Fintech companies have been transforming the landscape of the banking sector in recent times. The e-commerce transactions grew at a slower pace before the pandemic. However, the coronavirus changed the way people carry out transactions today.
In the wake of pandemic, people have resorted to contactless payments and online transactions. The Fintech companies have profited from the situation by facilitating payment systems and offering credit products. These companies can further eat a lot of business from traditional banks. Investors across the globe are channelising more investments in the sphere of fintech companies.
According to a recent report from Innovate Finance, the UK ranks second to the United States in terms of total investments in the fintech sector for 2020. Investment in Fintech companies across the world topped $44 billion with more than 3,000 deals in 2020, according to the report.
The US fintech sector attracted $22 billion while UK’s fintech sector received a funding of $4.1 billion in 2020. Revolut, Molo, and Monzo were the top three fintech companies that attracted investments in 2020.
Additionally, Fintech companies might use special purpose acquisition companies, the trending methodology for companies, to raise money through an IPO. Notably, SPAC tends to be a faster and less complicated method to go public.
Chicago-based investment company Victory Park plans to raise $225 million through SPAC in a bid to acquire high-growth fintech targets outside the US. At the global level, US-based international money transfer start-up Remitly Inc managed to raise more than $80 million in July. Financial services company that specialises in debit cards, Greenlight Financial Technology managed to raise $215 million in September.
Growth in Fintech sector :
The evolution of new technologies such as Blockchain, Artificial Intelligence has helped fuel innovation in this domain. The innovation offers greater convenience and additional security which was a clear miss in the traditional financial services. Also, fintech firms facilitate trading and investments in new asset classes such as cryptocurrencies.
Fund managers look up to disruptive technologies as the conventional funds are nearing their life cycle and would like to divest from the pool given the state of the economy. Growth has always been directly proportional to technological innovation. Any product or offering that can disrupt the market could be a great opportunity for wealth creation.
Also, the macroeconomic situation has deteriorated in the UK, where seed companies are struggling for finances in the traditional venture capital and banking system. Given the prevalent conditions in the economy due to the pandemic, it is difficult for young companies to secure additional finances.
What to expect next?
AI, Machine learning and Blockchain could prevent the frauds and ensure compliance in the emerging space. The fintech firms are expected to improve upon their payment technologies such as FX transactions and crypto assets.
Due to algorithm-driven platforms, fintech companies could provide personalised advice to users regarding investments and loan products. Peer-to-peer lending, which is a classic example of fintech companies, has been picking up steam since last year. For instance, in 2020 Fintech group specialising in P2P lending, Zopa group was awarded a full-fledged banking license in the UK. The competition in lending and crowdfunding platforms is expected to grow substantially that shall eventually benefit the users.