Why Stock Market Turmoil Won’t Put the Breaks on Fintech’s International Surge

With global markets reeling from heavy losses at the beginning of August, newfound investor appetite for sustainable growth could see renewed interest in burgeoning global fintech firms.

The first week of August has been a severely challenging time for many global stocks and shares. The S&P 500 suffered its worst three-day percentage decline since June 14, 2022, following a drop of 2,139.52 points, or 5.2%.

Elsewhere, Japan’s Nikkei 225 experienced its worst market crash since 1987 before a swift rebound brought a patchy recovery to domestic stocks.

Even the cryptocurrency landscape suffered significant losses, with Bitcoin briefly tumbling below $50,000, prompting ‘black swan’ comparisons among commentators.

The downturns signify a challenging third quarter, particularly for tech leaders like Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:APPL), which have struggled to sustain their momentum in recent weeks.

Although uncertainty on Wall Street and beyond is to be expected following a challenging post-pandemic recovery and lingering battles against historically high inflation rates, analysts were quick to highlight that historical trends generally paint a rosier picture of election years in the United States.

“Historically, the S&P 500 Index tends to rise in the second half of an election year, especially if the incumbent party wins,” notes Maxim Manturov, head of investment research at Freedom24.

“Unique to this year is the decreased uncertainty from both major party candidates previously occupying the White House, potentially contributing to year-end gains. Moreover, expectations of Fed rate cuts have historically boosted the S&P 500 Index by nearly 6% over the previous six months before the first cut.”

While this indicates that the S&P 500 could be in line to recover faster from its recent decline, the shock of the downturn could see more investors look to less speculative stocks within the tech landscape. This could see the potential of the fintech sector gaining greater recognition.

The Uneven Rise of Fintech

It’s difficult to chart the emergence of fintech because its brightest startups have had an uneven experience securing growth in recent years.

Total global investment in fintech has fallen significantly in the wake of the wider generative AI boom, with the $62.3 billion invested through 2,287 deals in the second half of 2023 falling to just $51.9 billion throughout 2,255 deals in H1 2024. \

Despite this, we’re seeing new record-breaking hubs of activity emerge outside of the United States.

In the United Kingdom, for instance, fintech investment almost tripled to $7.3 billion in the first half of 2024, up from the $2.5 billion recorded over the same period in 2023.

As part of this surge in interest, UK-based challenger bank Revolut has targeted a valuation of $45 billion in a prospective deal to sell around $500 million of employee-owned shares in what would be a long-overdue statement of intent for the fintech sector.

This isn’t to say that US firms aren’t continuing their growth in the fintech landscape. Revolut’s rival in its bid to become the largest fintech startup in the world is Stripe, which has been busy adding strategic acquisitions to bolster its bid to scale up operations.

July saw Stripe make its third acquisition in the past 14 months by picking up merchant of record firm Lemon Squeezy. The move represents the startup’s 15th total acquisition throughout its lifespan.

The acquisition is yet another statement of intent for Stripe, which now aims to scale its merchant of record selling alongside its existing point-of-sale and EFTPOS innovations globally.

Opportunities in Latin America

Latin America is also becoming a hotbed of innovation in the fintech sector. One notable example of this can be found in Mexican firm Aviva’s $5.5 million bid to provide financial services to a market of 70 million people who have limited access to quality fintech products.

This vast market underlines the level of opportunity in the region and could uncover sustainable investment opportunities for investors as caution returns to markets.

Another Mexican fintech, Stori, recently closed a funding round worth $212 million in a mix of equity and debt financing that included Goldman Sachs as a means of boosting investments and expansion strategies into new markets.

For investors, the sustained growth of fintech services outside of the United States will hold extra appeal following the success of NuBank (NYSE:NU), a stock that’s experienced widespread growth in recent years.

The stock, which went public on the New York Stock Exchange in 2021, managed to post $1 billion in net profit for 2023 and has grown its market capitalization by over 40% in the first eight months of 2024.

With a customer base of 93.9 million users in 2023, the Brazilian fintech is an example of the sustained growth that the industry’s brightest players can achieve.

With the likes of high-value startups Stripe and Revolut watching on, recent stock market vulnerabilities could see a reversion of investor interest in fintech that may bring some blockbuster IPOs for the industry in the not-too-distant future.