Financial technology – fintech – continues to take new strides in 2023. It excels in using technology (especially digital) to innovate in the financial sector by making services more accessible, faster and cheaper for consumers. In this industry report, we explore the current fintech landscape for our investor readers including market capitalisation and segmentation, key players, new entrants, trends, risks and opportunities in this exciting space.
Market overview: fintech in 2023
Globally, the fintech market was valued at $133.84bn (USD) in 2022 – projected to reach 556.58bn (USD) by 2030, representing a compound annual growth rate of 19.5%. The average transaction value per user has also been rising. In 2017, this stood at $12,390 and it reached $19,760 in 2023 – forecast to grow to $25,530 in 2027. A similar trend can be seen in assets under management (AUM), which was $0.29 trillion in 2017 but is expected to reach $5.27 trillion by 2027.
The fintech market encompasses a broad range of segments divided by deployment mode (on-premise/cloud), application (e.g. loans, insurance and personal finance), technology (e.g. artificial intelligence and blockchain), end user (e.g. banking and securities) and region. Transaction values are expected to rise between 2023-27 in all regions
Key players & trends
Fintech is increasingly adopted by established corporations including large financial institutions such as Goldman Sachs. IBM, Cisco Systems and Microsoft have also moved into the space using mergers, acquisitions, product portfolio expansion and other strategies as they seek to ride the projected fintech “growth train”.
Banking (or neobanking) is expected to dominate the growth of fintech between now and 2030. This is partly driven by the proliferation of internet-enabled smartphones, which has popularised mobile banking across multiple customer segments. Indeed, whilst some analysts have argued that fintech originally sought to displace traditional banks from their market dominance, the latter have increasingly partnered with fintech companies to help them achieve better user experiences and larger economies of scale.
Yet fintech is not just limited to banking innovation – it also encompasses areas such as digital payments, digital investment and digital capital raising. New digital assets such as cryptocurrencies and NFTs (non-fungible tokens) have also opening up new opportunities for investors and traders. The COVID-19 pandemic was a pivotal factor in driving accelerating a global shift towards digital payments and investments (e.g. due to remote working). Opportunities for fintech innovation have also been opened up by big strides forward in technologies such as machine learning, AI and blockchain.
New entrants & startups
Fintech has a very healthy global diversification for fintech startups – although the EMEA and the Americas retain the dominant regions. In 2018, the former had 3,581 startups whilst the latter had 5,686. By 2023, the figures stood at 9,681 and 11,651, respectively. Within the APAC region, there has also been some impressive growth in startup births, from 2,864 (2018) to 5,061 (2023).
For UK investors, there are many home-grown candidates to consider. Curve is a mobile banking platform started in 2015, with $1.2bn funds raised to date. Curve allows users to link every account and card into a single location for easy management. One notable feature of this fintech is its “Flex” product, which allows users to “go back in time” and convert previous payments (up to one year ago) into 3-12 month installment loans.
Another interesting startup is Landable which offers loans to customers via an online platform. Set up in 2014, it has raised $1.6bn so far from 19 investors. Its particular focus is on supporting the growth of fintechs in traditionally unbanked and underbanked people and businesses across Africa, Latin America and Asia.
A third case study is ManyPets – a fintech specialising in pet insurance. They cover 600,000 pets globally and have an average 300% growth over the last 3 years. Launched in 2017, the company offers up to £15,000 of vet fee cover and 20% of the premium is given back to customers at the end of the year if a claim has not been made.
Opportunities & risks
Perhaps one of the most exciting aspects of fintech is its potential for higher financial inclusion. Fintechs are often able to serve customer segments that traditional banks have long ignored. This presents many companies with a “blue ocean” of market opportunity, with a significant runway for growth.
New technologies can give fintechs a huge advantage – especially if they create them. Big data can be used to analyse huge amounts of previously unknown customer data, presenting new insights and ideas for product development. In many developing countries with ageing financial infrastructure, fintech can help address serious macro issues which are presenting barriers to inclusion in places like Latin America, Africa and Asia.
However, fintech still has big barriers to overcome. Fintech faces many of the same regulatory hurdles as banking, meaning they have to adhere to strict criteria as online lenders, digital wallets and deposit platforms. Internationally, fintech also continues to struggle with divergent regulations between jurisdictions. Hefty fines might be imposed if a fintech even inadvertently violates another country’s laws. Finally, fintech must also contend with data security risks. As online platforms, they are the natural targets of cyberattacks. A robust security structure and process will be required to mitigate data breaches and outages/downtime.
If you are interested in expanding your portfolio into these kinds of exciting spheres of investing, then we invite you to get in touch with us here at Bure Valley and to consider joining our exclusive investor network:
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