Investors, Take Notice: The Fintech Bonanza Is Here To Stay
This week, less than three months after their $5.3 billion acquisition by Visa (V) was cancelled at the behest of the U.S. Justice Department over antitrust concerns, the fintech Plaid announced a fresh $425 million in funding, nearly tripling its pre-Covid valuation to $13.4 billion.
Plaid, an infrastructure provider that helps other financial services apps connect to consumer bank accounts, is something of a bellwether for the fintech industry at large. But one needn’t break down Plaid’s growth to see the industry is on a tear.
Last month, online payments provider Stripe raised $600 million in funding at a mind-boggling $95 billion valuation — almost three times its $36 billion valuation from less than a year ago in April 2020.
Affirm, a leader in the nascent buy-now-pay-later sector, went public in January and quickly hit a $24 billion valuation. The sector, which provides consumers with an alternative to credit card spending, grew 215 percent YoY in the first two months of 2021, according to an Adobe report.
Square, the payments giant and brain-child of Twitter founder Jack Dorsey, has also been enjoying itself, recording YoY profit growth of 52% and net revenue growth of 141% in Q4 2020. Square’s stock is up over 300% since April 2020.
The list goes on and on: trading app Robinhood’s secondary shares trading at a $40 billion valuation; crypto goliath Coinbase preparing for a rumored $100 billion IPO; smaller fintechs like Ramp achieving unicorn status after just a few years of operating; et cetera, et cetera.
And while the lightning growth of private fintechs is particularly eye-catching, the various publicly traded fintechs – those providing core infrastructure, not in the headlines every other week – are also outperforming the broader market. The Global X FinTech ETF (FINX), which tracks dozens of companies it describes as “on the leading edge of the emerging financial technology sector”, is up 84% from one year ago.
But perhaps the most compelling case for fintech is that non-financial services companies are trying to create their own fintech products and services. Just this week, the Journal reported that grocery-delivery service Instacart and meal-delivery provider DoorDash (DASH) are planning to create their own credit cards that sync with their online applications.
Elsewhere, retail giant Walmart (WMT) has filed a patent application with the U.S. Patent and Trademark Office for Hazel, its in-house fintech venture. The filing suggests Hazel may offer a wide range of financial services, including bank transfers, mobile payments, credit and debit card transactions processing, lending and credit, and even cryptocurrency transaction processing.
Of course, Walmart is hardly the first retailer to dabble in fintech. One of the more successful examples is MercadoLibre (MELI), the dominant e-commerce player in Latin America, whose MercadoPago fintech platform has exploded in popularity. What began as a simple way for merchants to make money on the MercadoLibre platform has since evolved into an array of financial services, including payment processing for off-platform transactions, mobile point of sale hardware for small businesses, and investment and portfolio management services.
“MercadoLibre started out as the Ebay of Latin America, but they learned from Amazon, they learned from Alibaba. Similarly, they learned from PayPal and Ant Financial,” says Kunal Madhukar, Senior Analyst at Deutsche Bank who covers Internet and e-commerce companies. “They are basically learning from all these different businesses in different parts of the world in terms of what works, what has worked in different countries, and how that can be adapted to Latin America.”
Indeed, MercadoLibre’s ability to learn from and imitate financial innovators like PayPal and Ant Financial has been a winner. The company’s fintech business generated net revenues of $1.4 billion, compared to just $600 million in 2018.
Such riches are hardly replicable for most companies, but MercadoLibre’s fintech success is still an important lesson for U.S. firms across industries: taking control of financial services offerings can lead to new innovations, adjacent businesses, and enhanced customer relationships.
That’s why investors looking to capitalize on the fintech boom can look beyond financial services; fintech is, increasingly, everywhere.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.