Financial technology (or fintech) is a massive, urgent trend.
Investors of all kinds, from Warren Buffett to private equity companies and venture capitalists, are putting hundreds of millions into fintech startups.
In a moment, we will tell you about an upcoming IPO that could completely change the game in this industry.
It’s the third-largest IPO in the US this year… and it could be worth over $50 billion.
You need to take note. Because this IPO is a signal of an emerging trend that is ready for hundreds of billions of dollars in new capital.
But first… let us briefly explain what the fintech trend is all about.
This short introduction will give you an idea of a new and massive trend that is shaping up around the world… and the investment potential that it has.
What Is Fintech?
Fintech, in simple terms, is using technology to make dealing with money and capital easier.
A lot of it you don’t see. Your bank uses technology for managing credit risk, for example.
Some of it gets a lot of attention. Robinhood, the famous trading platform, introduced zero-fee trading via its app back in 2013.
Now it’s a $29-billion mega-cap with almost 19 million users at the end of September.
Bitcoin is another example. This $1.2-trillion asset relies on technology for its very existence.
It wouldn’t be possible without computers and networks.
Fintech covers day-to-day banking, lending, international transactions, raising money in capital markets, investing, and a lot of other money-related operations.
A lot of fintech startups are there to challenge traditional banks.
They choose a traditional financial service, like investing. They then apply technology to make it cheaper and faster.
For example, blockchain-based trading could revolutionize stock investing in the US. We wrote about it earlier this year.
This space offers some of the greatest investment opportunities.
For example, Upstart, a company that helps banks manage credit risk, delivered a 1,000%+ return since its IPO in December 2020, as of writing.
An investor who put $10,000 into UPST back in December would end up with as much as $116,977 as of writing.
And the best thing about fintech is that this space is getting hotter.
Fintech Is White-Hot in 2021
Fintech is at the forefront of the digital revolution in finance.
And due to the pandemic, people have started using digital services more. Instead of going to the nearest branch, they now use a smartphone app.
Robinhood saw an explosion in trading during the lockdown months.
As people got stranded in their homes, they did everything through the internet.
…and it became clear that the demand for fintech services is only going to soar.
Next year, fintech is on track to exceed $309 billion in size compared to just $128 billion in 2018.
Fintech is massively popular with early-stage private investors like venture capitalists (or VCs).
So far this year, they put nearly $95 billion into fintech companies. That’s 96% more than in 2020.
We will not be surprised to see this massive growth continue in the future as the financial world goes completely digital.
And Warren Buffett is also on board…
In fact, Buffett’s company Berkshire Hathaway backed one of the biggest fintech IPOs this year.
Nubank, a Brazil-based fintech company, is about to go public in the United States at a massive valuation of up to $50.6 billion.
Back in June, CNBC reported that Buffett had put $500 million into Nubank.
Buffett famously invests in a lot of financial institutions. The fact that he backed a fintech company with half a billion dollars tells us where this market is going.
And these companies can grow really fast. Nubank is on track to become the country’s largest financial institution.
But it’s not only the venture capitalists who are profiting from this massive $300-billion trend.
Investors who bought shares in an exchange-traded fund that tracks a fintech-focused index, Global X FinTech ETF (FINX), have seen their holdings grow by almost 246%. For comparison, the S&P 500, a broad market index, rose by just 115%.
This is a perfect example of how it pays to invest in an emerging trend…
But it is not too late to take a look at fintech in 2021. Warren Buffett has started putting his money into fintech companies such as Nubank not that long ago.
Fintech has already reshaped investing and banking. With billions of dollars of new capital flowing in, it is set to grow by leaps and bounds and create massive gains for the shrewd investors who get in early.
FINX could be a solid way to get exposure to the sector.
Thank you for your loyal readership,
The Financial Star team