What future for the world of finance?

Financial players: a market in full recomposition.

In a world where the largest taxi company owns no vehicles, the largest media owner generates no content, and the world’s largest retailer has no inventory, what about financial companies?

The transformation of financial companies in their four main areas of activity (financing, savings, payment and insurance) is indeed inevitable. Thanks to technological innovation, a certain number of new financial players are providing responses that are better suited to the new expectations of consumers by offering them a totally innovative customer experience. This underlying trend is reflected in market share gains for these innovative players and represents long-term growth prospects for them.

In this context, we believe that the emergence and adoption of new technologies as well as the increasing specialization of the entire value chain of the financial industry can give rise to numerous investment opportunities for active investors. . The explosion in the uses of mobile payment, the growing disintermediation in services or the proliferation of digital assets, are all upheavals that have led ODDO BHF AM to explore all aspects of this new age-old investment theme: the future of finances.

A favorable current environment

The economic and regulatory environment is, in our view, favorable to financial companies. The financial sector could benefit in the coming quarters from the rebound and return to normal of the global economy after the pandemic, from a rise in interest rates in the wake of rising inflation, and from a return to a more generous dividend policy given the excess capital on bank balance sheets. At the same time, the pandemic has had the effect of accelerating the movement of contactless payments, which should encourage the growth of new players in the payment sector. The impact of technology in the financial industry is increasingly visible and should continue, and would constitute in our view, a significant growth opportunity.

The outlines of a new era of finance

New business models and changing consumer habits will open up opportunities for investors. Four sub-themes we believe would present high growth prospects for financial firms that commit to rethinking their branding, business models and operational processes to better meet new customer expectations.

The banks: Global digitization has led to more people becoming customers of the banking system. Traditional banks are increasingly partnering with Fintechs to improve the customer experience and stay competitive.

  • -20 to -25%: estimated drop in bank cost reduction thanks to digital (McKinsey 2020 study)
  • 68%: share of Millennials having replaced their physical wallet with an electronic wallet (April 2018)
  • x2: increase in the percentage of European citizens using online banking services between 2009 and 2019

Source: Citigroup, McKinsey, Penser, Statista, ODDO BHF AM SAS

Payment and transactional services: even if banks remain dominant in this area, non-bank players are consolidating the market. Thanks to them, innovative means of payment have multiplied, improving the user experience.

  • 48%: percentage of dematerialized payments in the euro zone (2019).
  • +27%: increase in the use of mobile payments between 2020 and 2025
  • + 145%: annual growth of contactless payments on the Mastercard and Maestro networks in Europe (2018).

Source: Payment and Settlement Systems Committee, BCE, ETA, McKinsey Global Payments Report (2020), ODDO BHF AM SAS

Specialized financial services: the ongoing consolidation within specialized financial services (asset managers, for example) opens up opportunities for investors.

  • 80%: control of distribution by EU banks (2020)
  • 22%: share of passive management relative to global assets under management in 2020 (x2 since 2012)

Source: SIA Partners, ODDO BHF AM SAS

Disruptive Financial Companies: with Apps for mobile payments, automated investment or online lending, fintechs are disrupting the activities of traditional banking operators. Thanks to their ability to collect and exploit their customers’ data and the growing number of users, they are increasingly taking advantage of network effects.

  • €3 trillion: amount raised by Fintechs offering payment services in the last 12 months in Europe in 2021
  • $128 billion: amount received by FinTech startups in global venture capital (2018).
  • 19%: annual growth rate of big data (2020)

Source: Dealroom (May 5), FinTech BigTech and Banks (Tanda, 2019), IDC, Morgan Stanley Research, Peter Fisk, Sage Journalism, Toptal

Benefit from changes in a rapidly evolving sector, ODDO BHF Future of Finance

ODDO BHF Future of Finance is a financial industry-themed global equity fund managed by Alex Koagne, who has over 15 years of investment experience in the financial industry. The fund invests both in innovative banks and in new players (fintech & non-banking companies) that compete with them on their historical markets, without geographical constraints. A top-down approach and a fundamental Bottom-up analysis are carried out to identify the most relevant and best positioned companies across different financial themes: banks, payment and transactional services, specialized financial services, and disruptive financial companies (among others). ). With a portfolio concentrated on around fifty stocks to date, the fund seeks to be permanently invested in equities with the objective of long-term capital growth.

Remember that ODDO BHF Future of Finance is an equity fund and as such presents a risk of capital loss.

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