RBC’s 9th Financial Technology Conference brought home how far the sector has evolved. In the latest episode of Industries in Motion, Financial Technology Analyst Dan Perlin highlights the diversity of today’s industry and explores the trends that indicate where it will go next.
Quiet confidence belies the market
Fintech stock valuations may be slightly depressed at present, but the mood on the ground is much more upbeat. Over 40 companies presented at RBC’s recent FinTech Conference, with sentiment generally belying the market position, according to Dan Perlin, Fintech Analyst at RBC Capital Markets.
“There’s still really strong demand for digital offerings, in particular within financial services,” he says.
Once seen as a secular growth sector, Fintech has been perceived as cyclical since the pandemic, Perlin notes. While fundamentals remained strong, investors began to anticipate the effects of a consumer slump. That dip is now starting to show among lower-end consumers – a sign he takes as a positive.
“The consumer’s weakening a little bit, and so that’s likely to set up for a little bit of capitulation,” he explains. “Once that happens, I think investors are going to get right back into this group.”
“There’s still really strong demand for digital offerings, in particular within financial services.”
Dan Perlin, Fintech Analyst, RBC Capital Markets
More diverse, more vertical
While still dominated by payments companies, the sector has evolved hugely, with diverse companies now operating in consumer credit, SaaS, B2B payments, modern card issuing, and lending. “This is not a homogeneous group – it’s a big landscape now,” says Perlin.
Along the way, the original picture of start-up challengers has become more complex too: “The days of those little ankle-biters coming in and taking small bites out of large companies are waning a bit,” says Perlin, noting that several big public and private companies have become disruptive.
The continuing integration of software into payments operations is another key trend, creating more verticalized businesses.
Fintech transforms capital markets
The capital markets sector is being disrupted by Fintech, offering providers scope to achieve huge efficiencies. “Wealth management is an area where you’re seeing an enormous amount of innovation,” remarks Perlin. “It’s all about the ability to have better insights and better outcomes for the clients.”
For many organizations, using Fintechs to organize their data in a modern cloud architecture will be an essential prerequisite for harnessing the potential of generative AI, he adds.
“Wealth management is an area where you’re seeing an enormous amount of innovation: it’s all about the ability to have better insights and better outcomes for the clients.”
Dan Perlin, Fintech Analyst, RBC Capital Markets
New market ambitions drive M&A
M&A in the sector is accelerating, as companies move from cutting costs to expand EBITDA, and pivot towards growth. But for most companies, the focus is less on big transformational deals than routes into new markets.
“A big theme right now for a lot of these companies is to take what they’ve created in these more mature domestic markets and take them into Europe and Asia,” Perlin says. “Then they want to go into new verticals, which is definitely another big area of focus.”
Additionally, some private equity sponsors are taking companies private, or pairing them with other firms in their portfolio, after poor public performance. Perlin says this is increasingly a remedy for “good companies that just aren’t getting the credit”, and which may need repositioning and investment to regain investor confidence.
