How Fintech changes the game in delivering financial solutions

Financial Technology or most commonly known as ‘FinTech’ refers to the use of technology as medium of delivering financial solutions. It is only since 2014 that the industry has caught up greater attention of consumers, industry participants and regulators. In 2014, over $12 billion of private capital was invested into the FinTech industry, helping thousands of start-up companies, attract consumers and scale up the operations.

Democratising Digital Financial Services

The consumer mindset has shifted toward alternatives to banking institutions for financial solutions. Consumer demand for digital financial services derived from rapidly growing globalisation, technological competition and growth has created a new era for FinTech.

FinTech in the developed and developing nations is supported by a strong underlying rationale, but not limited to, the following:

  1. Young digital savvy population
  2. Inefficient financial and capital markets creating, opportunities for alternatives
  3. Numbers of participating industry

The FinTech industry

FinTech companies give individuals innovative ways to raise debt and equity financing, managing finances and make payments through telematics.

Internet and mobile payments is the current focus of FinTech and has been the major driving force in the growth of the industry, especially in developed nations. In addition, infrastructure for securities trading and settlement continues to be a major aspect of the FinTech landscape, this includes IT and telecommunications seeking prospects of disintermediate traditional financial institutions.

The diagram below published by The EY Global Financial Services Institute (The Journal of Financial Perspective: FinTech) shows the analysis of FinTech use by product type in Australia.

ivy fintech

 

The simplicity of FinTech platform like ZipPay, AfterPay, Flexigroup and more, is obviously the reason why FinTechs are popular in money transfers/payments. Most of these FinTech companies allows shoppers to purchase in-store or online, paying instalment fees fortnightly, with zero interest fee, which then prevents consumer risk in managing their finances. Thus, this improve customer journey and confidence, especially with the growing online retail sector (particularly with the pressure, driven by Amazon to Australian retail industry).

APT
Information Technology
Market Cap ($m) 627
Share Price ($) 5.680
Shares Outstanding (m) 212.40
Div. Yield (Est) 0%
P/E Ratio n/a
EBITDA (m) n/a
ROE -1.4%
Risk Rating Medium

FinTech shares to watch in 2018

Afterpay Touch Group Ltd (ASX: APT)

This digital payment company and software based app allows customers to purchase product/s online and in-store shops over instalment payment with zero interest. Its share price has grown over 100% since listed in June 2017. The pressure and competition of undercutting prices in retail sector can be offset by using Afterpay whilst shopping with large retailers such as  Amazon.

XRO
Information Technology
Market Cap ($m) 3968
Share Price ($) 28.66
Shares Outstanding (m) 137.1
Div. Yield (Est) 0%
P/E Ratio n/a
EBITDA (m) n/a
ROE -30.8%
Risk Rating Medium

Xero Limited (ASX: XRO)

This cloud-based accounting software that helps build a trusting relationship with small business clients through easy online collaboration. There is a great possibility that this FinTech company will expand in the lucrative US market that will create above-average growth for the company. This can be worth considering, but investors should be aware of its negative ROE and Dividend yield.

CL1
Information Technology
Market Cap ($m) 328
Share Price ($) 2.780
Shares Outstanding (m) 117.5
Div. Yield (Est) 1.7%
P/E Ratio 46.9
EBITDA (m) 13.97
ROE 34.1%
Risk Rating Low

Class Limited (ASX: CL1)

Class Limited is a provider of cloud based administration software for self-managed superannuation fund (SMSF) with around 25% of the market share. It has good fundamentals and was able to enter an agreement with big four accounting and professional services firm KPMG as its SMSF administration software.

 

by Ivy Bacud

LinkedIn

 

This content has been written and published by KOSEC – Kodari Securities.

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