Report | Dec 13, 2023

Image: Unsplash/Markus Spiske

McKinsey Report Highlights Fintech Growth Trends

As detailed in a recent McKinsey report, the banking industry continues to evolve, driven by rapid digitalization and changing consumer preferences, positioning fintechs at the vanguard of reshaping financial services. Innovative approaches are challenging traditional banking models and creating new paradigms for customer engagement and service delivery in the financial sector.

Venture Capital Surge and Market Correction

• The fintech sector experienced a remarkable growth spurt, with venture capital investments escalating from $19.4 billion in 2015 to $33.3 billion in 2020.
• Following a pandemic-driven surge in 2021, which saw funding peak at $92.3 billion, the industry underwent a market correction, resulting in a 40% decline in fintech funding to $55 billion, and reduced deal activity, and fewer IPOs

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• Despite the downturn, the fintech sector managed to maintain a relatively stable share of the total venture capital funding over a five-year period, showcasing resilience amidst changing conditions and geopolitical uncertainties.
• The industry’s resilience is evident, with fintech funding remaining stable at 12% of total VC funding, despite a year-over-year decline.
• Fintechs are now prioritizing sustainable growth while moving away from the previous experimental and risk-taking approach.

Future Growth Projections

• The fintech sector has seen remarkable growth, with publicly traded fintechs reaching a market capitalization of $550 billion as of July 2023, doubling since 2019.
• The number of fintech unicorns has also surged to over 272, with a combined valuation of $936 billion, up for just 39 firms valued at $1 billion or more five years ago, highlighting the sector’s rapid expansion and investor interest.

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• Projections suggest that fintech revenues could grow almost three times faster than those in the traditional banking sector from 2022 to 2028, highlighting the sector’s potential for continued expansion and innovation.

Growth Trends

• Emerging markets can drive significant growth with their high fintech penetration and large underbanked populations, offer substantial growth opportunities.
  • For instance, Africa’s mobile account penetration and the increasing demand for fintech solutions in Asia underscore the potential in these regions.
  • Fintech revenues in emerging markets are expected to rise significantly, contributing to a larger share of global fintech revenues by 2028.
• Fintechs are advised to focus on building a strong core business, expanding into adjacent industries and geographies, and implementing cost discipline. This includes tailoring value propositions to specific markets, managing costs effectively, and pursuing strategic mergers and acquisitions.

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• Maintaining a culture of innovation is crucial for fintechs to retain their competitive edge. Fintechs need to continue innovating in areas like digital payments, open banking, and core banking technology to meet evolving customer needs and stay ahead of traditional financial institutions.
• Digital adoption in banking has become the norm, with approximately 73% of global banking interactions now occurring through digital channels.
  • 41% of retail consumers plan to increase their engagement with fintech products, especially in developing economies.
  • This digital shift has elevated fintechs to a level of consumer trust and satisfaction comparable to traditional banks.
• The demand for B2B fintech solutions is growing.
  • In the United States, 35% of SMEs are considering fintechs for services like lending and integration with existing platforms.
  • In Asia, 20% of SMEs are already leveraging fintechs for payments and lending.

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Conclusion

Fintechs are key drivers of change.  As they navigate through market corrections and capitalize on emerging opportunities, fintechs have their eyes set on sustainable growth.  Armed with a keen understanding of evolving customer needs, fintechs are poised to lead the next wave of financial evolution.

The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada’s Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org