VALUE CREATION IN FINTECH SECTOR

Year 2023, , 198 - 199, 01.02.2023

Anna Paola Mıchelı Anna Maria Calce Loris Di Nallo

https://doi.org/10.17261/Pressacademia.2023.1688

Abstract

Purpose– FinTech arises from the changes that digital revolution has brought in the provision of financial services. This paper aims to investigate value in FinTech sector, considering the growth that it has experienced in recent times. The study has an innovative profile and contributes to the existing literature by analyzing the adequacy of the valuation models adopted for unicorn companies, on the one hand, and investigating the ability of FinTech companies to create value on the other.
Methodology– FinTech is a young phenomenon with high volatility. Assuming that companies of this sector generate less profitability and less value than non-FinTech ones, we conducted two levels of analysis. The first is based on the use of multiples method to determine the expected market value of FinTech unicorns, to be compared with the valuation attributed by venture capitalists. The second phase refers to the assessment of differential value of European FinTech listed companies with respect to European non FinTech listed companies over a period of three years (2018-2020). Adopting the shareholder approach, we used the measure (ROE-ke) as a proxy of value created for shareholders.
Findings– Results suggest that valuation made by venture capitalists for FinTech unicorns is higher than the expected market value. Regarding value creation, findings highlight that both FinTech and non-FinTech samples destroy value, reporting negative ROE-ke for the years investigated. Given the higher volatility of this industry, the potential benefits of FinTech operations on profitability and value creation are appreciable in the long term.
Conclusion– The study shows that the multiples method underestimates the value of unicorns because it does not consider qualitative variables typically included in valuations made by venture capitalists so, it is not capable to enhance the potential of disruptive technology. Furthermore, results obtained in terms of value destruction confirm our assumptions that FinTech companies are less profitable than traditional financial services ones and support higher cost of capital because the sector is considered riskier.

Keywords

FinTech, unicorns, value creation, disruptive technologies, stakeholders

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