Longer Term Investments

By Sundeep Gantori, CFA, CAIA, Analyst, Fabio Trussardi, Analyst, Bradley Ball, Financials Equity Sector Strategies Americas

  • Driven by rapid urbanization, strong demand from millennials and favorable regulations, we believe the global fintech industry is at an inflection point and set to drive a major digital transformation in the financial services industry.
  • We expect global fintech revenues to grow from USD120bn in 2017 to USD 265bn in 2025, implying an average annual growth rate about three times faster than the broader financial sector’s.
  • Fintech’s solid long-term uptrend offers investors above average growth opportunities, in our view. Investors can take part in this by investing in a diversified way in our theme of fintech companies, particularly leading payment players, platform companies and disruptors in emerging technologies like blockchain and artificial intelligence.

Our view

The global financial services industry is at an early stage of a major digital transformation powered by fintech, which is the confluence of financial and technology-driven innovation.

The fintech industry is at an inflection point due to both demand and supply factors. On the demand side, we believe rapid urbanization and the need for financial inclusion should drive demand for fintech services that are centered around digital areas like mobility, cloud computing, analytics, social and emerging technologies such as blockchain and artificial intelligence (AI). Stronger demand from millennials and favorable regulations are other supportive demand factors. On the supply side, the need for cost savings and the increased efficiency of fintech services are forcing incumbent financials to launch fintech services, which, coupled with strong interest from technology companies and a proven ecosystem, should increase the availability of fintech services. We expect fintech revenues to more than double from USD 120bn in 2017 to USD 265bn by 2025, implying an average annual growth rate around three times faster than the broader financial sector’s revenue growth.

With double-digit earnings growth expected annually over the next eight years, we see fintech as one of the fastest -growing industries globally. Investors will be best rewarded by investing in a diversified way in our theme, in our view, with a focus on payment industry leaders, technology companies launching disruptive fintech services and incumbent financial companies with a clear fintech strategy. Companies that are able to create platforms with network effects around emerging technologies like AI, blockchain and analytics are also potential winners.

Introduction to the Longer Term Investment (LTI) series

  • The Longer Term Investments (LTI) series contains thematic investment ideas based on long term structural developments.
  • Secular trends such as population growth, ageing, and increased urbanization create a variety of longer term investment opportunities.
  • These investment opportunities are influenced by the interplay of technological advancement, resource scarcity, and the societal changes.
  • Investors willing to invest over multiple business cycles can benefit from potential mispricings created by the typically shorter term focus of stock markets.