When it comes to the FinTech market, investors can break it down into categories and depending on where they are focused may need to apply a healthy dose of skepticism when evaluating companies.
First out of the gate are the financial technology startups, which are garnering all the attention in the press. These are the ones that are trying to disrupt the financial markets whether it's how people trade or apply for loans. Robinhood is a good example. The mobile trading app leveled the playing field, enabling the masses to make free trades from a smartphone. Skeptics may have scoffed at the idea, but the startup now has more customers than E*Trade, the online broker that has been in business for decades.
The FinTech startups run the gambit from the ones going after consumers to those catering to corporate clients. All of them are relying on advanced technology including artificial intelligence and machine learning to automate processes that have long been costly and time-consuming.
While the FinTech startups are getting all the attention, they aren’t the only ones trying to overhaul the financial markets with technology. The financial giants such as Visa, Mastercard, and Goldman Sachs have been pushing into the market, providing investors with a safer way to play the FinTech market.
Take Visa for starters. The credit card issuer has been inking deals with FinTechs to ensure its virtual credit cards and expense management systems are part of a package of solution. Mastercard has embraced the same strategy. Both have invested a lot of money and effort into digital payments as that part of the market continues to take off. Goldman Sachs has also been all in with FinTech, launching Marcus, its digital bank and recently inking a deal with Apple to roll out the Apple Credit Card.
Outside of FinTech startups and the traditional financial services players, there are the established financial technology companies that don’t have the backing of a traditional financial services player but have grown in their own right to compete against the big guys. A classic example is PayPal. Not considered a FinTech startup PayPal has disrupted the market making it easier to make purchases and pay friends and family.
When it comes to evaluating FinTech companies, investors have to be careful about some of the claims the startups are making. After all the dotcom boom should be fresh in the minds of many. Back then every company attached a dot.com to their name and saw their stocks fly or coffers grow. Many flamed out leaving investors with little in the way of returns. That could be the same with some of the FinTech companies that have already raised hundreds of millions of dollars. Particularly as the traditional players circle trying to get access to the younger generations who want everything to be digital.
