If the Future of Money is Digital, then FinTech is the Future
2021 saw continued COVID-19 forcing factors and the beginnings of a recovery from the pandemic, continued M&A, numerous IPOs & SPACs bringing more companies public, alongside continued scaling of FinTech platforms.
The initial move to increased digital commerce and activity continued as eCommerce & omnichannel payments, and in-store contactless took center stage. Neobanks brought on large cohorts of customers via digital onboarding due to restrictions throughout the pandemic and hope to scale with a younger digitally native base. After some restrictions relating to the Omicron surge path at the end of 2021, the first half of 2022 has been characterized by mass reopenings of international borders and snapback travel demand.
Returns have been challenged for the Payments & FinTech sector beginning in 3Q 2021 – we break the impact into three different categories:
- Terminal value risk – questions have emerged over the defensibility of the business model's longer-term prospects given new competing networks and ecosystems (i.e., Blockchain).
- Interest rate increases related to inflation were primarily triggered due to global supply chain shortages, leading to lower valuations (growth names specifically).
- Russia's invasion of Ukraine created concerns of a global recession.
We have several key characteristics within our Payments & FinTech coverage, including:
- Omnichannel / eCommerce / Mobile Payments.
- Growing EMEA exposure to software-led payments (POS/platform integrated payments).
- Remaining pockets of cash-card conversion.
Factors influencing FinTech in the near term include:
- Continued consolidation (incumbent merchant acquirers, Neobanks).
- Embedded Financial Services (EFS) and BaaS democratizing financial services and scaling.
- Open Banking moves into Open Finance and Open Data.
- The DeFi Mullet (FinTech in the front, DeFi in the back – FinTechs interact and partner with Blockchain / DeFi).