Ad Hoc Commentary – fintechs are probably the darling in the next two years

The probable Dec rate hike by the Federal Reserve would probably be interpreted as a vote of confidence from the Federal Reserve on the strength of the US economy. This is probably good for wider market sentiment and retail investor’s confidence would likely return. This leads us to the next question on where would this newfound confidence lead to? Yours truly believe that it would likely manifest itself in making fintechs the darling of the equity markets in the next two years.


Some notable pundits are skeptical about fintechs, and many point to the failure of dot com 1.0 and conclude that fintechs will fail to dethrone traditional banks again:

“…In the first Internet wave, we had lots of talks about banks being dinosaurs. Banks were going to be extinct. We had hundreds of pure plays who were going to replace banks with pure-play telephone banks, Internet banks or e-traders. The banks have proven that they were more agile than people thought. If you compare a bank today to a bank 15 years ago, they are a completely different animal. If you look at what they have pulled off technology-wise, it is pretty impressive. Especially when you combine that with all the regulatory burdens we’ve put on them. None of the pure plays have survived except maybe two of them – PayPal and ING Direct [which is now owned by Capital One in the U.S.]. I can’t think of many others that have worked, but the banks have absorbed the technology and adapted…”


There are three reasons why yours truly beg to differ:

  1. Mobile devices are much more powerful today.
  2. Banks have very little support from politicians today.
  3. Central bankers need electronic money to: a. cut rates below zero; b. allow politicians to tax efficiently.


Let us remind ourselves that taxpayers bailed-out the financial system in the last financial crisis. If the massive bailouts did not happen, most banks would not be preserved in their current form, and would have went the way of dinosaurs. A prudent politician would likely ask what should we do if we do not plan to bailout dinosaurs in the next banking crisis? Well, a prudent government would likely invest in lean finance, and this invariably means fintechs. The Google Wallets of the world, and their cousins will be all the rage. It is probably pragmatic for smart money to look at lists of fintechs while planning their 2016 portfolios. A good start can probably be found at Forbes:


The ultimate fintechs winners are probably those that will accelerate the introduction of electronic money, those that are happy to work with regulators, those that are willing to work with tax authorities, and those that are generally government friendly. The current mantra of ‘no more bailouts’ would likely lead to calls for alternative to ‘fat cats’. Fintechs will probably capture the imagination of the public as the ‘lean cats’ of tomorrow. Pockets of silliness do exist today with people over-paying for low barriers to entry businesses, but we are likely still two years away from irrational exuberance.


Good luck in the markets.