Analyzing our modern era, there are certain industries that are growing at an exceptional speed. Among such industries is the fintech industry, which gets recognition at a global level and its bright future is pretty much obvious. Formed from the combination of two of the world’s major industries namely finance and technology, the secret behind the fintech’s rapid growth is its ability to revolutionize the world of finance.
Fintech made it easy for both people and businesses to perform their financial activities more efficiently and conveniently as compared to the traditional methods. As a result, fintech has been welcomed and adopted by many nations in the world and is on its way of dominating the whole world. Additionally, the success of fintech has drawn the attention of investors and there has been an exponential increase in both the number and amount of investments in the fintech industry.
Reasons behind the Investors Attractions towards Fintech
Within a couple of years, the fintech industry has attracted a large number of investors and the figures are expanding rapidly. While the success of the fintech is definitely one of the prime factors responsible for the increased attention of investors, there are certain other factors also that are as follows:
Early Development Stage
No doubt, the fintech industry is completely new as it’s been less than a decade since it gained prominence on a large scale. Compared to many other industries, the fintech is clearly in its initial stages of development and investors are well aware of this thing. Consequently, they are willing to invest heaps of money today so that they can reap huge profits as the industry will be reaching its pinnacle. Moreover, as the fintech relates itself to finance and technology, there is hardly any chance of it entering downfall for at least a couple of decades to come.
Ability To Bring Change
Instead of augmenting the traditional methods of finance, fintech has replaced them with all-new methods such as cryptocurrencies trading, mobile banking, etc. The major section of investors is driven by the capabilities that the fintech holds within. Indeed, in a very short time span, fintech technologies have successfully replaced various conventional practices related to financing. For instance, mobile banking allows customers to perform a wide variety of banking activities directly from their smartphones while eliminating the need to visit the bank. Moreover, online payment gateways let individuals pay/receive money using the internet and the need to carry cash has been reduced drastically. Investors feel that such changes are useful as they can make the lives of people easier and thus investing money in financial technologies is a great idea.
High Concentration of Startup Companies
Most companies that are working in the fintech industry are startups and the competition is relatively less compared to other industries. Most startups focus their work on the development of certain financial technology such as mobile payments, global money transactions, etc. Unlike banks, these companies do not have to divide their efforts into different dimensions of financial services. However, as fintech companies work in the development of specific technologies, investors need to make sure that they put their money in firms that has better chances of getting success.
Involvement of Venture Capital Firms
Funding startups in new industries is like a trend for venture capital firms. Before shifting their interest to different technologies, many VC firms were eagerly investing money in mobile technologies a few years back. However, in the present time, there are plenty of venture capital firms that are backing the fintech industry. To be exact, the VC firms are playing a vital role in shaping the business models of fintech companies so that they can meet the regulatory requirements especially the ones related to cryptocurrencies and blockchain. As a result, many investors prefer working with VC firms that have ample amount of experience and high success rate. Eventually, more and more investors are stepping up to invest money in the fintech industry through VC firms.
Statistics Supporting the Increase in Fintech Investments
Recently, CB Insights conducted a study on the investments made in the fintech industry. At the end of the research, it was found that the fintech companies that were backed by venture capital firms were able to raise a massive $39.57 billion for the year 2018. Compared to the previous year, the increase in the investments was estimated to be a massive 120 percent. The total investment sum was raised through 1,707 deals, which also increased from 1,480 deals in 2017.
Furthermore, the research also revealed that there were 52 mega-rounds of investments within 2018 that totaled a massive $24.88 billion of funding. In addition, the Ant financial stood at the top with the highest investment value of $14 billion. The multi-billion investment is a clear indication that investors are pretty serious about their decision to invest in the fintech industry.
The CB insights have also concluded from its research that the increased investment activity has led to the emergence of new unicorn companies and this might delay IPOs (Initial Public Offerings) for many fintech companies. As a result, it is possible that the year 2019 is going to witness less IPO activity as compared to previous years.
With Asia witnessing the highest increase in fintech investment deals that grew by 38 percent compared to the previous year, the continent accounted for the $22.65 billion worth of investments for 2018. The US secured the 2nd spot with 659 investments that worth $11.59 billion. Surprisingly, Europe observed a fall in the total deals but the funding worth of $3.53 billion was record-breaking.
Fintech industry has become one of the fastest growing industries in the world. There are several financial technologies such as internet banking that has transformed the way with which people used to perform financial activities. In addition, the success of the industry attracted a huge number of investors who are ready to put their money in various fintech companies that can contribute to the betterment of the finance industry.