruptured relationship of trust; mobile banking and other non-traditional solutions are offering new ways for individuals and families to be financially empowered, a change which will only be positive for the strength of the global economy. One example from my own portfolio is Stake, who are providing a financial option for the historically unbanked renter.
Finally, a conversation on FinTech can’t ignore the growing buzz that’s developing in the cryptocurrency space. Regardless of timelines and brand-name crypto coins, our understanding of trade and fiat currency is undergoing a re-imagination. The new system will almost certainly employ the powers of smart technologies, which legacy banks have yet to integrate. Whatever the crypto-space brings to fruition, FinTech is positioned to be an integral part.
The moment we’re in is offering some of the best opportunities for investors who are willing to survey the market, consider what we’ve been through, and take an inquisitive stance regarding our path forward. Some of these fields—FinTech, ConTech, PropTech, InsurTech, etc.—can sound obscure, but it’s worth the exploration. Financial technology investments can be easily tested; how would you like to navigate the financial aspect of your life? Consider standing with the startups and vendors that seem like they’d make that more possible. And of course, all of the good investment habits—having an exit plan, distributing risk, limiting spend to what you can lose—still apply. With that, I encourage post-pandemic investors to learn more about the field and enjoy their exploration.