Investment activity in financial services technology ("FinTech") companies for financially underserved consumers totaled more than $5.2 billion in allocated capital between July 2012 and June 2013, according to a recent report by the Center for Financial Services Innovation (CFSI) and Core Innovation Capital (Core).
Investment Activity in FinTech for the Financially Underserved shows that there is substantial investor interest in a growing market for financial products and services aimed at helping to meet the needs of financially underserved consumers.
The report looks at 71 equity investments, 11 acquisitions and three IPOs involving more than 125 investors over the past year. The activity signifies a growing market interest, increasing investor confidence, and the potential to earn market rate returns for early investors in companies offering products and services that could both improve profit margins and create upward mobility for millions of Americans.
Key findings in the report include:
- The two biggest sectors of the market are specialty credit and payments: Specialty credit made up 42% of all transactions and 20% of known capital allocation, while payments comprised 33% of all transactions and 79% of known capital allocation;
- The top specialty credit subsectors driving activity were small-dollar credit, small-business lending, and private student lending;
- The top payments subsectors driving activity were prepaid card systems, payments networks, and remittance;
- The most frequent acquisition targets during this span were specialty credit companies involved in subprime auto lending.
The report also includes a detailed breakdown of activity in the key industry sectors of specialty credit and payments, a list of all 74 FinTech companies receiving investments, and descriptions of the top 22 investors in FinTech for the financially underserved during this time.
The financially underserved consumer market is worth $78 billion a year, according to the report.
“This space represents a broad investment opportunity that is quickly coming into focus as investors realize the chance to achieve both market-rate returns and improve the lives of America’s emerging middle class,” said Arjan Schütte, founder and managing partner of Core Innovation Capital.
In related news, investors from local authorities, unions and charities, such as the CCLA, the Joseph Rowntree Charitable Trust and the Pensions Trust, recently published a letter in the Financial Times, which said they wish to invest in companies that focus on the longevity and productivity of their business operations. The investors claimed there is “considerable evidence” that paying a living wage helps to achieve these goals.
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Founder & Principal Consultant, Hower Impact
Mike Hower is the founder of Hower Impact — a boutique consultancy delivering best-in-class strategic communication advisory and support for corporate sustainability, ESG and climate tech.
Published Nov 11, 2013 2am EST / 11pm PST / 7am GMT / 8am CET