- “I think there are a lot of indicators that there is a bubble” in fintech, Jay Christopher Flower told Businesshala.
- Fintech companies such as PayPal and Square have seen their market values soar over the past year.
- At a time when interest rates are at historic lows and money is cheap, investors are attracted to high-growth companies.
Billionaire investor J. Christopher Flowers is concerned about the emergence of a bubble in the fintech market.
“I think there are a lot of indicators that there is a bubble in fintech,” Flowers, CEO of investment firm Jesse Flowers & Co., told Businesshala’s Annette Weisbach in an interview.
Fintech companies have seen their market values skyrocket over the past year in both public and private markets, with some companies trading at higher valuations than major banks.
For example, PayPal has a market cap of $242 billion, which is higher than that of Wells Fargo or Citigroup. Twitter CEO Jack Dorsey’s fintech venture Square is worth nearly $107 billion more than US Bancorp.
Among privately held companies, Stripe was last valued at $95 billion.
“If you look at traditional — or even not so traditional — valuation metrics, many companies trade at 10 times what a typical company would trade for that sort of thing,” Flowers said. .
“There are many examples of companies that aren’t really doing great business at high valuations,” he said without naming anyone. “It’s a mixed bag. There’s a lot of fluff in there.”
At a time when interest rates are at historic lows and money is cheap, investors are attracted to high-growth companies. Fintechs have also benefited from the increase in demand for online services during the coronavirus pandemic.
Still, Flowers thinks there is money to be made in this area.
“On the other hand, there are many interesting trends and opportunities in fintech as well,” he said.
Flowers said investors should focus on payments sector companies rather than lending companies. He added that market players should also favor profitable fintechs as compared to loss-making fintechs.
“Companies that make money on at least a unit basis … are much more interesting than those that say they’re going to make money but actually lose money,” he said.
Flowers, 64, began his career at Goldman Sachs in 1998 before founding his private equity firm, Jesse Flowers & Co.
He is perhaps best known for his role in the 2008 financial crisis, helping advise Bank of America and Merrill Lynch on their merger. According to Forbes, Flowers has a net worth of $1.2 billion.