Fintech is expected to become a $1.5 trillion industry by 2030
Asia Pacific is poised to overtake the US to become the world’s largest fintech market by 2030, according to new report
NEW YORK, 3 May 2023 /PRNewswire/ — Financial technology revenues are projected to grow sixfold from 245 billion dollars to 1.5 trillion dollars by 2030, according to a new report released today by Boston Consulting Group (BCG) and QED Investors. The fintech sector, which currently has a share of 2% of 12.5 trillion dollars in global financial services revenues, is projected to grow up to 7%, of which banking fintechs are expected to account for nearly 25% of all banking valuations worldwide by 2030.
The report, Global Fintech 2023: Reimagining the Future of Finance, provides a comprehensive overview of fintech’s future landscape globally and explores the latest trends and opportunities in the global fintech market. It also examines the regulatory environment for fintech companies and the impact of new technologies. By 2022, fintechs lost on average more than half of their market value, but according to the research, this plunge was only a short-term correction in an otherwise long-term positive trajectory.
“The fintech journey is still in its early stages and will continue to revolutionize the financial services industry as we know it,” says Deepak Goyal, BCG managing director and senior partner and co-author of the report. “The customer experience remains poor. More than half of the world’s population remains unbanked or underbanked, and technology continues to unlock new use cases by leaps and bounds. All stakeholders must therefore seize the moment. Regulators must be proactive and lead from the front. should work with fintechs to to accelerate their own digital journeys.”
“This report clearly highlights something that, anecdotally, QED has witnessed first-hand: that the story of fintech is in Chapter 2, not Chapter 8, and that much of this powerful narrative remains to be written,” says Nigel Morris, QED Investor’s managing partner and co-author of the report. “Fintech sits within financial services, which is a massive, profitable industry, and the opportunity ahead of us to democratize access to these services on a global scale is enormous. We expect to see continued growth not only in developed markets in the US and Europebut also in developing fintech markets in LatAm, Asiaand Africa, where the inertia and friction are even greater. QED remains more bullish than ever about the future of fintech and its promise to improve the lives of billions of people worldwide.”
APAC is set to become the largest Fintech market, led by emerging countries
Historically, an underpenetrated market with almost 4 trillion dollars in financial services revenue pools, Asia-Pacific (APAC) is poised to surpass the US to become the world’s top fintech market by 2030, with a projected compound annual growth rate (CAGR) of 27%. This growth will primarily be driven by Emerging APAC (e.g China, Indiaand Indonesia), as it has the largest fintechs, voluminous underbanked populations, a high number of SMEs and a growing tech-savvy youth and middle class. North Americawhich currently has the world’s largest financial services industry, will remain a critical fintech market and innovation hub, projected to grow fourfold to 520 billion dollars in 2030, with the US accounting for an estimated 32% of global fintech revenue growth (a CAGR of 17%).
The UK and EU together represent the world’s third largest financial institution market and are expected to witness major fintech growth through 2030, estimated to more than quintuple by 2021 and led by the payments sector. Similarly Latin American markets, led by Brazil and Mexico, which has established the fintech landscape, is estimated to show a revenue CAGR of 29% over the same timeframe. The report projects a fintech revenue CAGR of 32% until 2030 Africawith South Africa, Nigeria, Egyptand Kenya be the key markets.
While payments led the last era, B2B2X and B2b will lead the next era of Fintech growth
The first part of the fintech journey was led by payments, accounting for approximately 25% of cumulative equity funding (120 billion dollars) since 2000. And according to the report, the sector will increase fivefold 520 billion dollarsdriven by cross-border payments, “payment-plus” models (bill payment and payment apps that offer adjacent services such as wallet services), and the proliferation of use cases driven by real-time payments.
While payments led the last era, B2B2X and B2b (serving small businesses) will lead the next. B2B2X consists of B2B2C (enabling other players to serve consumers better), B2B2B (enabling other players to serve businesses better) and financial infrastructure players. The B2B2X market is expected to grow at a CAGR of 25% 440 billion dollars in annual revenues by 2030, supported by growth in embedded finance and financial infrastructure; while the B2b fintech market is expected to grow at a CAGR of 32% 285 billion dollars in annual turnover by offering solutions to credit-starved and poorly served small businesses.
Diffusion companies in the developed world will face challenges while playing a critical role in emerging markets
Spread businesses in developed markets (which include banks and start-ups, lending platforms, mortgage lenders and credit unions) will face challenges in scaling up profitably and will need to start lending on their own balance sheets while accessing lower cost funds, one method of which is by obtaining a banking license. A significant challenge is that established banks invest heavily in technology to improve the customer experience and value chains, which makes it difficult for new banks to differentiate themselves.
With approximately 2.8 billion underbanked (of whom 50% reside in emerging economies) and an additional 1.5 billion unbanked (75% of whom reside in emerging economies) adults in the world, neobanks will play a key role in expanding financial access.
Regulators must be proactive, not passive
Regulation of fintech has traditionally been relatively light, non-proactive, fragmented, and in some cases even lagging behind. While recent banking crises have made them more sensitive to asset/liability management, in addition to creating guardrails, regulators must ensure that they do not over-regulate the industry and thereby stifle innovation.
Regulators should consider leveling the playing field through such actions as enabling faster pathways for banking and payment institution licenses, supporting digital public infrastructure, and facilitating an open banking ecosystem.
Fintechs need to focus on fundamentals and gambling crimes; Incumbents should accelerate their own digital journeys by embracing Fintechs
The landscape today is much different than it was in 2021 and early 2022 when so many fintechs were able to attract higher funding. Today, fintechs need to save money and stretch their runways to get through the “funding winter” without resorting to raising money at lower valuations. They should therefore consider strengthening their competitiveness and pursue aggressive strategies such as acquiring talent, gaining market share by entering new geographies/markets, and exploring M&A opportunities – while taking an active role in shaping and embracing forward-looking regulations such as increases customer confidence and drives higher valuations.
Historically, established players have tried to buy capacities by acquiring fintechs. To avoid failed acquisitions and shorten fintechs’ time to market, incumbents and fintechs should form “Value-Based Partnerships”, which allow the fintechs to remain independent, but with a clear commercial arrangement that benefits both partners.
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About QED investors
QED Investors is a leading global venture capital firm based in Alexandria, Va. Founded by Nigel Morris and Frank Rothman in 2007, QED Investors is focused on investing in disruptive financial services worldwide. Dedicated to building great businesses, QED Investors takes a unique, hands-on approach that leverages its partners’ decades of entrepreneurial and operational experience, helping companies achieve breakthrough growth. Notable investments include AvidXchange, Betterfly, Bitso, Caribou, ClearScore, Current, Creditas, Credit Karma, Flywire, Kavak, Klarna, Konfio, Loft, Mission Lane, Nubank, QuintoAndar, Remitly, SoFi, Wagestream and Wayflyer.
SOURCE Boston Consulting Group (BCG)
