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March 28, 2022

Traditional credit companies are losing out to fintech alternatives

In a filing on 14 February, it was revealed that Warren Buffett’s firm, Berkshire Hathaway, offloaded Visa and Mastercard shares worth over $3 billion in favour of a $1 billion investment in Brazil’s largest fintech, Nubank. This is not Berkshire’s first dealing with Nubank and it will not be its last. Buffett’s firm previously invested $500 million in the fintech in July 2021 and had made a gain of $150 million following its IPO in December 2021. Warren Buffett’s investment in Nubank signals a shift in focus from credit companies to fintech companies.

Fintech, used to describe the digital transformation of financial services, is revolutionizing banking by making it easier for customers to manage their finances through online channels. Highly specialized, free from legacy, and often able to bypass bank regulation, new entrants have gone after every piece of the banking value chain, reducing friction and addressing unmet needs.

Blockchain is increasingly being adopted in the financial sector

Despite his previous public stance against cryptocurrencies, Buffet’s desire to increase his stake in Nubank, a crypto-friendly fintech that allows customers to invest in Bitcoin exchange-traded fund (ETF) through its investment unit NuInvest, highlights the growing importance of blockchain—a technology that maintains a secure and decentralized record of transactions by combining openness with security to verify information—in financial services.

“The Nubank investment can be tagged as Buffett’s way of supporting the fintech/crypto world without taking back his criticisms of the past,” said Greg Waisman, co-founder and COO of crypto wallet service Mercuryo. Despite not directly investing in Bitcoin, many companies in Buffett’s portfolio have stakes in the cryptocurrency sector. Other investments by Berkshire with links to crypto include US Bancorp, Bank of America, and BNY Mellon.

Blockchain plays a key role in the financial industry, and the benefits of the technology include speeding up payments, improving transparency, and eliminating intermediaries. More than 40% of global blockchain spending came from the banking, finance, and insurance industry in 2020, according to GlobalData. GlobalData forecasts that the financial industry will maintain a strong pace of blockchain investment, with a compound annual growth rate (CAGR) of 48% between 2020 and 2030.

The appeal of fintech

The focus on fintech rivals in the financial services industry is increasing as trends show that investors are interested in opening up their investments into innovative industries like blockchain and the metaverse. Buffet’s investment indicates his acknowledgment of the potential of digitizing the financial services sector.

Fintechs can leverage their technologies to appeal to younger generations by providing streamlined and accessible online banking services. As banking continues to transform rapidly in the face of disruptive fintech companies and the Covid-19 pandemic, banks must be proactive in adapting their strategies and processes to remain competitive and desirable to consumers.

Verdict deals analysis methodology

This analysis considers only announced and completed artificial intelligence deals from the GlobalData financial deals database and excludes all terminated and rumoured deals. Country and industry are defined according to the headquarters and dominant industry of the target firm. The term ‘acquisition’ refers to both completed deals and those in the bidding stage.

GlobalData tracks real-time data concerning all merger and acquisition, private equity/venture capital and asset transaction activity around the world from thousands of company websites and other reliable sources.

More in-depth reports and analysis on all reported deals are available for subscribers to GlobalData’s deals database.

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