How has fintech changed the way investment banks value companies?

2 Business model and competitive advantage

Another important factor that investment bankers consider when valuing a fintech company is its business model and competitive advantage. Fintech companies typically have different revenue streams and cost structures than traditional banks, such as subscription fees, transaction fees, or commissions. They also have lower overheads and capital requirements, as they rely more on technology and data than on physical branches and staff. Investment bankers evaluate how the fintech company generates and captures value from its customers, partners, and suppliers, and how it differentiates itself from its competitors. They also assess the scalability, sustainability, and profitability of the business model, and the risks and challenges that it faces.

3 Technology and innovation

A third factor that investment bankers take into account when valuing a fintech company is its technology and innovation. Fintech companies use advanced technologies, such as artificial intelligence, blockchain, or biometrics, to create new products and services, or to improve existing ones. They also leverage data and analytics to optimize their operations, enhance their customer experience, and gain insights into their markets. Investment bankers examine the quality, functionality, and security of the fintech company's technology platform, and the level of innovation and research and development that it invests in. They also measure the impact of technology and innovation on the fintech company's performance, customer loyalty, and reputation.

4 Regulatory and legal environment

A fourth factor that investment bankers factor in when valuing a fintech company is the regulatory and legal environment that it operates in. Fintech companies are subject to various laws and regulations that govern the financial sector, such as consumer protection, anti-money laundering, or data privacy. These laws and regulations may vary across different jurisdictions, and may change over time. Investment bankers assess how the fintech company complies with the relevant rules and standards, and how it manages the regulatory and legal risks that it faces. They also monitor the potential changes and developments in the regulatory and legal landscape, and how they may affect the fintech company's operations, strategy, and valuation.

5 Valuation methods and models

Investment bankers use various methods and models to estimate the value of a fintech company, such as the Discounted Cash Flow (DCF) method, which projects future cash flows and discounts them to the present value. They also use the Comparable Company Analysis (CCA) method, which compares the fintech company with other similar companies in the same industry. Additionally, Precedent Transaction Analysis (PTA) and Venture Capital Method (VCM) are used to analyze past transactions and estimate the expected return of investors. Each of these methods has its own advantages and limitations, so investment bankers usually combine them to arrive at a range of values for the fintech company. They also adjust these values for various factors that may influence the final valuation.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?