The financial industry is experiencing a new era of disruption. In the past decade, established institutions such as banks have been challenged by new players in the fintech space. These challenges are making headway with innovations and newer investment opportunities that appeal to millennials. As of 2021, the fintech industry was estimated at $112.5 billion and is expected to increase at a Compound Annual Growth Rate (CAGR) of 19.8% to reach $332.5 Billion by 2028 (Vantage Market Research).
Simply put, fintech combines finance and technology to create new and innovative solutions for businesses and customers. Think of all the startups disrupting the finance landscape through mobile payments, asset management, stock trading, crowdfunding, and insurance, to name a few. Most companies in this space are innovative and disruptive, offering solutions you typically would not find in the traditional finance landscape. Since the pandemic, players in this space have increased, mainly in response to the changing lifestyle patterns during this period.
Brian Condenanza explains that investors are attracted to companies that disrupt markets or offer something new or innovative because they can get better investment returns. Condenanza invests in startups in emerging industries, such as fintech, digital assets, and impact investing. He has observed changing trends in this space and how that has affected investing. In Condenanza's opinion, this change has a lot to do with traditional financial institutions' inability to keep up with technological evolution and consumer demands.
After the financial crisis of 2008, banks and traditional finance institutions were bogged down by regulations and fines imposed on them and consequently dropped the innovation ball. By 2010, new technology and social media brought new user experiences and set the bar higher for customers regarding service and money. The failure of banks to meet customer expectations created room for fintech companies, and they have continually improved their services. Because most fintech companies only specialize in one aspect of banking services, they can make it as efficient and user-friendly as possible and usually at a lower cost.
Aside from better services, fintech companies have a wider reach than banks. According to the World Bank, over 1.4B adults are completely unbanked worldwide. Fintechs have changed the game, lowered entry barriers, and improved the financial infrastructure, but more work remains. For example, a 2021 report by the Federal Reserve shows that 22% of American adults are underbanked or unbanked.
For an investor, this presents a huge opportunity to bring real change to people who need your company's services. Fintech has made it easier for investors to enter the market, so investments have been diversified. You can invest in a fintech pre or post-IPO, depending on how connected you are and your areas of interest. Condenanza recommends spreading your bets and safeguarding against losses should your investments fail. One way is investing in an ETF with more components and companies.
In closing, Condenanza points out that we are in the fourth industrial revolution, and technologies like blockchain, AI, and Augmented Reality are being leveraged to provide a better user experience. That means what we are seeing is just the tip of the iceberg, and more is yet to come. With increased awareness of cryptocurrencies and blockchain technology, the fintech space will continue to grow, creating room for better and more significant investment opportunities.
