The State of Fintech: Shaping a Financial Landscape for the Future

In a span of a mere two decades, the convergence of finance and technology—popularly termed as “fintech”—has unleashed a seismic disruption upon the financial services sector. This dynamic domain has been fueled by a series of innovations that have not only shaped a generation but have also redefined the contours of traditional finance. That is what the new report, Global Fintech 2023: Reimagining the Future of Finance, published by global consulting firm Boston Consulting Group has found. 

The State of Fintech: Shaping a Financial Landscape for the Future

The ascent of fintech, marked by a relentless wave of innovations, has sparked a profound transformation within the financial services arena. This fusion of finance and technology has orchestrated a renaissance, rewriting the rules of engagement across a plethora of financial activities.

“While fintechs were perceived as largely tangential to the financial services industry until about five years ago, the pandemic served as a catalyst for broad consumer adoption of digital financial services. As a result, fintechs have now become mainstream in certain segments, especially payments and transaction banking, which have been fundamentally transformed by players such as Stripe, Square, Alipay, and a few others. Some fintechs, such as PayPal in the US, Nubank in Brazil, and PayTM in India, have become household names. Today, there are roughly 32,000 fintechs globally,” was mentioned in the report.

Despite the astonishing ascent of the sector, 2022 witnessed an intriguing phenomenon—fintech companies collectively lost over 50% of their market value. Experts view this plummet as a transient correction within a larger, enduring positive trajectory. The fundamental growth catalysts driving the industry remain steadfast. With a financial services industry of mammoth proportions and enviable profitability, the sector grapples with the dual challenges of innovation and customer experience. Alarmingly, over half of the world’s population remains either unbanked or underbanked, underscoring the vast untapped potential that technology can harness.

Fintech’s Projected Surge: A Glimpse into the Future

Currently, the global $12.5 trillion financial services industry is concentrated in North America and APAC, with a relatively even split between banking and insurance. By 2030, global banking and insurance revenue pools are expected to reach $21.9 trillion, a 6% compound annual growth rate (CAGR). Payments and deposits are expected to be the fastest-growing segments, with APAC and Latin America seeing the most expansion.

The Asia-Pacific (APAC) region, especially emerging Asia encompassing China, India, and Southeast Asia, is anticipated to command a pivotal role in this trajectory. By expanding financial inclusion, fintechs are primed to capture 42% of all incremental revenues. The North American market, a vanguard of fintech, will closely trail APAC in significance, remaining a vibrant crucible of innovation. Europe and Latin America are slated for robust growth, propelled by regulatory support, while Africa envisions an unburdened leap into a novel financial ecosystem, liberated from legacy structures.

Next Frontiers in Fintech

While the preceding era witnessed payments spearheading the fintech revolution, the future hinges on two distinct trends: Business-to-Business (B2B) and Business-to-B2X (B2B to any user). 

The landscape is ripe for disruption in the B2B realm, particularly catering to the unmet credit needs of small to mid-sized enterprises (SMEs), which constitute a staggering $5 trillion annually. Moreover, as incumbents grapple to match the pace of fintech innovation, the Business-to-B2X landscape, which encompasses embedded finance, is poised for exponential growth. Already contributing 25% of all fintech revenues, this avenue is projected to bridge the escalating demand for fintech solutions.

Challenges and Opportunities on the Horizon

While these growth prospects are enticing, they are not devoid of risks—chiefly regulatory, reputational, and macroeconomic concerns. Thus, all stakeholders are called upon to seize the moment. Regulators are tasked with shaping policies that foster a secure, collaborative, and open financial ecosystem. Incumbents stand to gain by partnering with fintechs to hasten their digital transformations and align with evolving consumer expectations. Fintechs themselves are presented with an opportune moment, even during the “fintech winter,” to navigate through challenges and proactively steer their growth trajectory.

This comprehensive report, co-authored by BCG and QED Investors, provides an illuminating exploration into the future landscape of fintech across the globe. Drawing from data-driven projections and extensive industry insights, the report spans regions such as APAC, North America, Europe, Latin America, and the Middle East and Africa. It delves into sub-sectors including payments, lending, deposits, insurance, wealth management, and financial infrastructure, offering a panoramic view of the fintech ecosystem. Regulatory environments and the role of emerging technologies like AI, API-based connectivity, and DLT are also scrutinized. With insights derived from industry experts, startups, investors, and regulators, this report serves as an indispensable resource for entrepreneurs, policymakers, investors, and incumbents alike.

Ultimately, the question of fintech’s evolution transcends the realm of speculation. The journey has merely commenced, and the future promises an enduring fintech revolution that will continue to reshape the financial landscape, heralding transformative changes for years to come.