Fintech
A new formula for winning in Fintech
- Global fintech revenues grew significantly in 2023; Valuations and financing remain depressed but have recently stabilized
- Themes shaping the industry include integrated finance, connected commerce, open banking and the impact of generative artificial intelligence on productivity
BOSTON , June 26, 2024 /PRNewswire/ — While the fintech sector has navigated choppy waters in recent years, there is vast potential for future growth. As the industry matures, the rules of the game change, with a greater focus on unit economics and profitability rather than growth at all costs. From 2021 to 2023, global fintech revenues grew 14% (at a compound annual growth rate), while both funding and valuations plummeted. Major fintech players have achieved profitability and are expanding rapidly.
This is according to a new report released today by Boston Consulting Group (BCG) and QED investors. The report, Global Fintech 2024: Caution, Profits and Growthdraws on insights from interviews with more than 60 global fintech CEOs and investors to outline the key forces shaping the industry and the trends that will drive innovation.
“Profitability and compliance are the pillars of fintech success today,” says Deepak Goyal, BCG managing director and senior partner and co-author of the report. “They are essential to attracting ongoing investment, scaling operations and building lasting, valuable businesses.”
“With annual global profit of $3.2 trillion on a base of $14 trillion in total revenue, the financial services sector is both huge and ripe for innovation,” says Nigel Morris, Managing Partner at QED Investors . “Fintechs are growing faster than incumbents, and while the $320 billion in fintech revenue represents less than 3% today, exponential advances in GenAI and continued growth in embedded finance mean we are still in the early stages of the transformation journey. fintech, where the separation between winners and losers is becoming evident.”
A new Fintech ecosystem is emerging
After 2021 highs, fintech revenue valuation multiples have fallen from 20x to 4x on average, and funding has fallen 70% and nearly 50% over the past year. However, the global fintech market has continued to grow revenues at a strong pace: 14% over the past two years across the board and 21% excluding cryptocurrencies and China-exposed fintechs (both at a compound annual growth rate) . Governments, especially in countries like Brazil and India, are reaping the benefits of investing in integrated digital public infrastructure, spurring dramatic growth in digital payments and innovation. Perhaps even more noteworthy is that the industry has begun the shift from a “growth at all costs” model to one focused on profitable growth, with margins improving by an average of 9 percentage points.
Four themes will shape the future of fintech
The report outlines four trends that will drive the industry in the coming years:
Integrated finance will constitute a $320 billion market by 2030. The small and medium-sized business (SME) segment will account for about half ($150 billion); the consumer segment, already bustling with activity and adoption in payments, insurance and lending, will be worth $120 billion in revenue by 2030; and the enterprise segment will reach $50 billion in revenue. Established fintechs will continue to reap the lion’s share of the short-term benefits, while larger, more established banks will increasingly increase their share over time.
Connected commerce is ready to take off. Connected commerce is emerging as a long-awaited killer app for banks, creating a new revenue stream, increasing customer loyalty and allowing banks to offer a marketing channel to SMEs and corporate customers. Using granular customer data, banks show hyper-personalized ads to their customers; merchants then pay the bank based on attributable sales or traffic. As key revenue streams continue to come under pressure and deposits risk becoming a commodity in a higher yield environment, connected trading suggests a future model for banks.
Open banking will have a modest impact on banking, but a larger impact on advertising. Open banking will continue to be relevant, but it is unlikely to change the basis of competition in consumer banking. In countries where open banking has had a decade or more to mature, no killer use cases have emerged on the new services front. Of course, this is not to say that open banking will have no impact. But revenue in the connectivity layer will remain modest, with value going to end-use case providers leveraging open banking infrastructure. By contrast, in advertising, access to transaction-level data will enable more timely, targeted and personal offers.
Generative AI will now be a game changer for productivity, followed by product innovation. GenAI is already delivering tangible productivity gains in financial services. For GenAI in fintech, given that their “digital-first” cost structures are heavily skewed towards areas where technology is delivering huge gains (coding, customer support and digital marketing), the impact is likely to be even more pronounced in the short term. GenAI’s use in product innovation will lag behind its productivity uses, but is expected to eventually follow.
To thrive in this new environment, players will need to focus on the following:
- Caution. Consider risk and compliance as a competitive advantage
- Profit. Objective: improve profitability by 25 percentage points
- Growth. Establish conditions for sustainable growth throughout the ecosystem
- For fintechs: beginning the journey to IPO (or strategic sale) and beyond
- For incumbents: Retail banks must become digital engagement platforms
- For governments: Support the creation of comprehensive and integrated digital public infrastructures
Download the publication here:
https://www.bcg.com/publications/2024/global-fintech-prudence-profits-and-growth
Media contacts:
Boston Consulting Group
Eric Gregoire
+1 617 850 3783
[email protected]
QED Investors
Ashley Marshall
+1 518 577-9984
[email protected]
QED Investor Information
QED Investors is a leading global venture capital firm headquartered in Alexandria, Virginia. Founded by Nigel Morris and Frank Rotman in 2007, QED Investors is focused on investing in disruptive financial services companies around the world. QED Investors is dedicated to building great businesses and uses 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, Creditas, Credit Karma, Current, Flywire, Kavak, Klarna, Konfio, Loft, Mission Lane, Nubank, QuintoAndar, Remitly, SoFi, Wagestream, and Wayflyer.
About Boston Consulting Group
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SOURCE Boston Consulting Group (BCG)