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Fintechs are a US$194bn industry: What are they, are they good and why are there so many of them?
Fintechs (short for financial technology) are technology companies that are servicing the financial sector.
Fintechs enable organizations in this industry to create innovative products and services that improve customer experiences, increase efficiency, reduce costs, and provide more secure and reliable services.
They have become very popular with investors and some companies have generated spectacular returns. The entire global industry is worth US$194bn and is expected to grow at a CAGR of 16.8% over the next 5 years.
But just what do fintechs do and what are some of the best companies?
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What are fintechs and what do they do?
As we noted above, the term fintech is a broad term used to refer to financial technology, which is the fusion of software and technology with the financial services sector.
Examples of fintech products include payment processing systems, automated investment platforms, cryptocurrency wallets and exchanges, digital banking solutions, data-driven analytics tools for finance professionals, and fraud prevention technologies.
Fintechs not only helps these firms streamline processes but also facilitates new business models that can revolutionize the finance industry.
For example, with mobile banking applications, customers can now access their accounts from anywhere at any time.
Additionally, with automated investments tools, customers can make smarter decisions about their portfolios without relying on costly advisors or spending long hours manually researching it themselves.
All in all, fintech is transforming the way businesses interact with their customers as well as how they conduct financial operations internally.
Some of the best known and most successful publicly-listed fintech companies on global exchanges include Block Inc., a Jack Dorsey-founded fintech best known for its Cash App.
Block offers a suite of products ranging from small business loans to merchant services, such as point of sale devices for retail stores. It even owns Afterpay, having acquired it in mid-2021.
But its Cash App, which facilitates digital payments, is its most popular product with over 24 million monthly active users.
The company is currently valued at over $65 billion and processes over $85 billion in payments per year from its 30 million active customers worldwide.
Another is Ant Financial – an affiliate of Chinese ecommerce giant Alibaba.
Ant provides a variety of financial services to its 800 million customers around the globe including online payments, wealth management, credit scoring, and more.
The company boasts an impressive valuation of over $150 billion dollars and is widely considered to be one of the most influential players in the global fintech industry.
What about in Australia?
Australia is home to a number of innovative fintech companies that are revolutionizing the way people interact with their money.
Unfortunatly, many listed fintechs have not performed well. This is because they are often earlier-stage companies and some have encountered setbacks.
The most notable players in the Australian fintech space (including both listed and non-listed) include TransferWise, Revolut, Tyro, Prospa and CoinJar.
TransferWise is a popular fintech which enables customers to transfer money across borders quickly, securely and at a fraction of the cost of traditional banks. With over eight million customers worldwide, this platform makes international money transfers easier than ever before.
Revolut is a mobile banking app that offers clients access to real-time exchange rates when converting foreign currencies along with other financial tools such as budgeting and spending analytics. It provides users with a secure alternative to traditional banking solutions whilst also offering fee-free international transfers.
Tyro Payments (ASX:TYR) is Australia’s first EFTPOS terminal provider catering specifically for businesses that don’t accept credit cards or cash payments.
This service provides merchants with a convenient and secure electronic payment solution for their customers.
Prospa (ASX:PGL) is an online lender that offers small business loans up to $300K with simple online applications and quick approval times.
Its fast approval process means that businesses can receive funds within 24 hours without having to wait weeks or months like they may have had to with traditional banks in the past.
Other lending fintechs include MoneyMe (ASX:MME), Harmoney (ASX:HMY) and Plenti (ASX:PLT).
Lastly, CoinJar is one of Australia’s leading cryptocurrency exchanges allowing users to buy, sell and store digital assets such as Bitcoin, Ethereum, Ripple and Litecoin easily on their platform with low transaction fees attached.
They also offer educational resources helping people understand all there is to know about cryptocurrency investments before getting started.
Why have fintechs struggled in recent times?
Fintech stocks have struggled in the last 12 months due to a variety of factors.
The COVID pandemic has had a significant impact on the global economy, leading to a sharp slowdown in economic activity and consumer spending, which has dampened demand for financial services.
Additionally, the low-interest rate environment has made it difficult for fintech companies to generate profits from lending operations.
Furthermore, regulatory uncertainty surrounding cryptocurrencies and other digital assets has also weighed on investor sentiment in the sector.
Finally, there is intense competition among fintech start ups as they fight for market share.
As more entrants enter the market and established incumbents respond with lower fees and better offerings, many investors have shied away from investing heavily in this sector until there is more clarity regarding its long-term prospects.
But the long-term still looks good
Despite the current dour equity markets, there is still optimism that fintechs will continue to grow in the long-term. There are a few reasons for this expectation.
Firstly, the global pandemic has caused a dramatic shift in consumer behavior, with more and more people turning to digital banking and financial services.
This trend is likely to continue beyond 2022 as fintechs are providing innovative solutions that make it easier for people to access financial services online, leading to greater convenience and cost savings.
In addition, many major banks and financial institutions have been investing heavily in developing their own fintech capabilities, creating even more opportunities for growth within the sector.
Furthermore, governments around the world are creating regulatory frameworks that support investment in fintech solutions which further encourages expansion of the industry.
Finally, venture capitalists have been pouring money into fintech startups at an unprecedented rate over recent years and this trend is expected to continue as investors look for new ways to make money with limited risk exposure.
All of these factors suggest that despite any short-term market volatility, there is still potential for continued long-term growth within the fintech sector.
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