The future is FinTech

investment viewpoints

The future is FinTech

Jeroen van Oerle - Portfolio Manager

Jeroen van Oerle

Portfolio Manager
Christian Vondenbusch - Portfolio Manager

Christian Vondenbusch

Portfolio Manager

FinTech has already revolutionised financial services and looks set to shape the future trajectory of the industry. This is currently a USD 150-plus billion industry that is estimated to grow by 20% in the next 5 years alone1.

Financial technology, or FinTech, both disrupts existing financial services and sustains innovation within them. Within certain areas, FinTech is clearly disrupting traditional financial service providers, while in other areas, FinTech solutions equip traditional financial service providers with the tools to retaliate and defend their market position.

For instance, FinTech has already revolutionised payments, mobile banking and how consumers interact with services and providers. We see strong potential in other new, disruptive services and products such as blockchain, artificial intelligence (AI) and digital currencies.

FinTech will eventually evolve into a new financial service sector comprised of very different players.

We believe FinTech will eventually evolve into a new financial service sector comprised of very different players. The winners and losers are being determined as we speak, and are mostly characterised by their ability to transform legacy business and offer relevant services at competitive prices.

 

Don’t believe the hype

To differentiate between the likely winners and losers, we adopt a trends-based approach in our investment process. Our starting point is to define the key trends we expect to drive growth and returns in the coming years. We analyse the longevity potential of these trends, and differentiate trends from hypes.

A hype is a momentary phenomenon that, if invested in at the right time, could bring a short-term, but unmaintainable return. Timing and exploiting hypes is difficult and highly unpredictable. Investing on the basis of enduring trends, in contrast, leads to opportunities for long-term excess returns by exploiting behavioral biases in the market.

Key trends can continually evolve, and we believe the endurance of the trend in the long-term is an important selection criteria.

 

What could the future look like?

Our FinTech strategy is based on five core beliefs. These provide our top-down starting point to find bottom-up companies that stand to benefit most.

  • The world will move towards a fully cashless society
  • Digital finance aids financial inclusion
  • Digitalisation lowers barriers to entry, improves efficiency and enables new financial services
  • The rise of technology ecosystems
  • Cyber security as a basic necessity for all digital financial services

 

Not all trends lead to long-term return opportunities, and not all long-term return opportunities fit with a trends portfolio. It takes experience and expertise to know the difference.

We use sustainability criteria to filter the selection of companies as a key focus of our investment process.

At LOIM, we see sustainability as a core conviction that further encourages portfolio resilience. Therefore, we use sustainability criteria to filter the selection of companies as a key focus of our investment process. In our view, sustainable companies benefit from an attractive combination of sustainable financials, sustainable business practices and sustainable business models.

Such companies are best positioned to capture the long-term growth trend offered by the digitalisation of financial services, in our opinion.

 

Bespoke, dual expertise

A comprehensive understanding of FinTech dynamics requires in-depth knowledge of both financial services as well as technology. We believe that to prioritise just one, as is often the case in this industry, cultivates weakness in the investment process.

On the financial services side, expertise is pivotal to identifying how regulations, capital requirements and other factors drive the sector. On the technology side, specialisation is necessary to fully evaluate new technologies and their potential to disrupt. Our teams combine decades of experience in both sectors.

We believe our dedicated FinTech strategy and expertise are uniquely adapted to this sector, and offer investors the potential for strong growth.

 

FinTech-Image-of-White-Paper-cover-for-web-page.jpg

Download whitepaper

Investing in the digitalisation of financial services provides noteworthy return potential, in our opinion. A large number of high quality companies exist in the FinTech universe and, given the right expertise in both financials and technology, it is possible to construct a diversified portfolio that reaps potential benefits.

 

 Click here to download the whitepaper

sources.

Source: LOIM estimate based on average of industry sources. Estimated growth of 20% in compound annual growth rate (CAGR) to 2025.

 

important information.

This document has been issued by Lombard Odier Funds (Europe) S.A. a Luxembourg based public limited company (SA), having its registered office at 291, route d’Arlon, 1150 Luxembourg, authorised and regulated by the CSSF as a Management Company within the meaning of EU Directive 2009/65/EC, as amended; and within the meaning of the EU Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD). The purpose of the Management Company is the creation, promotion, administration, management and the marketing of Luxembourg and foreign UCITS, alternative investment funds ("AIFs") and other regulated funds, collective investment vehicles or other investment vehicles, as well as the offering of portfolio management and investment advisory services.
Lombard Odier Investment Managers (“LOIM”) is a trade name.
This document is provided for information purposes only and does not constitute an offer or a recommendation to purchase or sell any security or service. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This material does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before entering into any transaction, an investor should consider carefully the suitability of a transaction to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of LOIM and is addressed to its recipient exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of LOIM. This material contains the opinions of LOIM, as at the date of issue.
Neither this document  nor any copy thereof may be sent, taken into, or distributed in the United States of America, any of its territories or possessions or areas subject to its jurisdiction, or to or for the benefit of a United States Person. For this purpose, the term "United States Person" shall mean any citizen, national or resident of the United States of America, partnership organized or existing in any state, territory or possession of the United States of America, a corporation organized under the laws of the United States or of any state, territory or possession thereof, or any estate or trust that is subject to United States Federal income tax regardless of the source of its income.
Source of the figures: Unless otherwise stated, figures are prepared by LOIM.
Although certain information has been obtained from public sources believed to be reliable, without independent verification, we cannot guarantee its accuracy or the completeness of all information available from public sources.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by LOIM to buy, sell or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change. They should not be construed as investment advice.
No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient, without Lombard Odier Funds (Europe) S.A prior consent. ©2020 Lombard Odier IM. All rights reserved.