FinTech Funding and Valuation versus Demand and Supply

Posted by Checkbook on Sep 01, 2023

There’s been a growing rumbling in recent months that fintech is plateauing. After all, now that AI is here, what’s to stop it from demolishing the need for fintech innovations altogether? And, as there’s overarching instability in the stock market, some of that perception has been reflected in fintech stocks. It’s true that the fintech industry has experienced rapid growth and disruption in recent years, transforming various aspects of financial services, including payments, lending, insurance, and wealth management, so there are some people who think fintech is on its way out altogether.

But perception and reality are two very different things. While some may think that fintech is waning, the numbers point to heightened use. For instance, the total transaction value of digital payments is expected to grow at nearly 12% by 2027 to roughly $14.78 trillion. Digital commerce still dominates the market, and cashless businesses are now the norm in major cities in the US. According to PwC, “Global cashless payment volumes are set to increase by more than 80% from 2020 to 2025, from about 1tn transactions to almost 1.9tn, and to almost triple by 2030.” Payments are only increasing—last year, the total volume of ACH payments translated to about 89 payments per American, totaling a staggering $76.7 trillion. 

But it’s not only increased volume that points to a greater reliance on fintech; fintech startups continue to drive new innovation. Digital payments allow for the facilitation of digital currencies such as Bitcoin. Fintech startups and innovations have also disrupted traditional financial institutions, encouraging them to adapt and improve their services. This competition fosters a more dynamic and customer-focused financial ecosystem, advancing digital payment systems that enable secure and instant transactions. They also facilitate cross-border remittances, making it easier for people to send money to family and friends globally.

To understand why fintech is still strong and will continue to grow for the foreseeable future, one needs only to look at the innovation that’s been happening today. Firstly, there’s FedNow. FedNow is a real-time gross settlement (RTGS) system developed by the Federal Reserve in the United States. It enables instant and around-the-clock payments and transfers between financial institutions and individuals. The Federal Reserve's decision to create FedNow was driven by the increasing demand for faster and more efficient payment systems, as traditional payment methods often involve delays and operating hours limitations. The development and implementation of FedNow represents a significant step in modernizing the U.S. payment infrastructure and making it more competitive with other countries' real-time payment systems. By providing instant and continuous settlement capabilities, FedNow aims to improve the speed, efficiency, and accessibility of payments in the United States. 

Then there’s development in credit cards, such as Bilt. Bilt allows renters to pay their rent with their credit card, allowing them to to get rewarded each time they make a payment. And then there’s Splitit, which enables purchasers to split any purchase into multiple payments instead of one large lump sum payment. And of course, Checkbook, which has innovations like multi-party payments where endorsements can be captured online, obviating the need for forwarding paper checks in overnight mail. This is in addition to our core product platform: the ability to send online payments with just an email or phone number

No matter what consumer or investor sentiment may be, fintech will remain strong for the foreseeable future. This is important because fintech has the potential to bring financial services to underserved and unbanked populations. By leveraging technology and digital platforms, fintech companies can offer affordable and accessible financial products and services to individuals and businesses that were previously excluded from the traditional banking system. Fintech platforms are indispensable in  alternative financing options, such as peer-to-peer lending and crowdfunding, which allow individuals and businesses to access capital that would  be difficult to obtain through traditional channels.

Overall, fintech's importance lies in its ability to democratize financial services, improve efficiency, and foster innovation in the financial sector. As it continues to evolve and expand its offerings, the fintech sector will play an increasingly vital role in shaping the future of finance and economic development. Its efficiency and accessibility contribute to economic growth by facilitating smoother financial transactions, encouraging entrepreneurship, and supporting business expansion. 

No matter what today’s valuations may say, fintech is vital for our economy and for providing necessary innovations that improve our lives.