The Coronavirus pandemic has impacted virtually every sector in the U.S. economy in one way or another. Some sectors, such as the retail, food, transportation and lodging industries have taken heavy losses as a result of this virus. But other subsectors have largely escaped the damage done by the virus. The financial technology (“fintech”) sector is flourishing as a result of a massive push to digital transformation with many consumers and businesses now working from a virtual setting. Venture capital money has been steadily flowing to many fintech firms, adding to skyrocketing valuations and fintech IPOs.
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Add in a frothy stock market with sky-high valuations and many are left to wonder if the sector is just riding the tailwinds of consumer adoption or if a fintech bubble has formed and is ready to pop. We start the year with Affirm’s IPO, a financial lender of installment loans for consumers to use at the point of sale to finance a purchase. Oh, by the way, day one of trading on the Nasdaq saw the company double in value to $24 billion.
Let’s take a look at some other players in the fintech space poised to make plenty of noise in 2021 and beyond.
Chime
Founded in 2013, this up-and-coming challenger bank received a round of funding that grew the company almost tenfold, from a mere $1.5 billion in 2019 to around $14.5 billion in 2020. Chime is being applauded as one of the sector’s fastest-growing players.
Greenlight Financial Technology
This financial technology company specializes in providing debit cards to children. Serving over 2 million parents and children, Greenlight is backed by J.P. Morgan and has just joined the unicorn club with a valuation of $1.2 billion. This is in part due to the additional $215 million of Series C funding it received last year.
Robinhood
This digital investment company has created a whole new generation of traders, and the company now also offers cash management services. It is valued at an estimated $20 billion, and it is currently in talks with Goldman Sachs about issuing an IPO. This investment trading app’s valuation rose to an impressive $11.7 billion in 2020, an increase of $700 million since August of last year. Expect its upcoming cash-out exit to be one of the more prominent IPOs of 2021, especially with the company offering its customers the opportunity to take part in the process.
Stripe
There has been talk of this company going public for a while now, but it is currently in the process of securing another round of funding that could take the company’s valuation to a whopping $100 billion. If this goes through, then the company may decide to remain privately owned for a while longer. Stripe provides digital technology used by companies such as Lyft, Wayfair and Amazon.
Although it is far from certain at this point, the company has been in talks to merge with a special purpose acquisition company (SPAC) so it could go public. Time will tell whether these talks will result in an IPO. Millions of companies in over 120 countries use Stripe as their digital platform. The company is ultimately evolving from a payments platform to a service-based banking platform.
Coinbase
This fintech company runs the largest digital exchange in the U.S. Over 35 million customers use this platform and have traded over $320 billion worth of digital assets on it. The platform’s current assets are estimated at over $25 billion. The company was founded in 2012 and services both retail and institutional investors.
SoFi
This fintech started out specializing in flexible student loan repayment terms but has evolved into offering more comprehensive services such as banking. The company has grown steadily in the past few years and is considering a SPAC to help it go public.
Marqeta
This company’s product line includes digital technology for digital banking as well as credit cards that can be customized. Marqeta has partnerships with both Visa and Mastercard and has companies such as Square and DoorDash as clients. Its latest round of $150 million in financing increased the company’s total valuation to $4.3 billion. Marqeta is currently talking with two of its own clients, Goldman Sachs and JPMorgan Chase, to issue an IPO sometime in the coming year. Its client firms would underwrite the shares and then go public later in the year.
Revolut
This fintech company bagged a cool $500 million in funding from its chief investor, Investor Technology Crossover Ventures. Then it received another $80 million in funding in July of 2020. Its current valuation is now over $6 billion.
These are just some of the examples of burgeoning fintech companies that promise to change the way we handle money in the future. Interest in fintech products and services has mushroomed in the wake of the pandemic, and this trend shows no sign of slowing. The increased level of funding for fintechs has risen with the growing demand for contact-free financial services that can be done remotely. Several fintech companies are now planning to launch initial public offerings in 2021 in order to further their growth and development.
Total investment expenditures in this subsector were up an impressive 30% after the first half of 2020, compared to the first half of 2019. The number of deals that closed was also up over 14%. Research also shows that the money pouring in has arrived primarily in large blocs, with over 60% of all the money raised in the third quarter of 2020 coming from just 25 rounds of financing of at least $100 million.
2021 is slated by many financial experts to be a year of huge IPOs. Stripe is one of the most exciting possibilities in the fintech sector, but Robinhood and Affirm are also in the mix. One thing is for sure in that consumer and investor interest continues to rise – so any chatter of a bubble might have to come paired with significant stock market and economic declines. Will consumer behavior and fintech consumption shift with global economies starting to open up as the year unfolds? This sector promises to be one to watch as various trends start to shift as the year grinds on.
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Reference footnotes
https://www.fintechfutures.com/2020/12/2020s-top-10-fintech-funding-rounds/
https://www.crowdfundinsider.com/2021/01/170878-2021-should-see-some-big-fintech-ipos/
https://www.protocol.com/ipos-to-watch-2021
https://www.fool.com/investing/2021/01/05/3-fintechs-that-might-ipo-soon/
https://www.fool.com/investing/2021/01/10/could-stripe-be-the-biggest-ipo-in-2021/
