The Fintech Boom Continues

Author

Howard Lindzon
August 03, 2019

I continue to see incredible teams and products in the fintech startup space. I am focused on the United States, but because this boom has gone on so long, the rest of the world is creeping into my view.

This weeks focus was on emerging markets…

Emerging markets have become incredibly fertile ground for fintech startups providing more accessible, digital-first financial services. These startups often serve consumers who distrust or simply cannot gain access to traditional financial services. Some big winners have begun to emerge, such as Nubank in Brazil – which last week raised capital at a $10b valuation.

However with the pace of innovation accelerating, regulators in some countries are worried about unintended consequences. As a result, some are passing new fintech-specific regulation and stepping up enforcement.

For example, in Indonesia regulators have shuttered 826 fintech startups (citing lack of proper licensing) despite broad consumer appetite and adoption. In Mexico, a new law has been passed specifically regulating fintech startups. The Mexican law imposes new standards for consumer protection, anti-money laundering, and compliance reporting for most payments, lending, crowdfunding, and banking startups.

And in Africa, regulators in Nigeria passed a law in 2018 forcing many banking and payments startups to pony up $14m for a new license – an insurmountable amount of capital for many.

These new regulations are likely well-intentioned, typically citing consumer protection as a core principle. But the laws can also increase the cost of starting a company or launching a new product – often in ways that are prohibitive for early-stage startups, which can further entrench the incumbents.

In every country, regulators are walking on a tightrope – trying to balance the need to prevent bad actors without quashing innovation that helps consumers. We just hope regulators can keep their balance!

The pace of investing and M&A continues to be fierce:

Fintech financing and M&A activity continues to be strong in 2019 – According to data published by Financial Technology Partners, the $10.9b of fintech-focused financing volume in Q2 2019 made it the second most active quarter ever. Additionally, through the first half of 2019, global fintech M&A volume of $148b is already at a full-year record high, surpassing the 2015 mark of $138b

I love looking at this chart comparing the last 20 years of the financial sector to the Nasdaq 100. Each had their crash (the technology sector did not need TARP):

.The Nasdaq began to crash in 2000 and the banks picked up the stock market torch until 2008 before the good old fashioned leverage they used imploded both themselves and the system.

I was surprised to see that since the 2009 bottom, the financial sector (with the help of the government) has rallied almost as much as the Nasdaq 100 in percentage terms.

Technology coming at the banks from every angle including decentralization and crypto.

The next five years will be telling.

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