Finance technology, or FinTech, like mobile banking apps and cryptocurrency, robo-advisors and, of course, tap-and-go contactless payments, has made serious strides in the past decade.
The availability of secure and convenient new features that address the demands of consumers in the digital age is proving to be a seismic shift for the industry.
The opportunity for investment in FinTech is vast.
A whole new generation of consumers is emerging and they don’t carry a physical wallet or purse.
They rarely have any cold, hard cash in their pockets, either.
Today, cash is only used for three in every 10 transactions, down from six in 10 a decade ago. Moreover, it is forecast to fall as low as one in 10 transactions within the next 15 years.
Think back to the last time you paid for something in a shop or a café: Did you pull out a $20 bill and wait for the clerk to open the register and give you change?
If you did, you’re in the minority.
There is massive growth in personal banking and the technology that enables it.
The Federal Reserve recently put out a study on how we pay for things. Here are some of the key findings:
- The number of core non-cash payments, comprising debit card, credit card, ACH, and check payments, reached 174.2 billion in 2018, an increase of 30.6 billion from 2015. The value of these payments totaled $97.04 trillion in 2018, an increase of $10.25 trillion from 2015.
- Total card payments (both credit and debit), which represented 7.3% of core non-cash payments by value and 75.3% by number in 2018, grew at a rate of 8.9% per year by number between 2015 and 2018 — up from the 6.8% yearly rate of increase from 2012 to 2015.
- In 2018, for the first time, the number of ACH debit transfers (16.6 billion) exceeded the number of check payments (14.5 billion). In 2000, in contrast, the number of ACH debit transfers stood at 2.1 billion compared to 42.6 billion check payments.
- The number of ATM cash withdrawals was 5.1 billion in 2018, a slight decline of 0.1 billion from 2015. The average value of ATM cash withdrawals continued to rise, increasing to $156 in 2018 from $146 in 2015, accordant with the continued decrease in the total number and the continued rise in the total value of ATM cash withdrawals.
And this is just the start of the brave new world that FinTech is creating.
By extending the reach of their services to global and under-tapped markets where traditional banking services are a rarity, the FinTech market is predicted to reach nearly $153 billion in value by 2025, according to Kenneth Research.
Big banks are trying to offer more robust digital offerings to compete with the more agile startups.
Changes in the sector are coming from every direction. It’s hard to know who is innovating and who is lagging behind.
Luckily, we’ve cut through the noise and put together a list of 5 easy picks for the FinTech revolution.
Alibaba Group Holding (NYSE:BABA) Chinese E-commerce
Alibaba, China’s answer to Amazon, is an e-commerce titan with its tentacles in an array of tech services, ranging from cloud-computing and a search engine, to a streaming site and their core shopping platform.
It is perhaps also China’s most powerful investment firm, and they’re betting big on FinTech in China.
Alibaba controls 33% of China's largest e-wallet system, Ant Financial.
Ant is the largest mobile payment platform, servicing over 860 million active users and 15 million businesses.
As the middle class in China grows, the number of people who will need finance products will only grow.
Ant Financial has big ambitions for Asia and beyond. The company is looking to expand to several to several other countries in the region, and there are even rumors of an IPO.
Goldman Sachs Group (NYSE:GS) Investment Bank
The most obvious beneficiaries of FinTech are banks.
Founded in 1869, Goldman Sachs is among America’s oldest and largest investment banks. You don’t stay around that long without staying on top of the industry and changing with the times.
GS seemed to have a bit of an identity crisis recently. Traditionally known for its investment banking, Goldman has pivoted to a more consumer-friendly and public-facing model. However, Goldman has launched its Marcus platform to resounding success.
Marcus is an online banking app that specializes in unsecured loans, savings accounts, and checking accounts.
Customers can open up an account for as little as $1.
The goal is to offer a simple banking experience that is easy to use with no hidden fees.
And so far so good, as Marucs was awarded a JD Power Award for Personal Loan Satisfaction in 2019.
Clients have deposited nearly $55 billion to date and the bank has given nearly $5 billion in loans.
JPMorgan Chase (NYSE:JPM) Investment Bank
Goldman Sachs isn’t the only traditional investment bank betting big on FinTech.
JPMorgan Chase, which was acquired in 2018 by Chase for $220 million, is another bank with a long history in America. The company offers a diverse line-up of financial products for both businesses and consumers.
Among the most exciting of them is WePay.
WePay is a payment ecosystem that allows platforms to integrate payment solutions on their website, such as their largest user GoFundMe.
JPMC is also betting big on cryptocurrencies.
In 2019, trials started on JPM Coin, the bank’s own cryptocurrency based on Ethereum.
The ultimate aim of JPM Coin is to speed up transactions like payments between firms or bond transactions.
Q2 Holdings (NYSE:QTWO) Bank Tech
Q2 Holdings is a tech company that helps banks and credit unions offer their customers cloud-based platforms.
Often, small banks don’t have the necessary IT infrastructure to compete with the digital offerings of the much larger competitors. This is where Q2 comes in.
Q2 offers a cloud framework on which banks and other FinTech platforms can build custom applications.
Q2 recently spent $510 million to acquire PrecisionLender, a banking software that gives insight on commercial loans.
This offers Q2 a much stronger position in the FinTech arena.
Blackline (NASDAQ: BL) Accounting Software
Blackline is a software-as-a-service business that allows businesses to automate tedious accounting tasks in real time.
Typically, tasks like reconciling financial data take significant manhours and are only done monthly or quarterly. Blackline lets these tasks be completed in real time. This lets businesses with different products in different geographic locations gather data instantly, allowing them to make back-end decisions faster and with more confidence.
The company has been consistently growing year over year.
They count companies like Coca-Cola, Under Armour, and E-bay among their clientele.