There’s a reason FinTech has caught the eye of investors. There are billions of dollars pouring into this sector, and the future is looking brighter. Of the 27 FinTech unicorns, they predominantly hail from two countries — the U.S. and China. Half of them are in the US., but China has the four largest.
Reasons for growth: China has a huge population with a lot of smartphones. The U.S. has a lot of capital.
Payments and lending are the two sectors on fire right now. But are they the best sectors to put your money into? Here’s why I think the three best FinTech sectors to invest in right now are payday loans, InsureTech, and Real Estate Crowdfunding (RECF).
Why Payday Loans Should Be Your Next Investment Class
There are eight lending unicorns among the 27 with a total valuation of $30.4 billion. It is the largest FinTech sector and has a lot of maturity that we don’t see in other sectors. Leading the way are SoFi, Avant Credit, and Prosper. All three fit into the marketplace lending category, which is seeing more specialization, such as SoFi’s focus on student loans. Avant’s niche is personal loans for people with low credit scores.
Payday loans serve a unique niche. They help poor people and borrowers with low credit scores gain access to money they couldn’t get any other way. Traditional lending options just aren’t available to them. And that’s why this sector is a great investment.
first, payday lenders are taking their products online, making them available to more people. In the digital age with access to the Internet growing around the world, that means a lot of potential for growth. Earlier this year, payday lender LendUp raised $50 million in a Series B round and rolled out a credit card for the market. This is just a beginning in a niche known for its high returns.
What InsureTech Has To Offer Investors
As a sector, InsureTech’s valuation is only $4.7 billion. There are only two insurance unicorns in the top 27 — one in the U.S. and one in China. Oscar is the largest U.S. FinTech unicorn outside of Silicon Valley. China’s fifth largest FinTech unicorn is ZhongAn Insurance, worth $2 billion. This niche is in its infancy, but when you consider how important insurance is, and how large the industry is as a whole, there is a reason you should keep an eye on this sub-niche.
InsureTech now has its own conference. The Affordable Care Act has been proclaimed the law of the land by the Supreme Court. Healthcare spending is 17.5% of the U.S. Gross National Product. A Mayo Clinic study shows that Americans are the unhealthiest among affluent countries. All of this spells positive returns for investors who get in now.
Why You Should Invest In Real Estate Crowdfunding
As noted, marketplace lending is the largest FinTech sector, and it’s one of the most mature. Real estate crowdfunding (RECF) is just one part of the niche, but it’s a very important part of the sector.
RECF is a hot investment class for several reasons. First it allows investors to get in with a low minimum investment — in some cases, as low as $1,000. With a low barrier of entry and a great alternative to volatility of other financial market, investors can diversify and expand into a new asset class with lower risk. Plus, it’s a growing sector within a niche that is mature and hot. And investors are seeing 10% or more returns on investment that pay monthly dividends.
Other Hot FinTech Investment Niches
Both payments and Software-as-a-Service (SaaS) look to be niches that will offer investors a number of opportunities in the near future. Payments, like lending, is mature but still growing, especially in the mobile space. SaaS has a lot of potential, but this is such a broad category that investors will have to be more critical regarding their investment criteria. If you’re looking for ease of entry with potential for great returns, I’d look to payday loans. Real estate crowdfunding, and InsureTech for growth and opportunity.