The Strategist

Finteсh sector gets its own index

07/25/2016 - 18:37

KBW NASDAQ Financial Technology Index (KFTX) includes 49 public finance and technology companies with combined market capitalization of $ 785 billion. There are well-known players, such as Visa, MasterCard, American Express payment systems, money transfer systems Western Union, stock exchanges NASDAQ, CBOE, CME and ICE, MSCI provider of indices, rating agencies Moody's and S&P, providers of financial information Thomson Reuters and FactSet Research, as well as newcomers - PayPal Holdings payment system and LendingClub mutual lending platform.
KFTX Index does not focus on fintech start-ups since some large financial companies are contributing greatly to transfer of financial services in the digital format, says Frederick Cannon, Director of Research at KBW. "Some think that fintech firms are destroyers of large and terrible banks, but we believe that it is not like that, - he argues. - There are large companies that already provide technology-based financial services."

Fintech companies of KBW and NASDAQ are those which sell financial services, are focused on e-business and earn mainly on commission (not on loans or deposits). The index includes companies listed on the NASDAQ or NYSE stock exchanges, with a market capitalization of at least $ 500 million, the average daily turnover of not less than 150,000 shares, and value of one share - not less than $ 2.

KBW and NASDAQ has calculated historical values of KFTX index starting from December 2006. In terms of yield, 10 years of its existence could be comparable to the biotechnology - both of them have grown by 3.5 times.

Rise in popularity of analysis of large data and mobile technologies, as well as some fragmentation of the financial sector led to great interest in the fintech sector, noted KBW and NASDAQ. In 2013 and 2014, the investment had grown to 68 and 191%, up to $ 3 billion and $ 10 billion respectively.

Accenture’s data show that financing of joint fintech ventures (38% of all investments in the financial and technology sector in 2010) increased and reached 44% of the funding in 2015. The remaining investment was sent to companies that compete with financial institutions. In the period from 2010 to 2015, share of investments in joint fintech companies in North America increased from 40% to 60%. In Europe, financing of the "breakthrough technology suppliers" increased from 62% of total investments in the fintech sector in 2010 to 86% in 2015.

The report mentions banks showed "relatively low level of participation" in venture capital investments. The number amounted to 5 billion dollars out of 22.3 billion dollars (total investments made in 2015). At the same time, according Accenture's report, banks annually spend 50 to 70 billion US dollars on domestic fintech investment

In 2015, world’s volume of investments in the fintech sector increased by 75% (9.6 billion dollars) to 22.3 billion dollars. First of all, this growth is related to the US, which accounted for $ 4.5 billion of new funding streams (44% growth). Chinese financial technology sector grew by 445% to nearly $2 billion. Volume of investments in this sector in India reached $1.65 billion dollars, in Germany - $770 million, and $ 631 million in Ireland.

In Europe, total investment in the fintech sector increased by 120% between 2014 and 2015; number of transactions grew to 51%. In the same period, German investment in fintech companies rose by 843%. In the Asia-Pacific region, investments in the financial and technology sector rose in 2015 to $4.3 billion. Volume of investment in China reached $1.97 billion, and $ 1.65 billion - in India. In the 1st quarter of 2016, investment in the Asia-Pacific region increased by 517% compared to the same period in 2015 - from $445 million to $2.7 billion. At that, this upswing is mainly obliged to increase of investments in the same sector in China. Investment volume in the North America’s fintech sector grew by 44% to $14.8 billion in 2015. At the same time, the United States continues to lead in the number of financial and technological transactions – there were 667 of them (16% growth).

The report also notes increase in number of large deals in the fintech sector all over the world as they reach maturity. In 2015, there were 94 deals worth more than $ 50 million, while 2014 brought just 52, and 2013 - only 15.