Investing in Fintech – Top Tips for 2021 and Beyond

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As technology improves, it gives us the ability to do things better and faster. One of the industries that is significantly impacted with the use of technology is the financial industry. 

Fintech is one of the fastest-growing sectors globally, with thousands of startups looking for investors. It’s a good investment option, considering how fast it’s growing and how well many of these companies are performing. Financing services like the Swedish Prekredit advise that you look into fintech as a sound investment option. 

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What is Fintech?

Fintech is a popular term used to describe financial technology. The improvement of digital technology has completely changed the way that the financial sector responds to its client’s needs. Fintech has made it possible to make online transactions using your credit card. Other examples of fintech include Google Pay, Apple Pay, and the various online e-wallets like PayPal and Skrill. 

Fintech is causing various changes in the way people deal with payments. For instance, contactless payments are becoming more popular, with limits for cashless payments rising in most countries. 

Top Tips for Investing in Fintech

There are many fintech start-ups currently popping up. While investing in these new companies may be a good idea, you have to be careful where you put your money. 90% of startups close before their second year in business. 

These top tips for investing in fintech will help you make informed decisions regarding where you should invest your hard-earned money. 

Decide Whether You Want to Go Public or Private

There are two options when investing in a company. You can either look for public companies listed on the stock exchange or private companies where you can serve as an investor. 

Investing in public companies may be an easier option, as you can simply find them on the stock exchange and purchase shares. Once you’ve done this, you’re part-owner in the company, which gives you the right to vote at meetings and share in the company’s profit. Investing in a public company may be a safer route, as the company has some sort of a track record. 

The downside to owning shares in a public company is that you’re one of thousands of shareholders. The more shares you own, the more dividends you receive, but your profit may still be small given the number of shares public companies usually issue. Another issue you may experience is that you won’t directly influence the decision-making process of the company. The more shares you own, the more your vote counts, but you face the same barrier as with dividends. 

Your second option is an investment in a private company. If you’re investing a large amount, you can contact a venture capital firm that can invest in startups on your behalf. The risk of investing in a startup that won’t make it is much smaller, as a venture capital firm will diversify your investment. 

If you’re not comfortable with a venture capital firm, or you want a more direct route, you can look into becoming an angel investor. Here, you can invest directly with a startup. Take a look at sites like AngelList to help you find a company with over 12,000 companies on their list looking for investors. You can also peruse crowdfunding sites to find suitable investment opportunities.

Find a Startup That’s Not Completely New

Since so many startups fail within their first two years, it’s wise to look around for a company that has survived a little longer. The longer the company is in business, the greater the chances of its success. You can also find out which investors are already backing the company. This will give you an indication of whether the company is bound to be successful. 

If you’re a more significant risk-taker with your investments, you can look into companies that others have disregarded. Finding a startup with a unique and workable idea may change the industry altogether. 

Look At the Business and Marketing Plan

The first thing every startup does is create a business and marketing plan. It’s easy to make the company look good on paper, so you should scrutinise what the startup says. Once you’ve gone through these documents, you can also see how much of the company’s plans have been realised. 

A company that’s not following its plans could be dangerous, and you may want to avoid this risk. 

Look Into the Team Working on the Technology

Another aspect that can cause the success or failure of a startup is the team working on fintech. The team can make or break the technology. The team should have experience in both the finance sector along with the technology sector. Many startups outsource some of the work to experts in the field, which is often a wise choice, as this can be cost-effective and provide better and faster innovation. 

Expect Slow Growth

While fintech is an exciting new opportunity and is on everyone’s lips, you should expect slow growth once the implementation of the technology starts. Due to its disruptive nature, the implementation process could take a long time. 

The financial sector has many regulations, and more prominent companies may not want to go all-in on new technology until it’s proven its worth. The industry regulations could also slow down the implementation and testing of fintech. Regulatory bodies aren’t risk-takers, and new technology is always a risk.

The startup you choose could have partnerships with some of the industry giants. These partnerships will ensure that the tech gets implemented and tested with some of the biggest names in the industry, which can speed up the growth process. Most startups won’t have any partnerships, however. 

Final Thoughts

Fintech is the new buzzword in investment circles, and many startups are initiating the development of technology that will help the financial industry. Looking at the success of many of these companies, it’s a good idea to start investing in financial technology, as more and more people are moving towards the easiest ways to make transactions. 

Investing in any startup, however, comes with a degree of risk. Very few make it past their second year. There are a few options to regulate the risk, including investing in public companies listed on the stock exchange or using venture capital companies to spread your risk among various startups. 

You can also become an angel funder if you want to be more directly involved. It’s reasonably easy to find companies that interest you. 

Once you’ve chosen a company, you should keep in mind that the business plan and marketing plan are essential tools that the company should use. Similarly, the team creating the fintech is a crucial part of the success of the company. 

Once the technology starts the implementation phase, you should expect slower growth in your investment. 

Fintech is a great investment opportunity, with many financial advisors talking about the pay-offs. 

Disclaimer: This content does not necessarily represent the views of IWB.

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