Fintech Sector: Lucrative Potential In 2019

Investment in global financial technology companies more than doubled in 2018. Meanwhile, mergers and acquisitions activity in financial technology, referred to as fintech, grew both in volume and aggregate value, launching the sector into an optimistic and healthy 2019.

According to KPMG’s The Pulse of Fintech, “mergers, acquisitions and buyouts accounted for the largest fintech investments during the year in both Americas and Europe, while venture capital investments reigned supreme in Asia.”

The fintech market is populated by companies that seek to automate the delivery of financial services and improve financial operation processes. However, a sector originally developed solely for financial institutions has recently made a shift to more consumer-oriented services. This shift opened the market to many successful and lucrative startups like the payment applications Venmo and lending software SoFi.

Fintech is tapping exceedingly well into these new consumer-based markets by making traditional services more easily accessible through online applications and mobile devices. Take Robinhood, a commission-free investing app that more than doubled their customer base in 2018, reaching over 6 million users.

2019 presents a significant opportunity to invest in financial technology as the already healthy public market continues to grow and as many private fintech companies poise themselves for IPOs or M&A deals.

Currently, there is no shortage of promising publicly listed fintech companies to watch and buy.

PayPal Holdings Inc (NASDAQ:PYPL) is a strong potential buy with an optimistic earnings forecast of 17.88% annually. Other fintech companies with healthy predicted growth include Global Payments Inc (NYSE:GPN), Worldpay Inc (NYSE:WP), Total System Services (NYSE:TSS), and SS&C Technologies Holdings Inc (NASDAQ:SSNC).

Aside from those publicly traded, a strong funding environment within fintech is greatly increasing the value of private companies and is positioning them for potentially very successful IPOs.

In 2019, Square (NYSE:NYSE:SQ), a company that created a mobile credit-card reader, had one of the most successful fintech IPOs. Square’s stock grew over 1000% from 2016 to 2018. This lucrative IPO gives insight into the potential success other prosperous fintech companies will enjoy.

According to CB Insights, financial technology companies now account for 10 percent of the world’s 310 billion-dollar private companies.

Stripe, a payments startup, is now worth $20 billion, making it the most valuable private company within the fintech space. Stripe raised $100 million in their latest round of funding and would present an incredible investment opportunity should they go public. Other fintech companies, like Robinhood, Gusto, Credit Karma, and Avant are comfortably worth well over $1 billion.

What’s in store for these extremely profitable, private companies in 2019?

Robinhood revealed IPO plans late last year and after raising $363 million, was recently valued at $5.6 billion. Credit Karma is also predicted to enter the public stage, with over 85 million customers in the United States and Canada alone, and the company is valued at $4 billion. Coinbase, a platform to buy, sell and manage cryptocurrency, is also anticipated for a successful IPO. The company, valued at $8 billion, recently raised $300 million and continues to acquire new technology assets.

IPOs are not the only potential exit strategies these companies have. Mergers and acquisitions may again be a strong trend this year.

Kyle Lui, a principle at DCM Ventures, said in an interview with Bloomberg, “major U.S. banks have over $100 billion of excess capital and a major appetite for technology. Meanwhile, many fintech companies have gained traction and are ripe for acquisition.”

There is high potential for financial services to acquire fintech companies in order to stay technologically competitive and this will continue to improve the market for potential investors.

2019 is set to be another knock-out year for fintech growth, stock prices and market value. Investors must keep an eye on this sector which continues to show exciting and lucrative potential.