Fintech projected to become 1 5 Tn industry by 2030 report

Financial technology revenues are projected to grow sixfold from $245 billion to $1.5 trillion by 2030, according to a new report released today by Boston Consulting Group (BCG) and QED Investors. The fintech sector, which currently has a 2 percent share of $12.5 trillion in global financial services revenue, is projected to grow up to 7 percent, of which bank fintech is expected to account for nearly 25 percent of all bank valuations worldwide. 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,” said Deepak Goyal, managing director of BCG and senior partner and co-author of the report. “The customer experience is still bad. More than half of the world’s population remains unbanked or underbanked, and technology continues to unlock new uses by leaps and bounds. All stakeholders must therefore seize the moment. Regulators must be proactive and lead from the front. The incumbents should collaborate with fintechs to accelerate their own digital journeys.”

“For emerging markets, innovation in finance is critically important, as is risk management. The new paradigm will be to get a lot of fintech innovation to happen by leveraging public digital goods and an imposed highly regulated open banking framework. We believe this will making Asia Pacific the most productive region for Fintech innovation”, says Saurabh Tripathi, who leads BCG’s Financial Institutions practice in Asia Pacific.

“Attractive demographics, indigenous technology and engineering capabilities, cautious regulations coupled with the sheer necessity to innovate to accelerate the upliftment of large swathes of humanity make APAC the center of gravity for Fintechs. To fulfill our destiny in APAC, the fintech community must ensure that this the opportunity is served by us with the highest standards of governance, fiscal prudence and risk management, says Yashraj Erande, MD & Partner, BCG.

“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,” said 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 Europe, but also in developing fintech markets in Latin America, Asia and Africa, where 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 nearly $4 trillion 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 annual growth rate (CAGR) of 27%. This growth will primarily be driven by emerging APAC (e.g. China, India and Indonesia), as it has the largest fintechs, voluminous underbanked populations, a high number of SMEs, and a growing tech-savvy youth and mid-sized class . North America, which 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 by 2030, with the US accounting for an estimated 32% of global fintech revenue growth (a CAGR of 17 percent).

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 have established fintech landscapes, are estimated to show a revenue CAGR of 29 percent over the same time frame. The report projects a fintech revenue CAGR of 32 percent until 2030 in Africa, with South Africa, Nigeria, Egypt and Kenya as 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 about 25 percent of cumulative equity funding ($120 billion) since 2000. And according to the report, the sector will grow fivefold to $520 billion, driven by cross-border payments, “payments- 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 25 percent CAGR to reach $440 billion in annual revenue by 2030, supported by growth in embedded finance and financial infrastructure; while the B2b fintech market is expected to grow at a 32 percent CAGR to reach $285 billion in annual revenue by providing solutions to credit-starved and underserved 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.