Breaking Down Fintech - the Securities & Investments Sector
A healthy share of Fintech investment has been on the banking-side of the financial services industry, especially loan origination like LendingTree, OnDeck & SoFi, and in payments companies like Venmo, Stripe & PayPal. However, the Securities & Investments sector is also undergoing disruption. Companies like Betterment and WealthFront are targeting investment advice. And StockViews, AlphaSense, Alphametry, TipRanks, Seeking Alpha and, of course, BEA are focusing on various aspects of equity research.
Previously in parts 1&2 of this series, we estimated the addressable Fintech market in the Securities & Investments sector to be a little over 16% of the total Fintech market of $18.8b. As of 2015, this was $3.1b.
In our continuing series on the addressable Fintech market we dive deeper into the Securities & Investments sector. Again, our analysis uses ZIP Pointe Market Sizer. Market Sizer is our Tableau-based market sizing tool based on ZIP Code-level Census data on over 7 million private sector business locations.
Portfolio Management tops the sector
Within the Securities & Investments sector, portfolio management accounts for the largest share of the addressable Fintech market at 38%. Securities brokerage (27%) and investment banking (16%) round out the top 3.
This breakout varies across regions. As shown below, portfolio management companies account for the largest regional share of the market in the Northeast (42%) and the West (48%). In all other regions, securities brokerage accounts for the largest share. Across all regions, portfolio management and securities management together account for 64% to 78% of total spend, respectively.
As shown below, in terms of business location size by sub-sector, 77% of the locations are small (1 – 4 payroll employees). Nearly 94% have fewer than 20 payroll employees. The Census data also indicate that there are nearly 1,200 sites with 100+ employees, representing a bit over 1% of all business sites in the Securities & Investments sector.
We should note that the Census data only track payroll employees. Contractors are not included in these totals. So, the total employee count at any given location could be higher than what is shown here, especially sub-sectors that rely heavily on contracted labor.
In terms of potential Fintech spend per employee, the chart below shows a range of $598 (commodity contracts, 500 to 999 employees) to $7,041 (securities exchanges, 50 to 99 employees). The “hot spots” of potential Fintech spend are in the investment banking sub-sector among sites with 100+ employees, and the securities exchanges sub-sector among sites with 10+ employees (though there are only 36 sites in this sub-sector).
No Surprise, NYC Metro tops area ranking
In terms of total revenue, the usual suspects are again at the top of the addressable Fintech market list in the Securities & Investments sector. The New York metro area leads the list at $1,090m. Boston $191m, Chicago $183m, Los Angeles $172m, and San Francisco $171m round out the top 5.
But in terms of per employee, San Francisco jumps from #5 to top the list.
In 2015, the top 15 metro areas in terms of addressable Fintech market per employee in the Securities & Investments sector are shown below:
We limited our analysis to metro areas with 150 or more business locations in the Securities & Investments sector. This helps reduce the “noise” in our analysis and minimizes (but does not eliminate) the likelihood that a metro’s normalized estimate is unduly swayed by a few extreme business locations.
Omaha is #2? There’s a surprise
The San Francisco metro area heads our list of the largest addressable Fintech markets on a per employee basis in the Securities & Investments sector at $5,313. Rounding out the top 5 are Omaha-Council Bluffs, NE-IA ($5,298), Bridgeport-Stamford-Norwalk, CT ($5,122), New York ($5,107) and Worcester, MA ($4,685). Other notables in the top 15 are Durham-Chapel Hill, NC ($4,94), Charlotte-Concord-Gastonia, NC ($3,381), Austin, TX ($3,256) and Tucson, AZ ($3,130).
If you already knew Buffett’s hometown of Omaha, Nebraska was going to be the #2 market in the US for Securities and Investments, give yourself a pat on the back. We’ll break down Warren's hometown in the next posts, along with two other surprises on the list, Durham-Chapel Hill and Tucson.