If you think blockchain is synonymous with bitcoin, you’re not alone. Although the number of use cases for blockchain grows almost daily, bitcoin—the first viable cryptocurrency—is still its best-known and most-developed application.
The future of blockchain is defined by its characteristics. Most importantly, its distributed technology means all parties can be on the same page at all times… while no single entity has full control over data.
This means decentralized data, and a more efficient way of record-keeping for many types of transactions. It’s no wonder financial companies—especially the younger generation, called fintechs—have been among the first to battletest and embrace blockchain. Many are incorporating the technology into their business model.
The fintech industry has been fascinating to watch… Many of these new companies offer a fresh, potentially game-changing take on the financial services industry.
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Today, I’ll break down why there’s so much buzz around fintechs… and one company every growth investor should be watching…
A slew of fintechs offer modern software… more sophisticated technologies… application programming interfaces (APIs)… and blockchain-based databases.
Established large-cap companies—such as credit-card and payment processing giants Visa (V), MasterCard (MA), and American Express (AXP); stock exchange Intercontinental (ICE); or software company Roper Technologies (ROP)—have been gobbling up younger fintech businesses like there’s no tomorrow.
Even the coronavirus crisis couldn’t stop a growing wave of fintech acquisitions.
In January, Visa paid $4.9 billion in cash for Plaid Inc., a fintech API provider.
In June, Mastercard acquired Finicity—also an API specialist—and a provider of real-time access to financial data and insights, for $885.0 million.
In August, American Express Co. agreed to buy Kabbage, a digital lender to small and mid-sized companies, for an undisclosed amount… and software co. Roper Technologies bought insurance fintech company Vertafore for $5.35 billion.
Also in August, Intercontinental Exchange announced the $11 billion acquisition of mortgage software provider Ellie Mae (the deal closed in September).
This interest only highlights the potential of a few fintech companies experimenting with new technologies like blockchain. One of these is Lemonade (LMND), a $2.5 billion fintech that went public in July.
Founded in 2015, Lemonade operates in the insurance segment of fintech. The company focuses on rental and homeowners insurance… and, starting this summer, health insurance for pets.
From inception, the company aimed for zero paperwork and lightning-fast approvals and payouts. To achieve this, LMND is replacing brokers and bureaucracy with bots and artificial intelligence… and its contract-writing and claim-addressing technology is largely based on blockchain.
Perhaps not surprisingly, LMND—public only since July—is a very expensive stock with no profitability in sight, and trading at more than 30 times (30x) revenue. But it was even more overvalued at its IPO (in its first day of trading, LMND jumped by almost 140%—one of the strongest U.S. IPO debuts this year).
Similar to its fintech peers, LMND has the potential to disrupt its largest market—rental insurance, as well homeowners, pet, and even health insurance. It offers insurance products you can buy on your smartphone, and it takes minutes—not days or weeks—for a claim to be paid.
Today LMND is trading roughly 25% under its post-IPO high (but way above its initial offer price of $29), and it could easily become an attractive M&A target.
In sum, this finech is a showcase for the practical application of blockchain technology. I expect it to become a significant player in the fintech industry. And it’s a tempting play for courageous investors who want to own a potential game-changer.
Whether you’re inclined to wait for a company to prove itself, or like to be early on a big trend, keep an eye on Lemonade…
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