Investment activity in fintech companies for financially underserved consumers in the United States totaled more than $5.2 billion between July 2012 and June 2013, according to a report by the Center for Financial Services Innovation (CFSI) and Core Innovation Capital.
The study, supported by Morgan Stanley, looks at 71 equity investments, 11 acquisitions, and 3 IPOs involving more than 125 investors over the past year. It reveals substantial investor interest in the market, which has been identified by banks and non-banks alike as a a dynamic and growing space promising solid returns on investment.
Specialty credit made up 42% of all transactions and 20% of known capital allocation during the period under study, 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. In payments, investments in prepaid card systems, payments networks, and remittance, led the way.
Rob Levy, director of research, CFSI, says: "Fintech companies using technology to reduce costs and increase access to financial services have the potential to innovate the ways consumers borrow, spend, save, and plan."
The most frequent acquisition targets over the past 12 months were specialty credit companies involved in subprime auto lending.
"This space represents a broad investment opportunity that is quickly coming into focus," says Arjan Schütte, founder and managing partner of Core Innovation Capital. "In particular, I believe we will see growing opportunity in the auto subprime lending category with a new breed of mobile and data-focused technology companies."