Michael Zetser entrepreneur explains that since it is a growing industry, fintech holds a lot of potential for investors. There have been numerous changes in the financial industry due to financial technology and it is expected to continue bringing more innovations down the road. This makes it a worthy investment, but if anyone is unsure, they can consider the following reasons for investing in fintech.
Reason 1: Reshaping the financial services industry
It is a fact that the financial services landscape has undergone a radical change due to fintech. From peer-to-peer lending to mobile payments, fintech firms are tackling traditional financial problems with innovative solutions, which has drawn the attention of both investors and consumers.
Reason 2: Potential for high profits
Fintech businesses have the potential of generating significantly high returns for their investors. As a matter of fact, there are already a number of fintech companies that have begun to see high profits due to the rising demand for their innovative products and services.
Reason 3: Boost in economic growth
Not only is the financial industry changing due to fintech, Michael Zetser points out that it is also driving economic growth. Since financial services are becoming more efficient and accessible, it has given GDP a boost and is creating more jobs. It has helped fintech in emerging as an attractive sector for investment.
Therefore, anyone who is in search for potential investments that can offer high growth, they should certainly give preference to fintech. But, this does not mean that they should jump on the bandwagon blindly. There are risks involved, as is the case with every type of investment. Some of the risks related to fintech investments are discussed here.
Risk 1: Change in regulatory environment
There is a constant change in the regulatory environment where the fintech sector is concerned and this means that your investment could be rendered unprofitable due to regulations. This is particularly true in countries where the regulatory environment is changing at a rapid pace.
Risk 2: Unproven startups
Since a lot of fintech startups are unproven, it means that there is a possibility you might not get a return on your investment. They might have innovative ideas, but this is no guarantee that they will be able to survive in the market.
Risk 3: Emerging market
As per Michael Zetser, one of the most important things to bear in mind is that the market for fintech products and services is still in its developing phase. Thus, it can be difficult to predict exactly what solutions are likely to garner success in the future, so you cannot confidently invest in every fintech company.
Risk 4: Illiquid investment
Potential fintech investors should also be aware that it can be difficult to cash out early because the market for fintech investments is very limited.
While these risks exist, it is essential to remember that the fintech sector has many opportunities to offer. It is improving the accessibility of financial services, changing the way people bank and empowering small businesses and consumers. Subsequently, it is not surprising that fintech investments can be extremely rewarding, both personally and financially.
Nevertheless, you should evaluate a potential fintech investment before you risk your hard-earned money and Michael Zetser has highlighted the things you need to keep in mind below.
The business model
The first thing to evaluate is the business model of the fintech company. Does it seem sustainable? Is it logical? Take the key drivers of revenue into account to assess if it can be profitable or not.
It is also essential to consider the team behind the fintech startup you are considering as an investment. Do they have the right combination of expertise and experience? Look at their track record to see if they have had any success before. Are they passionate about their work? Opting to invest in a startup that has an unproven and inexperienced team can be a huge risk, so it is better to do your homework.
Obviously, the technology behind the fintech firm is a vital factor to consider. Michael Zetser suggests that you ensure it is proprietary and cutting-edge. It should also have the potential of being disruptive for it to be successful.
Last, but certainly not the least, the market opportunity also needs to be evaluated before you make a fintech investment. Does the fintech startup have a growing and large market? Does it have the potential of recording extensive growth? Is it addressing a problem, or fulfilling a specific meet that existing solutions are unable to do? If it does not have a good market, it is unlikely to survive in the long run.
Keeping these factors in mind can help investors in identifying a solid investment opportunity in the fintech sector.