Synopsis: Cross-border payments, digital brokerage and trading, insurtech, and peer-to-peer lending are thriving in the midst of the COVID-19 and the recession experienced by most countries worldwide.
According to projections by Adroit Market Research, the global FinTech market will be worth $460 billion by 2025. This figure represents an 11.67% compounded annual growth rate over the 2018 to 2025 forecast period. Amid the positive outlook, three FinTech sub-sectors are drawing the attention of investors. They are expected to grow faster than other segments and sustain growth in the years ahead.
While many countries are closing their borders or minimizing their interactions with neighbors, global trade remains unstoppable. Commercial activities are declining across the board, but the acceleration of eCommerce growth, including international transactions, is a welcome development.
Payment platform-as-a-service provider PPRO reported an 85% growth in transaction volume back in May, offering a clear example of how cross-border eCommerce opportunities have flourished even as COVID-19 ravaged economies. With this encouraging report, PPRO attracted additional investments. It closed a $50 million financing round led by Sprints Capital.
Cross-border payment companies such as PayPal are expected to come out of the COVID-19 pandemic in a stronger position. Macquarie analyst Dan Dolev thinks that long-term growth potential for PayPal will return once the pandemic problem is resolved. “For eCommerce, coronavirus is going to be less of a shock. Over the long term, PayPal emerges as a winner as people use it more often,” Dolev says.
Digital brokerage and trading
Rising volatility in the capital markets has not stopped investors from investing. Instead of retreating to safe havens, many have become adventurous and open to the idea of looking for profit opportunities in stocks and other tradable assets. According to CB Insights research, trading activity has surged amid the pandemic.
This enthusiasm for trading can be attributed to the rise of new platforms that enable trading with minimal risk or better risk management methods. Platforms such as Freetrade and Robinhood offer easy-to-learn ways for retail investors to seek out profits in the volatile markets. Robinhood’s recently closed a $200 million Series G funding round. Freetrade reportedly raised around $9.2 million (£7 million) for its 2020 crowdfunding campaign.
Investors are attracted to the innovations introduced by companies as they embrace digitalization and internet-based transactions. Prance Gold Holdings’ three-way arbitraging, for example, offers an ultra-short-term investment opportunity that piques the interest of retail investors.
“It (arbitrage) is an investment strategy that guarantees a positive payoff in some contingency with no possibility of a negative payoff and no net investment,” writes an analysis report by Prance Gold Holdings. This kind of uncommon but sound digital trading system excites investors who are looking for alternative opportunities.
A PWC research suggests that the insurance industry is preparing for a disruption to catch up with FinTech innovations. “There is a good reason to believe that insurance is indeed heading down the path of disruptive innovation, whether it is the effect of an external factor or the ability to improve operations using artificial intelligence,” the research says.
Insurance companies have remained viable despite going through various scandals, controversies, and outright failures in times of economic turmoil. Investors still consider this industry profitable, though. Venture capitalists are willing to support disruptive developments in the industry that lead to innovative products and services.
“Insurtech is big business, and its size and reach are expanding,” writes an Accenture study. It is set to be the next big thing for the insurance industry. CB Insights has a similar projection, describing insurtech as a “truly global trend.” What drives this growth is the emergence of startups that invest in advanced technologies such as Big Data, AI, and IoT.
FinTech is an emerging industry that is shaping up to become a major driving force for finance. It is proving itself to be a vital factor for economies to survive a pandemic. With businesses embracing digital transformation and shifting their operations online, FinTech is set to defy the economic downturn as it attracts more investments and helps businesses and individuals survive the health and economic disasters of 2020.