- Portfolio Manager
United Kingdom, Institutional
Change
The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
While the first half of 2022 was certainly challenging for the fintech market, that hasn’t changed my long-term view: I still believe we’re at the beginning of a decade-long (or more) cycle of disruption and structural change in the financial services sector. We’ve seen structural change across many sectors in recent years, but financials are "late to the party,” with the global financial crisis and its aftereffects having put innovation and disruption on a long pause. Current market conditions notwithstanding, I’m still confident that change is coming, fueled by several key drivers — and with the growth in digitization that was only reinforced during the pandemic serving as a massive accelerant.
- The adoption of big data and cloud computing. This may be a universal theme across many sectors, but it’s early days for financial services. Based on our research, we estimate that 5% of banks can open an account online for a customer from end to end, and we believe that big data and the cloud will unlock a solution for a much larger customer base.1 The online mortgage process is another area that doesn’t work well, with far too many manual steps still required and many opportunities to digitize the workflows as new technologies take hold. Insurers, for their part, are only just beginning to incorporate big data in areas like their underwriting processes.
In time, we should see a near-total rewiring of the financial infrastructure. I think it will touch many industries, including the service providers and back-office software companies serving financials, and leave numerous “haves and have-nots” among the incumbent banks and insurers.
- The democratization of financial services. More than 60 million Americans are underserved by this sector, lacking access to good financial services in areas like credit and checking accounts.2 But so-called neobanks and tech companies can use digital and mobile technologies to create better user experiences in banking services, access to credit, and investment capabilities — and we believe they can do all of this faster and cheaper.
Neobanks, for example, can acquire a customer at about a third the cost of a traditional bank but still potentially derive the same lifetime revenue per customer. From an incumbent’s standpoint, that’s a very dangerous formula. All of this is driving market-share shifts in deposits, lending (auto, mortgage, consumer), and brokerage assets away from the incumbents.
- Financial inclusion in emerging markets. This opportunity is not limited to the US. We’re seeing fintech-related disruption in big population centers like India, Indonesia, and Brazil. It’s creating a more level playing field for the “underbanked” and helping to reprice financial products. Many incumbent financial institutions have still not invested in tech and yet offer poor access and high prices. That’s starting to change, with fintech companies finding innovative ways to offer more reasonably priced products to emerging market consumers and taking share from incumbents.
Importantly, this is a vast opportunity set with thousands of public and private incumbents and disruptors, and it’s still developing. In the last 24 months, there have been approximately 200 fintech and financial IPOs, for example.3 In other words, the groundwork is just being laid for many innovative companies to build their businesses, and the resulting disruption will leave both winners and losers in the market for investors to sort through in search of opportunity.
1Source: Wellington Management, 2021. | 2Source: Federal Reserve, 26 March 2021, Economic Well-Being of US Households. | 3Source: Wellington Management, 2022.
Expert
Related insights
Showing
of
Insights Posts
URL References
Related Insights
Stay up to date with the latest market insights and our point of view.
Read next
Showing
of
Insights Posts
US regional banking sector update
We explore how banking regulation and legislation could impact US regional banks, including highlighting the potential for M&A activity and for dispersion to drive long/short opportunities.
Article
2024-08-31
Financials amid rising dispersion
We explore why we believe dispersion across stocks, sectors, and geographies is supporting numerous secular themes in long/short investing in financials.
Article
2024-09-30
How do bank failures impact fintech?
Global Industry Analyst Matt Ross analyzes the ways in which recent US bank failures could impact the fintech sector in public and private markets.
Quick Take
2024-04-30
Fintech regulation: Geopolitics, ESG, and crypto
Discover how fintech’s growing role as a national strategic imperative impacts regulations, the effect of ESG on regulation, and the specific need for regulation in crypto markets.
Article
2024-02-29
The role of ESG in fintech
Global Industry Analyst Matt Ross and Portfolio Manager Matt Lipton explore the role of ESG in fintech in this clip from their WellSaid podcast episode.
Article
2024-01-31
Fintech opportunities after the recent pullback
In four short videos, our fintech investors explore the sector's outlook amid today’s dispersion and highlight the long-term growth potential in payments, fintech incumbents, and crypto innovation.
Video
2023-11-30
Fintech market overview: The intersection of disruption and dispersion
In the latest episode of WellSaid, Portfolio Manager Matt Lipton and Global Industry Analyst Matt Ross join host Thomas Mucha to discuss their outlook for fintech in today's environment, exploring the recent pullback in the sector, disruptive fintech innovations, potential regulation, and much more.
Podcast
2023-11-30
Fintech outlook for 2023: The trends separating the winners and losers
Our fintech investors delve into high-conviction ideas for the year ahead — including embedded finance, buy-now-pay later, and digital assets — and highlight the power of incumbency amid today's increased volatility and dispersion.
Article
2023-12-31
Fintech industry outlook in a recession
We explore the current environment for the fintech industry and highlight a few factors that show why the outlook for payments and other related subindustries may be less challenging than many may anticipate.
Continue reading
Quick Take
2023-07-31
Crypto beyond the hype: Insights for institutional investors
We highlight a few practical insights on cryptocurrencies for institutional investors evaluating the asset class, including our views on custody, regulation, and more.
Continue reading
Quick Take
2022-12-31
Evaluating cryptocurrencies as an asset class
We explore cryptoassets’ potential as an asset class as the topic dominates the headlines.
Continue reading
Article
2023-02-28
URL References
Related Insights