FinTech companies are attracting a lot of interest from investors these days. This is because these companies have numerous advantages over traditional financial institutions. Players like PayPal, Square, and Stripe have made it easy for people to do their banking without ever having to leave their comfortable chairs. As a result, more and more users are joining the FinTech world. With such expansion, investing in these companies means a lot of profit.
In this article, we’ll look at why investors are funding these startups and what opportunities exist.
Reduced Service Costs
Banks are spending an increasing amount of money to acquire new customers, and the cost is pushing them out of the market. The average customer acquisition cost (CAP) for the banking industry is currently $303 per customer, a figure that has been on the rise in recent years due to the adverse effects of COVID-19 and congestion in digital channels.
Furthermore, traditional banking systems are often difficult and expensive to use, and they often rely on costly consumer service operations. Fintech companies aim to solve these problems by automating financial functions and cutting down on the number of interactions required between customers and employees. This not only enhances efficiency within the company but also results in improved business outcomes.
FinTech companies don’t have to spend on setting up numerous branches and costly ad campaigns to attract new customers. Instead, they rely on targeted marketing and social media since that’s where their business is concentrated. According to Tellimer Insights, the average cost of acquiring a new customer is barely $50, meaning that Fintechs can easily undercut traditional banks in this area.
Cash Is Going Digital
In recent years, cashless transactions have become increasingly popular. This is most evident in the fact that almost all transactions are now conducted without any physical currency. In fact, it is predicted that in 2023 around 60% of all global retail trade will be conducted using digital currencies and other virtual payment methods such as Apple Pay and Android Pay.
The main reason why cash is losing its appeal is that digital payment systems are safer, faster, and easier to use. Millions of people around the world now rely on these platforms every day for their banking needs. From buying coffee to traveling, online payment is as simple as just a tap.
Huge Amounts of User Data
FinTech companies use data collection and analysis to improve the user experience by understanding how users spend their money. This unique capability allows FinTech companies to offer services that go far beyond traditional banking institutions. They can serve current needs by simply providing what is currently being requested, but they can also anticipate what customers might want in the future. And since this data is constantly updated thanks to new surveys and reports, it’s always spot on!
Almost Everyone Has a Smartphone
Innovation is about creating something new, and that’s exactly what FinTech companies are doing. They develop technologies that make payment more convenient and offer enhanced experiences. And with 83.07% of the world’s population owning a smartphone, it’s a perfect way to reach a large audience and give customers more options and convenience when shopping. The younger generation is especially enthusiastic about these services because they appreciate how easy it is to manage finances and access information electronically. FinTech apps are easy to use, making them a great choice for those who are new to technology. Even small grocery stores in the most remote areas now offer online payment options.
Financial Data Security
FinTech companies are more advanced in cybersecurity than traditional banks. They use advanced technologies and procedures to protect consumers’ data from unauthorized access. Many of them are regulated by financial institutions, which means that they have to meet strict security standards. This is especially important since these companies collect a lot of sensitive information — such as addresses, account balances, and spending habits — that can be used for identity theft or other malicious activities.
Banking Services are Becoming Slower and Less Reliable
Traditional banks are seeing a decline in customers, as more people turn to FinTech or non-banks for their banking needs. This trend is also becoming evident among those who use traditional banks as their primary bank account. This shift is partly due to the growing popularity of mobile apps and other digital platforms that allow consumers to conduct transactions without having to deal with the hassles and delays associated with traditional banking systems.
Exchange-Traded Funds (ETFs) and stocks are two of the most common ways to invest in FinTech. Both offer a number of benefits, including access to a broader pool of investments, transparency about how funds are being used, and easier tracking of performance over time.
ETFs (such as Global X FinTech ETF and ARK FinTech Innovation ETF) are also popular among individuals who want to diversify their portfolios into different sectors or regions without having to purchase individual stock certificates. This is possible because ETFs essentially share an underlying fund that is traded on exchanges like any other security.
Stocks (like Intuit and Fiserv) can be another good option for investors interested in FinTech. They provide direct exposure to certain companies or industries and allow greater control over the investment decision-making process. They also offer the opportunity to watch profits dynamically as the company performs.
FinTech is the future of banking—the end consumer will always look for a convenient and secure experience when transacting— and FinTechs offer just that. It is expected that these trends will only accelerate in the coming years. Getting into this industry is really simple with just a download, which is why FinTech businesses are rapidly expanding.
Whichever investing path you decide to follow, research and take the time to understand all the options available. Only then will you be able to make an informed decision about which path is right for you. Also, seek guidance from a financial advisor or other professionals who can help you to navigate these waters safely and effectively.