There’s money in finance, and not just in clients’ accounts. Investors have noticed the demand for technology-based investment services. They’ve seen how quickly and successfully PayPal grew. They recognize that the fintech industry is on the edge of a whole new transformation. From refinements in long-established eCommerce platforms to new digital currencies and transactions that can be made directly between individuals without ever touching cash, investors understand that we are now entering a whole new commercial area. And it’s big. Everyone has to make payments and they do it several times a day. The prize for helping to build a platform that’s commonly used will be enormous. With such a broad range of experimentation, investors are spraying large sums of money in a variety of different directions. So where is the Smart Fintech Money going now?
Where is the Smart FIntech Money going now?
According to one infographic produced by financial monitoring service Call Levels, between 2013 and 2014 investment in fintech quadrupled to reach $12 billion. By 2015, total global investment in fintech amounted to nearly $50 billion. In the first half of 2015 alone, investors poured $12.7 billion into fintech ideas.
About 40 percent of that money is going to payment processing and lending solutions. London, one of the global hubs of fintech, has seen a number of high-profile — and high value — investments. In April 2015, a funding round drew $150 million from five funds into Funding Circle. The investment valued the peer-to-peer business lending firm at a billion dollars. WorldRemit, a mobile wallet that primarily serves emerging markets, received $100 million, valuing the company at $500 million.
Transferwise, which is trying to revolutionize cross-border transactions in the same way that Skype revolutionized communications, received $58 million from investors including Andreessen Horowitz and Seedcamp, also valuing it at a billion dollars. The company sends around a billion dollars every month using accounts in multiple countries and multiple currencies to enable payments sent in one country to be distributed in a different currency on the other side of the world without ever crossing a border. In February 2017, Transferwise released a chatbot that integrates with Facebook Messenger to allow payments to be made using Facebook’s chat program outside the United States.
Investments in bitcoin-related businesses have been almost as volatile as the currency itself. Around $265 million of venture capital were shared among companies working in bitcoin technology in the first half of 2016. In fact, that’s more than double the amount invested the previous six month. It’s also 79 percent of the amount invested during the same period the previous year. Bitcoin, then, is never predictable.
Those investments included $60 million for Circle, a bitcoin wallet, and peer-to-peer payment platform. It was the company’s fourth funding round, bringing total investments to $136 million. Ripple Labs is a San Francisco company that makes a cryptocurrency used to manage banking transactions. They received $55 million in series B funding in September 2016, giving it a total of $93.6 million in investments. Another blockchain-based company to do well in 2016 was Digital Asset Holdings.
They picked up $60 million for its first round. Most of the million-dollar-plus investments in the first half of 2016 however, went to companies outside the United States. Businesses in Barbados, Israel, Japan, the UK, and China all received funding for their bitcoin ventures. Across fintech as a whole, Asia soaked up $3.5 billion of investment in the first three-quarters of 2015, a leap from $880 million, while European firms received a total of $4.4 billion.
Not all of the venture capital interest is going to blockchain and digital wallets, though. The third area that’s seen a significant amount of investment is cloud-based finance. The BBC has quoted a report by software company Temenos that found nearly nine in ten financial applications now run at least one application in the cloud, up from 57 percent in 2009. Others are using cloud platform providers such as Amazon Web Services, Microsoft Azure, and Google Cloud to hold their financial data. Dutch firm Ohpen uses Amazon’s cloud service to help other companies manage investment funds and savings accounts. Auka, a Norwegian company, has managed to build a mobile payments platform entirely on Google Cloud. Concerns remain about security for cloud-based finance but there’s no shortage of funds floating around to help companies resolve those issues.
Also, trying to predict which of the billions of dollars of investments that are being made in fintech will work out and which will collapse is going to be impossible. Additionally, it’s clear that the smart money has recognized the value of fintech development and is giving the industry the finance it needs to experiment and grow.