Fintech Investment: Global Market Breakdown

Since 2018, fintech investment has exploded, supported by a number of major fintech deals that have been characterized by their size and geographic diversity.

Many private equity firms noticed this emerging technology in recent years and poured their money into fintech. Among others, Blackstone invested $17 billion in Refinitiv, while P2 Partners and Silver Lake, a global fintech company, acquired Blackhawk Network for $3.5 billion.

In 2021, venture capital investment in fintech has been strong despite global uncertainty. In fact, KPMG reported that fintech investments from venture capital sources totaled a record US$115 billion, significantly surpassing the previous record high of US$53.2 billion in venture capital investments. achieved in 2018.

The crypto, blockchain, and buy-it-now-and-pay-later (BNPL) sectors saw the most venture capital investments in 2021. Investments in crypto and blockchain-based fintech are from $5.4 billion in 2020 to over $30 billion last year. BNPL companies have attracted significant transactions in all jurisdictions. Some of those highlighted by KPMG include Klarna’s $1.2 billion venture capital raise, PayPal (NASDAQ:PYPL)Acquisition for $2.7 billion of Japanese company Paidy and Block’s (formerly Square) (NYSE: SQ) Acquisition for $29 billion of Australian company Afterpay.

Corporate participation in venture capital investments remained high in 2021, in part due to the strategic nature of these investments. Business investment in fintech amounted to US$50 billion globally during the period.

In terms of jurisdictions, the Americas attracted the most fintech investment, accounting for half of the global total, or US$105 billion. In terms of venture capital investment, seven funding rounds exceeded US$1 billion in 2021, all of which took place in the Americas. These include a $2 billion raise by US firm Generate and a $1.1 billion raise by US firm Chime.

US companies are also investing more in fintech capabilities as a way to support their business strategies. KPMG notes that the sector is marked by “a growing number of companies and fintechs looking to leverage AI and machine learning across all fintech subsectors, including B2B, cybersecurity and insurtech”.

In the Asia-Pacific region, investments in fintech reached $27.5 billion, almost double those of 2020, for a record 1,165 transactions. KPMG notes that in this region “banks are increasingly seeking assistance to improve their capabilities in integrated finance, digital wallet and supply chain finance.” Backend-as-a-solution technology is also attracting growing interest from banks and startups.

In Europe, investment in fintech also hit an all-time high, amounting to US$77 billion for 2021. Refinitiv for US$14.8 billion by the London Stock Exchange and the United States. $1 billion financing round from BNPL specialist Klarna.

Investing in fintech: current state of the market

As the sector continues to mature, a number of trends characterize the fintech industry.

The fintech industry is advancing in many ways, both locally and internationally, in areas such as real estate, peer-to-peer lending, auto financing, and general lending. The wealth management industry and holding companies recognize the benefits of fintech.

Forbes recently identified several key trends shaping the infrastructure side of fintech: embedded finance, blockchain technology, cross-border e-commerce, super app platforms, artificial intelligence (AI), and machine learning.

BNPL options are a growing component of integrated finance; merchants allow consumers who buy through merchants to pay most often in four small installments instead of one large immediate payment. Transactions in this sector of the fintech market are expected to reach US$680 billion by 2025.

More and more financial institutions are embracing the efficiency and security of blockchain-as-a-service solutions. A number of companies, including Citigroup Inc (NYSE:C) and Goldman Sachs Inc (NYSE:GS), are applying cryptocurrency and blockchain technology to their operations.

Cross-border e-commerce is selling across a border using an online platform between a merchant and a consumer (B2C), between businesses (B2B) or between two individuals (C2C).

Vantage Market Research has forecast that the cross-border B2C market has the potential to grow at a CAGR of 25.1% between 2022 and 2028 to reach a value of US$3.4 billion. The Asia-Pacific region is expected to dominate in this segment.

Super apps are another booming fintech sector. Forbes notes that super apps “offer large and diverse suites of services and products from a single platform.” Like brick-and-mortar superstores with retail stores, grocery stores, hair salons, restaurants, banking, and mobile phone services all under one roof, superapps aim to keep customers locked into their platform by offering to meet as many consumer needs as possible. Examples of super apps include WeChat and AliPay.

Fintech companies are harnessing the power of AI and machine learning to analyze data and deliver insights that benefit both businesses and consumers.

“AI and machine learning have benefited banks and fintechs because they can process large amounts of customer information,” according to a report by Mordor Intelligence. “This data and information is then compared to get results on the appropriate services/products that customers want, which has mainly helped in developing customer relationships.” The market research firm forecasts that the Fintech AI market could grow at a CAGR of 23.17% between 2021 and 2026 to reach $26.67 billion.

Investing in fintech: how to get started

If you’re serious about investing in fintech, there are several ways to get into the industry, including exchange-traded funds (ETFs) and stocks.

Fintech ETFs

ETFs provide exposure to multiple companies at once. Fintech-focused options include:

The Global X FinTech Thematic ETF (NASDAQ:FINX) was launched in September 2016; contrary to its name, 65% of its holdings are American companies.

ARK Fintech Innovation ETF (ARCA:ARKF) launched in early 2019. The fund’s stated goal is to capture “the introduction of a new technology-enabled product or service that potentially changes the way the financial industry works.”

ETFMG Prime Mobile Payments ETF (ARCA:IPAY) launched in 2015 and focuses solely on mobile payments stocks.

The Ecofin Fund for Digital Payments Infrastructure (ARCA:TPAY) started operations in February 2019 and contains companies that focus on the digital payments industry. It tracks the Ecofin Global Digital Payments Infrastructure Index.

Fintech stocks

Fintech companies are popping up left, right and center, and that could be overwhelming for some investors. To get started, check out our list of Canadian fintech stocks, learn more about what Australia has to offer, and see which US fintech stocks deserve investors’ attention.

Whichever investment path you choose, it’s clear that the fintech industry has grown tremendously in recent years as more private equity and fintech investors enter the industry. ‘space. Businesses continue to innovate in finance and ultimately capital markets. The industry looks likely to continue to grow in the future.