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The fintech market continues to grow at a fast pace. Apart from the booming digital payments sector, it is also in the midst of taking over traditional banking activities such as lending. This move makes sense, because payment providers tend to know their customers well, which makes them suitable for lending – as opposed to banks, which often see a new loan applicant for the first time. “Fintech is gradually consuming many of the banks’ juicy pockets, including cross border payments (FX), lending and deposits,” says Robeco Global Fintech Equities co-portfolio manager Jeroen van Oerle.
This explosive growth has different drivers in various parts of the world. “In developed markets, fintech is driven by the transition from cash to plastic and then on to digital payments,” explains the co-portfolio manager Patrick Lemmens. In parts of Europe, some countries are still long way away from becoming fully digital. “In Italy, it is still 80% cash,” Lemmens says.
Thus, in the developed economies, this transition is driven not by the GDP growth per se, but by a move to online consumption, which in turn promotes online payments. “GDP in the developed world is not growing so fast, but digital payments are.” In the emerging markets, however, the driver is the underlying economic growth with people transitioning from low-income to middle-income status. Riding the wave of financial inclusion, new payment forms in Asia have developed from the get-go, and cash-related infrastructure such as ATMs is less and less available.
The new growth opportunity within the fintech sector will come from B2B players or enablers. They include all the players that provide tools or infrastructure – be it software, payments terminals or cybersecurity services – to digital payments companies. Because the fintech market is growing so fast and depends on these players for basic tools, such B2B players are not affected by the macro climate, believes Van Oerle. “They tend to be recession-proof, because their customer base cannot afford to delay investments any longer.”
Such ecosystem enablers serve banks, insurance companies and asset management companies, as well as fintech companies that are new arrivals to the market. This is driving M&A between such enablers and larger financial players.