Fintech listings surge on Wall Street as smartphones proliferate

Executives also cite pandemic for rise in public offerings

PayPal co-founder Max Levchin saw his company Affirm, a point-of-sale lender, amass $1.38 billion in January with its initial public offering. (John Lamparski/Getty Images file photo)
PayPal co-founder Max Levchin saw his company Affirm, a point-of-sale lender, amass $1.38 billion in January with its initial public offering. (John Lamparski/Getty Images file photo)
Posted June 22, 2021 at 7:00am

The rate of financial technology companies going public, once a trickle, is now a steady stream as mobile payment apps and online lenders become the norm.

Some say consumers’ home confinement during the pandemic accelerated the growth of these firms and nudged them toward initial public offerings, which are considered the signal that a company has matured. The firms, in regulatory filings, indicate that the rise of smartphones made the ascent inevitable.

Fintechs joining the ranks of publicly traded companies with billion-dollar offerings this month include San Francisco-based lender SoFi Technologies Inc. and payment card provider Marqeta Inc. of Oakland, Calif. SoFi raised $2.4 billion, while Marqeta racked up $1.2 billion

“Investors want to look for the next PayPal,” James J. Angel, an associate professor at the McDonough School of Business at Georgetown University, said in an interview. “The real question is ‘Why has it taken investors so long to discover fintech?’”

PayPal Holdings Inc. of San Jose, Calif., whose founders Max Levchin and Peter Thiel met after a lecture Thiel gave at Stanford University in 1998, went public in 2002. It was quickly snapped up by eBay Inc. until it was spun off into a separate company in 2015. Since then, PayPal’s stock price is up about 700 percent.

In the 20 years since PayPal burst on to the scene, at a time when the internet wasn’t widely known, the industry has expanded to include online banking, mobile payments apps and cryptocurrencies.

Levchin started the fintech IPO trend this year when his latest company, San Francisco-based Affirm Holdings Inc., which offers installment loans to consumers at the point of sale to finance a large purchase, amassed $1.38 billion on Jan. 12.

Billtrust of Lawrenceville, N.J., a business-to-business payment company, followed the next day with a debut on the Nasdaq after it merged with special purpose acquisition company South Mountain Merger Corp.

Cryptocurrency exchange Coinbase Global Inc. went public through a direct listing in April, meaning it didn’t raise funds but allowed shareholders to sell to the public for the first time. Its stock quickly rose, giving the company an $85 billion valuation.

The coronavirus pandemic is a widely cited reason for fintech’s arrival on Wall Street. With government-imposed lockdowns and physical distancing requirements, anyone with a computer or smartphone has had little choice but to pay bills or apply for a loan digitally.

Fintech companies tell a similar story in their prospectuses for investors, acknowledging the importance of the pandemic. But they say it was the mass adoption of smartphones in the last 12 years that has mostly fueled their acceleration.

Smartphones

Marqeta CEO Jason Gardner, 51, said mobile technology was indispensable to the founding of his fintech firm in 2010.

“A whiteboard, a computer, and a cell phone,” he wrote in the company’s filing with the Securities and Exchange Commission last month. “Simple tools to launch a bold idea in a disruption-less area of the global payment card industry.”

In 2011, only 35 percent of Americans owned a smartphone, according to research firm Statista Inc. In February, the figure was 85 percent. The near-universal adoption has granted many fintechs a dramatic increase in potential customers.

Paymentus Holdings Inc. of Charlotte, N.C., which provides payment solutions for utility companies and debuted on the New York Stock Exchange last month, cited this shift in consumers’ online habits in its initial filing. “With the widespread use of mobile phones and home computers, consumer devices are becoming the aggregation point for billing information,” the company said.

Add home computers to the list of digital gadgets, and the increase in customers is even larger. Consumer data company Statista said that as of 2019, 90 percent of Americans are connected to the internet.

Jay R. Ritter, a professor of finance at the University of Florida, cited the advent of cloud computing over the past decade as another boon.

“Each year, lower costs of storage and computing power have made ‘big data’ technologies more attractive,” he said in an interview. “Even companies that aren’t explicitly fintech are spending a bigger part of their budgets on information technology, including traditional banks.”

Georgetown’s Angel said investors view technological trends in entirely positive terms.

“We are in the midst of a financial revolution as financial technology allows us to do many things better, faster and cheaper than before,” he said. “By bringing the cost of financial services down through technology, fintech can roll out financial products to the billions of unbanked people on the planet, and much better services to the already banked.”

The number of fintech companies in the Americas surpassed 10,000 for the first time in February, Statista reported.

The wave appears likely to continue next month with the expected IPO of online brokerage Robinhood Markets Inc. of Menlo Park, Calif., which some say could value the company at $30 billion.

Analysts are speculating digital payments platform Stripe Inc., which has a $95 billion valuation, may follow with its IPO sometime this year.

Even fintech firms not expected to make a market debut have raised vast amounts of cash. On May 18, New York-based DailyPay disclosed it has amassed $500 million in private funding.

Capital markets data tracker Pitchbook said digital asset companies raised a record $2 billion during the first quarter of the year. The median pre-money valuation for ‘late-stage’ fintech companies soared to a record $396 million, 230 percent higher than the full-year figure for 2020, Pitchbook said.