Fintech’s big week highlights long-term opportunityThought of...

Fintech’s big week highlights long-term opportunity

Thought of the day

The past week saw two key milestones for fintech disruptors in the world’s two largest markets. Chinese payment leader Ant Group on 12 April announced it would restructure its business as a regulated financial holding company amid a raft of tough new regulatory rules. US crypto exchange Coinbase made its debut on the Nasdaq on 14 April via a direct listing, with a near USD 85bn market cap eclipsing traditional US equity exchanges.

Both events align with our view that the global fintech industry is at an inflection point, while also offering important lessons for fintech investors:

• Consumers have shifted to online financial services through the pandemic. The pandemic has moved a significant portion of global retail consumer behavior online, changing everything from how we do our daily shopping for groceries to the frequency and sophistication of our personal investments. COVID-19 in particular has seen fintech operators reduce fees and transaction frictions, ease onboarding processes, and increase digital payment channels and the range of value-added services. The millennial generation, which accounts for around a quarter of the global population and some USD 24tr in private wealth, increasingly expects cost-effective digital financial services. We think these changes will prove persistent.
• Tech players are well positioned within the fintech segment. Cost-cutting, risk aversion, and compliance spending rank among key banking sector legacies of the 2008 global financial crisis. Big tech and smaller startups alike capitalized on this void in financial sector innovation just as mobile connectivity went mainstream, and have led in new digital business segments such as electronic payments, insurtech, and online lending and investment platforms. The sharper government scrutiny and record market capitalizations of big tech players suggest regulators and markets expect them to lead from here. We think incumbent financials players willing to make proactive fintech acquisitions or investments can also lock in an early-mover advantage.
• Fintech investors cannot ignore the regulatory environment. Fintech has moved to the top of the regulatory agenda, as policymakers have responded with both sector-wide and fintech-specific measures to harness opportunities and mitigate risks from financial innovation. China’s tougher stance has also forced investors to re-assess fintech business models, focusing on the value of private data, capital requirements, and future profits. By contrast, US crypto segment rules have been laissez-fair so far, leaving a key risk overhang over operators exposed to the segment.

So as more fintech companies are set to go public over the next 12–18 months, we think investors will have a chance to gain exposure to long-term investments in areas including online payment platforms, fintech blockchain, and investment AI. We expect the broader fintech industry to more than treble in size to USD 750bn in 2030. We also think that improved regulatory supervision will benefit the industry and consumers over the long term, with a more level playing field as well as fewer concentration and systemic risks within the financial system.

Source: Daily: Fintech’s big week highlights long-term opportunity | UBS Global