12/03/18

Why Warren Buffett Just Invested $600 Million In Fintech

Billionaire investor Warren Buffett piqued the interest of Wall Street at the end of October when the Wall Street Journal reported that his holding company, Berkshire Hathaway, invested $600 million in two financial technology companies.

Berkshire Hathaway bought a stake in India’s Paytm and Brazil’s StoneCo, two rapidly growing payment processors.

Berkshire Hathaway is known for buying up shares of relatively safe blue chip stocks like Coca-Cola and IBM. The $600 million investment turned heads not just because it revealed Buffett is peering into the fintech industry, but because both companies are headquartered in emerging markets.

Paytm and a cashless India

Founded in 2010, Paytm has become the largest mobile payment processor in India. In fact, the company has a larger user base than PayPal. Although PayPal has expanded into India, the seventh largest economy in the world by GDP, Paytm boasts of some 300 million users. In comparison, PayPal said in October that it has a total of 254 million active accounts worldwide.

The Wall Street Journal said that Berkshire’s move into fintech was driven by Berkshire’s chief investment officer Todd Combs, not Buffett, but the investments show that Buffett believes the industry is maturing. Since both Paytm and StoneCo are some of the largest payment processors in their respective markets, Berkshire’s investment is not too much of a logical leap from their usual big-name focus.

In the case of Paytm, its appeal to investors is linked to its location and user base. India is in the midst of a grand experiment of migrating toward a cashless society, a gesture that could be a preview of the future of money worldwide. As the largest payment processor in the nation, Paytm is near the nucleus of this massive shift; Berkshire saw that and clearly believes emerging markets may be the most promising new centers of fintech.  

Fintech banking in Brazil

Combs also guided Berkshire’s purchase of $300 million in shares of StoneCo when the Brazilian company went public in October. The company was able to price its IPO above expectations due to large investments from firms like Berkshire and Ant Financial, the payment processor for Chinese behemoth Alibaba.

Berkshire now owns some 11.3 percent of the company.

StoneCo, which has a product similar to Jack Dorsey’s Square, is one of the largest payment processors in Brazil. Berkshire apparently was impressed with the company’s penchant for growth – StoneCo reported that its revenues have increased 92 percent since 2017, to $165 million.

Buffett has long voiced a distaste for IPOs, but it appears the 88-year-old billionaire is now allowing Berkshire to make some decisions independent of his usual formulas.

With the Berkshire backing, StoneCo has stated that it wants to expand outside the traditional payment processor arena. Along with some to-be-announced acquisitions and mergers, the company said that it wants to soon offer banking services.

Like Paytm, StoneCo is also offering a glimpse into the future of fintech. Although Brazil has been rocked by recent political unrest, it’s one of the top 10 economies in the world. It also now appears to be one of the fronts where the maturation of the fintech industry will play out.

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About the author

Barry Eitel
Barry Eitel
Barry Eitel has written about business and technology for eight years, including working as a staff writer for Intuit's Small Business Center and as the Business Editor for the Piedmont Post, a weekly newspaper covering the city of Piedmont, California.

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