Fintech
Fintech Sector Shifts Focus to Profitability Amid Growth Challenges: BCG
According to a recent report by Boston Consulting Group (BCG), a management consulting firm, and QED Investors, a venture capital firm specializing in the fintech sector, titled Global Fintech 2024: Prudence, Profits, and Growth, the fintech sector is poised to grow significantly despite recent challenges.
Drawing on data gathered from interviews with more than 60 global fintech CEOs and investors, the report highlights a shift toward a sustainable economy and profitability, rather than uncontrolled expansion.
From 2021 to 2023, global fintech revenues grew 14% annually, despite declining funding and valuations.
The report highlights that major fintech players are now achieving profitability and growing rapidly, reflecting the evolving dynamics of the industry and innovation trends.
Deepak Goyal, Managing Director & Senior Partner, BCG, said: “Profitability and compliance are now the cornerstones of fintech success. They are essential to attracting continued investment, scaling operations and building enduring, valuable businesses.”
Since peaking in 2021, fintech revenue valuations have fallen significantly, with average multiples falling from 20x to 4x, accompanied by a 70% decline in overall funding and nearly 50% in the last year alone.
The global fintech market has seen solid revenue growth, with 14% growth over the past two years across all sectors and 21% excluding cryptocurrency and China-exposed fintechs (both on a compound annual growth basis).
Governments, particularly in countries like Brazil and India, are seeing significant returns on investments in integrated public digital infrastructure, driving substantial growth in digital payments and innovation.
The industry is moving away from a growth-at-all-costs approach to one focused on profitable growth, with average margins improving by 9 percentage points.
“With annual global revenues of $3.2 trillion on a $14 trillion total revenue base, the financial services sector is huge and ripe for innovation,” added Nigel Morris, Managing Partner of QED Investors.
“Fintech companies are growing faster than traditional companies, and while the $320 billion in fintech revenue represents less than 3% today, the exponential advances of GenAI and the continued growth of embedded finance mean we are still early in the fintech journey, where the divide between winners and losers is becoming apparent.”
The report outlines four key trends shaping the future of fintech. Embedded finance is expected to reach $320 billion by 2030, driven by SMBs ($150 billion), consumer services such as payments and insurance ($120 billion), and enterprises ($50 billion). Established fintechs will initially benefit, with larger banks expected to gain market share over time.
It was also highlighted that connected commerce is becoming crucial for banks, offering new revenue streams and improving customer loyalty through targeted marketing based on detailed data. This is particularly relevant as traditional revenue sources come under pressure in a potentially high-yield environment.
Open banking’s impact on consumer banking competition is limited, but it significantly impacts advertising by enabling personalized offers. Its direct impact on revenue remains modest, but it enables innovative use cases by leveraging its infrastructure.
According to BCG, generative artificial intelligence (GenAI) is increasing productivity in fintech operations such as coding and customer service. Its potential for product innovation is promising but still evolving.
To thrive, the report says, stakeholders should prioritize prudent risk management, aim to significantly increase profitability, promote sustainable growth, prepare for IPOs or strategic sales, and support the comprehensive development of a public digital infrastructure.
