A lot of discussions nowadays about fintech are inclined to go in the direction of whether the sector is about to explode or not. According to Bruce Wallace, Silicon Valley Bank’s chief digital officer, this may not be the right way to go about it when dealing with the current alternative finance environment. The fact is that fintech has been in existence for over a decade and has been receiving moderate venture investment amounts.
Surprisingly, however, fintech venture investments have increased by three times since 2014.This has been driven by how innovative technology companies are providing financial services, and by the gradual decline of consumer confidence in traditional money providers after the recent financial crisis.
The main difference now is that the new early-stage fintech companies are typically selling their products directly to businesses and consumers, but not to the traditional channels of financial institutions. The sector has experienced increased efficiencies which are continuously changing consumer expectations and influencing the future of financial services.
All these factors culminate together to play a key role in determining long-term valuations of new business models in the sector. Lately, Silicon Valley Bank has been focusing on various venture capital (VC) investments, fintech business models and exits. In the next 12 to 15 months, we are likely to know which business models have been overvalued, the ones whose valuations are poised to grow, and the ones that are going to disrupt the market.
- Valuations: from the fintech startup companies, there are approximately 35 unicorns which are valued at $1 billion or more, and about 35 others valued between $500 million and $1 billion. Out of this, approximately two-thirds of the unicorns are payment firms and marketplace or alternative lenders.
- Venture capital investment level: a large percentage of fintech investments have been targeted at consumer payments and lending models, but other leading fintech sectors are also attracting more investments. These include insurance, retail investment, personal financial management, commercial international payments, etc.
- Exits: several analysts have been trying to explore the future of the fintech sector by observing a few exits, particularly IPOs of Lending Club, Square and OnDeck. However, it is still very early to make any conclusions.
Fintech will also be affected by macro forces that affect the public market as well as VC investment trends. Nevertheless, the sector will continue to gain traction due to the huge market size globally, and innovative disruption models that are designed to reduce legacy processes, enhance 24/7 service access, support quick decisions, and increase transparency for consumers.
The new fintech models are only in their early stages, but they are potentially poised to redefine global financial services. In this regard, 2016 is a year that promises big things for the fintech sector in terms of its evolvement and expansion.