In just two short decades, fintech—an amalgam of “finance” and “technology”—has exploded onto the scene, revolutionizing the financial services industry as we know it. This dynamic sector has been fueled by the various innovations that have shaped a generation, each one seemingly more game-changing than the last.
The rapid rise of the sector notwithstanding, fintechs on average lost more than half their market value in 2022—a plunge we believe is a short-term correction in an otherwise long-term positive trajectory, as the industry’s fundamental growth drivers haven’t changed. The overall financial services industry is enormous and very profitable yet struggles with innovation and customer experience. More than half the world’s population remains unbanked or underbanked, and technology continues to unlock new use cases in leaps and bounds.
The fintech sector, currently holding a mere 2% share of global financial services revenue, is estimated to reach $1.5 trillion in annual revenue by 2030, constituting almost 25% of all banking valuations worldwide. With 42% of all incremental revenues, the largest market is projected to be Asia-Pacific (APAC), especially emerging Asia (China, India, and Southeast Asia), where fintechs will help expand financial inclusion. North America, the largest fintech market, will follow APAC and remain a critical hub for innovation. Europe and Latin America will continue to experience strong growth—propelled by supportive regulators—and Africa can leapfrog its way to a new financial ecosystem, unencumbered by legacy infrastructure.
While payments led the last era, we expect that B2b (serving small businesses) and B2B2X (B2B to any user) will lead the next. Fintechs serving B2b have ample room to disrupt, as small to mid-sized enterprises (SMEs) worldwide have an estimated $5 trillion in annual unmet credit needs. As businesses across industries at large offer more financial services and incumbents struggle to keep up with the pace of innovation, B2B2X (including embedded finance)—which already constitutes 25% of all fintech revenues—is expected to become increasingly relevant in meeting the growing demand for fintech solutions. Spread businesses (e.g., lending platforms and neobanks), disrupters that provide apps and software that streamline online and mobile banking, are most likely to be severely challenged in developed markets, where they will need to access stable and low-cost sources of deposits in order to reduce their cost of capital (e.g., by acquiring a banking license).
By contrast, emerging markets are expected to continue to see disrupter, full-stack models reign as they expand financial inclusion. Large, underpenetrated segments such as insurance and wealth management will continue to see disrupter models challenged, but B2B2X (enablers) will be able to seize significant opportunities. This expectation of growth is not, of course, without risks—especially regulatory, reputational, and macroeconomic.
All stakeholders must therefore seize the moment. Regulators need to be proactive and lead from the front to develop policies that create a collaborative, safe, and open financial ecosystem. Among many potential actions is creating a path to intermediate financial licenses (e.g., the e-money license in the UK) and developing digital public-goods infrastructure (e.g., the Unified Payments Interface, or UPI, in India). Incumbents should partner with fintechs to accelerate their own digital journeys and keep pace with consumer expectations. Fintechs may find that there is no better time than now, during the “fintech winter,” to play offense—while tightening their belts to stay in the game. Some investors are choosing to build long-term positions within the sector, as fintech valuations have undergone a correction.
This report, co-authored by BCG and QED Investors, is a unique and comprehensive study that aims to provide a deep understanding of fintech’s future landscape globally, including data-driven projections by segment and region. We explore the latest trends, challenges, and opportunities in the global fintech market, with a focus on key regions such as APAC, North America, Europe, Latin America, and the Middle East and Africa. The report analyzes the growth of fintech companies across various sub-sectors, including payments, lending, deposits (including neobanking), insurance, wealth management, and financial infrastructure. We also examine the regulatory environment for fintech companies and the impact of emerging technologies such as artificial intelligence (AI), API-based (application programming interface) open connectivity, and distributed ledger technology (DLT). We believe that the insights presented in the report—which are based on extensive research and interviews with industry experts, fintech startups, investors, and regulators—will provide valuable information for entrepreneurs, investors, policymakers, and incumbents in both the fintech sector and the overall financial services industry.
One of the key questions posed by stakeholders in the financial ecosystem concerns the state of fintech evolution: Have most of the major breakthroughs in fintech occurred to date, or are we just at the beginning of the fintech journey? While we at BCG and QED don’t profess to having a crystal ball, we strongly believe that fintech is not just a passing trend but a foundational force that will continue to transform the financial landscape for years to come. So buckle up—the fintech journey is just getting started.
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