Fintechs rise in value but should be prepared for scrutiny

janeiro 15, 2021

By Mike Massaro

The rise of fintech has only been fueled by the ongoing COVID-19 pandemic as the need for nimble, digital solutions accelerated across the financial services industry.

Adaptable platforms that enable business continuity, transparency, and a better customer experience have proven to be the winners during this time of rapid change, which has been reinforced by the valuations and funding flow into fintech. However, with widespread adoption and an increased dependence on fintech, a new wave of scrutiny from legacy banks and regulators alike will emerge.

Despite predictions to the contrary, investor appetite for fintech firms remains rampant. Notably, global fintech funding reached $10.63 billion in Q3, a significant 4% increase from Q2, as investors are increasingly directing their attention to large and proven fintechs.

As further confirmation, the majority of companies that have raised substantial investor capital have fared surprisingly well throughout the COVID-19 pandemic, seeing little to no loss in their market valuation. In fact, public markets now view established fintechs more positively than banks.

COVID-19 has only exacerbated this view – after the market caps of fintech stocks eclipsed the value of Wall Street’s biggest banks in September of last year. Square, Visa, PayPal, and MasterCard were collectively worth $1.07 trillion, while the “big six” banks – JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Morgan Stanley, and Goldman Sachs – were worth less than $900 billion in total.

This gap will continue to grow as the world increasingly relies on technology. Additionally, venture capitalists will continue to trend away from seed and early-stage funding towards late-stage established fintech businesses that are more profitable and present less risk to investors.

As fintech becomes more systemically integral to the global financial system, it will undoubtedly face increased scrutiny. While advancements in fintech create a pathway for innovation, it also expands exposure to unintended risk. As new technology such as e-signatures, blockchain, artificial intelligence, and cloud computing is only now being accepted by regulators, the financial industry and governing bodies will be forced to evaluate industry best practices and laws on a global scale. Since its inception, Flywire has been committed to mitigating risks at all levels. Still, we recognize that our best practices must continuously evolve as the role of fintech increases across the globe.

In the face of several cyber-scandals in 2020, which threatened to undermine trust in the sector, regulators and the industry must work together in these discussions to protect the promise of fintech. It is also pivotal for organizations to be aware of the risks associated with fintech operations and foster a culture rooted in compliance. By preparing for these risks and strategically investing in regulatory technology, fintechs, and consumers can seamlessly approach the future.


Source: https://www.paymentssource.com/opinion/fintechs-rise-in-value-but-should-be-prepared-for-scrutiny