The fintech sector is estimated to reach $1.5 trillion in annual revenue by 2030
In just two short decades, fintech – a fusion of „finance” and „technology” – has burst onto the scene and revolutionized the financial services industry as we know it.
This dynamic sector has been fueled by several innovations that have shaped a generation, with one innovation seemingly more groundbreaking than the other.
Despite the sector’s rapid rise, fintechs have lost more than half of their market value on average in 2022 – a slump that could be a short-term correction in an otherwise positive long-term trend, as the fundamental growth drivers of the industry have not changed.
The financial services industry as a whole is huge and very profitable, but struggles with innovation and customer experience.
More than half of the world’s population still has no or too few bank customers, and technology continues to open up new use cases in leaps and bounds.
The fintech sector, which currently accounts for only 2% of global financial services revenue, is estimated to generate $1.5 trillion in annual revenue by 2030, accounting for nearly 25% of all global bank valuations.
With 42% of all additional revenue, the largest market is expected to be Asia Pacific (APAC), particularly 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 key hub for innovation. Europe and Latin America will continue to see strong growth fueled by supportive regulators, and Africa can make the leap to a new financial ecosystem no longer hampered by legacy infrastructures.
″While payments led the last era, we expect B2b (for small businesses) and B2B2X (B2B for any user) to lead the next. Fintechs operating in the B2b space have ample room to innovate, as small and medium-sized enterprises (SMEs) worldwide have an estimated annual unmet credit need of $5 trillion,″ shows a report co-authored by BCG and QED Investors.
As more financial services are offered across industries and incumbents struggle to keep up with the pace of innovation, B2B2X (including embedded financial services) – which already accounts for 25% of all fintech revenue – is expected to become increasingly important in meeting the growing demand for fintech solutions.
Spread companies (e.g., lending platforms and neobanks), disruptors that offer apps and software that streamline online and mobile banking, are most likely to be squeezed in developed markets, where they need access to stable and low-cost deposit sources to lower their cost of capital (e.g., by acquiring a banking license).
In contrast, disruptive, comprehensive models are expected to continue to prevail in emerging markets as financial inclusion expands.
Large, underpenetrated segments such as insurance and wealth management will continue to be challenged by disruptive models, but B2B2X (enablers) will be able to capture significant opportunities.
Of course, this growth expectation is not without risks – especially in terms of regulation, reputation, and macroeconomic factors.
All stakeholders must therefore seize the moment. Regulators need to be proactive and take the lead in developing policies that create a cooperative, safe and open financial ecosystem.
Among the many possible actions are creating a path to intermediate financial licenses (e.g., the e-money license in the United Kingdom) and developing a digital infrastructure for public goods (e.g., the Unified Payments Interface or UPI in India).
Incumbents should work with fintechs to accelerate their own digital development and keep pace with consumer expectations.
There could be no better time than now, during the so-called „fintech winter,” for fintechs to go on the offensive – while tightening their belts to stay in the game.
Some investors are choosing to build long-term positions in the sector as fintech valuations have corrected.