How fintech and blockchain present some of the greatest investment opportunities
While the title of this article may sound a little on the bold side, we truly hold the belief that the revolution unfolding before our eyes is one of the very best opportunities that has ever existed. Right now, investors are hooked on the idea of fintech and blockchain. As we go through, you’ll soon begin to understand why.
The years 2018 and 2019 saw around $140 billion being invested in these areas. A slight lull followed in the first half of 2020, for obvious reasons, but recovery wasn’t far away and investment hit record levels. If you’re new to this field, you may be wondering what all of the fuss is about. We’re going to take a look at what fintech and blockchain are and why they are so hot with investors right now.
What is fintech
We’re not going to get too bogged down with the detail here. It suffices to say that fintech brings together finance and technology. You may be looking at things such as being able to make payments, offer credit, insurance, or trading opportunities. Whatever financial service/product you are looking at, the use of technology is there to make the process faster, more secure, simpler, and user friendly.
It involves looking at the old, outdated, processes, that traditional banks use and searching for ways to just make them better. By taking processes online, the slow, cumbersome processes of old are done away with and a new experience is born.
A look at PayPal
You may be wondering why we have chosen to take a look at PayPal when showing the investment opportunities presented by fintech. As a household name, it is a business that we are all aware of, and the chances are that you have already used it.
Founded back in 1998, PayPal looked to support online payments and transfers. It sought to do away with cheques or the likes of Western Union. While the online space was much smaller back then, there was still an appetite for efficient and secure payment methods. The appetite was at its biggest over at eBay.
While eBay once owned PayPal, they later parted ways. This caused no harm to PayPal in the long run. As of 2021, the company was worth as much as $350 billion.
And then came Square
Founded in 2009, Square offers technology that allows smartphones to accept card payments. It offered what was one of the very first mobile device payment options for retailers. This gave smaller businesses the opportunity to take card payments without the need to go through the process of signing lengthy contracts and using a merchant account. With over 32 million small businesses in the US alone, this presented a huge opportunity.
Those early investors perhaps understood the vast marketplace that existed, or else they were well advised. When the company IPO’d back in 2014 it already had a valuation of $6 billion. As of now, the company is worth almost $120 billion and there is talk that its value may surpass that of PayPal over the next three years.
The Covid affect
What investors look for are opportunities that can weather the storm. As the world was hit by the pandemic, there were numerous industries brought to their knees. While some may go on to recover, others are unlikely to prosper in the same form anymore. One sector that prospered throughout was fintech. Rather than suffer setbacks, the valuations of fintech companies actually skyrocketed through what was one of the most significant events since the Second World War.
What led to these companies doing so well, even during a pandemic? For the consumer, it was all about ease of use. It was easy to make transactions. Easy to move money. It was even easy to, remotely, open new accounts when needed. For businesses, when they turned to fintech companies to meet their needs, what they found was a reduction in time and costs associated with transactions.
Traditional banks are lagging behind
What is perhaps surprising, when it comes to the success of fintech, is that banks saw this coming. They saw it coming and failed to adapt and are now being left out in the cold. It was back in 2015 that Jamie Dimon, CEO of JP Morgan Chase, stated that ‘Silicon Valley was coming’. Tech is developing at such a pace that what was to come was almost inevitable.
While the traditional banks stuck to their outdated, restrictive, and extremely slow processes, fintech came with a new approach. Taking advantage of the inefficiencies that existed, these companies were able to bring ease, and speed, to the party and offer an attractive alternative to the old systems. While banks may have moved online, they have failed to embrace all that technology has to offer in terms of the customer experience and the removal of complexities.
So, what makes the fintech offering better?
For investors, to appreciate what makes fintech such a great opportunity, there is a need to take a closer look at how these companies compare with the traditional banks. What these companies have demonstrated is that there is no need to visit a branch, ever. They have shown the ability to personalise the customer experience, ensuring that each individual receives service, and offers, tailored just to them.
Fintech also taps into a massively untapped, neglected, marketplace. That of the unbanked. With over 50 million of the world’s population falling into this category, traditional banks have always just turned their backs. Fintech has taken a new approach. One that relies on other data rather than traditional credit scores. One that allows everyone the opportunity to benefit from the world’s financial system. The size of this marketplace alone demonstrates the size of the opportunity that exists.
What blockchain has to offer
There are fintech companies that are looking to disintermediate card processors but still ensure that there is a trusted way to exchange funds for goods. If you think about a company that wants to create a marketplace for a commodity, it may want to allow buyers and sellers to deal directly, without a middleman. For this to work, there still needs to be some sort of trust mechanism in place. the solution? Blockchain and, what often goes hand in hand, cryptocurrencies.
Such a system, for consumers, sees them depositing fiat currency with a marketplace. This would then be exchanged for crypto and used to make a purchase.
Businesses and blockchain
Hopefully, the benefits brought about by fintech are clear and the investment opportunities can be seen for what they are: outstanding. When it comes to blockchain, as we have seen above, this can be used to enhance fintech offerings. However, it can also be used in business in terms of boosting efficiency and security.
The thing is, those working within business usually have no idea when it comes to the impact that blockchains have. This is a positive! It shows that it runs, and does what is required to, all without causing disruption.
The big offering that blockchain brings to business, and why it will always be investable, is the fact that it gives what all businesses need: transactions that are secure and non-reputable, along with contracts that are binding.
The benefits that blockchain brings to business
The decentralised nature of blockchain means that it can bring a multitude of benefits to businesses. These benefits make companies that specialise in blockchain highly investable. Some of what’s on offer include:
One of the biggest positive factors, when it comes to blockchain, is that the transaction ledger can be viewed by the public. When you look at financial systems, and business, this adds layers of accountability that have never been seen before. It ensures that all actions taken have to be carried out with the utmost integrity.
An increase in efficiency
With blockchain being decentralised, the need for a middleman is done away with for processes such as payments, and even real estate. When you compare blockchain with traditional financial systems, the former allows for faster transactions. When looking at real estate, property management systems become more efficient thanks to a unified system of ownership records along with the use of smart contracts.
The best in security
As every new transaction is encrypted and linked to a previous one, the levels of security are far more secure than any other form of record keeping. The very nature of blockchain is immutable and incorruptible and so it is safe from falsified records as well as hacks.
How investors are set to benefit
With all of the talk of the blockchain industry growing, there is one group of people who stand to benefit enormously: the investors. With the full potential of blockchain yet to be realised, the growth that has been experienced to date is only set to increase. One thing that is for certain is that companies involved with blockchain never experience any issues when it comes to raising the funds that they require.
If you take a look at Circle Internet Financial Ltd, this blockchain tech provider was able to raise some $440 million in funding back in 2021. These funds came via strategic and institutional investors who could see the potential for healthy returns.
Investors have already benefited via companies that have sought to identify themselves with blockchain. Just two examples include:
Long Island Iced Corporation
This company switched its name to Long Blockchain Corp. The immediate impact? The share price skyrocketed by 289%.
This UK company also changed its name to incorporate the word blockchain. On becoming On-line Blockchain PLC, the share price rose by 394%.
Both fintech and blockchain offer outstanding opportunities for today’s investors. While many may be left feeling that they missed the boat, with the likes of PayPal and Square, the reality is that things are only now really getting started.
There are real possibilities that, as technology continues to develop and progress, any one of the many startups that can be seen will easily surpass the outstanding achievements already witnessed by the household names.