- Global Fintech Revenues Grew Robustly in 2023; Valuations
and Funding Remain Depressed but Have Stabilized Recently
- Themes Shaping the Industry Include Embedded Finance,
Connected Commerce, Open Banking, and Generative AI's Impact on
Productivity
BOSTON, June 26,
2024 /PRNewswire/ -- While the fintech industry has
navigated choppy waters in recent years, there is vast potential
for future growth. As the sector matures, the rules of the game are
changing, with a greater focus on unit economics and profitability
over growth at all costs. From 2021 to 2023, global fintech
revenues grew by 14% (at a compounded annual growth rate) while
both funding and valuations plummeted. Key fintech players have
achieved profitability and are scaling rapidly.
This is according to a new report released today by Boston
Consulting Group (BCG) and QED Investors. The report,
Global Fintech 2024: Prudence, Profits, and Growth, draws 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 now the cornerstones of
fintech success," says Deepak Goyal,
BCG managing director and senior partner and co-author of the
report. "They are essential for attracting continued investment,
scaling operations, and building lasting, valuable companies."
"With an annual global profit pool of $3.2 trillion on a base of $14 trillion of total revenue, the financial
services industry is both massive and ripe for innovation," says
QED Investors Managing Partner Nigel Morris. "Fintechs are growing
faster than incumbents and, while the $320 billion of fintech revenue represents less
than 3% today, the exponential advances in GenAI and continued
growth in embedded finance means we're still in the early
innings of fintech's journey, where the separation of winners and
losers is becoming apparent."
A New Fintech Ecosystem Is Emerging
Coming off the highs of 2021, fintech revenue valuation
multiples have fallen from 20x to 4x on average, and funding is
down by 70%—and almost 50% in the last year. However, the global
fintech market has continued to grow revenues at a robust pace: 14%
over the past two years across the board, and 21% when
crypto- and China-exposed fintechs are excluded (both at a
compounded annual growth rate). Governments, especially in
countries such as Brazil and
India, are reaping the benefits of
investment in integrated digital public infrastructure, spurring
dramatic growth in digital payments and innovation on top. Perhaps
more notably, the industry has initiated a shift from a "growth at
all costs" model to one focused on profitable growth, with margins
improving by 9 percentage points on average.
Four Themes Will Shape the Future of Fintech
The report outlines four trends that will drive the industry in
the coming years:
Embedded finance will be a $320
billion market by 2030. The small and
medium-size business (SMB) segment will account for about half
($150 billion); the consumer
segment—already humming with activity and adoption in payments,
insurance, and lending—will be worth $120
billion 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
near-term benefits, while larger, more established banks will
increasingly grow share over time.
Connected commerce is poised for
liftoff. Connected commerce is emerging as a
long-awaited killer app for banks, creating a new revenue stream,
increasing customer loyalty, and enabling banks to offer a
marketing channel to their SMB and enterprise customers. Using
granular customer data, banks surface hyper-tailored ads to their
customers; merchants then pay the bank based on either attributable
sales or traffic. As core revenue streams continue to come under
pressure, and as deposits risk becoming commoditized in a
higher-yield environment, connected commerce hints at a future
model for banks.
Open banking will have a modest impact on banking, but a
greater impact on advertising. Open banking will continue
to be relevant, but 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 case has emerged on the
new service front. Of course, this is not to say that open banking
will have no impact. But revenue pools in the connectivity layer
will remain modest, with value accruing to the ultimate 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 be a game changer now for productivity,
with product innovation to follow. GenAI is already
delivering tangible productivity gains in financial services. For
GenAI in fintech, given their "digital-first" cost structures are
heavily weighted toward areas where the technology is delivering
huge gains—coding, customer support, and digital marketing—the
impact is likely to be even more pronounced in the near term. The
use of GenAI in product innovation will lag behind its uses for
productivity, but is expected to follow eventually.
To thrive in this new environment, players will need to focus on
the following:
- Prudence. Seeing risk and compliance as competitive
advantage
- Profit. Aiming to improve profitability by 25 percentage
points
- Growth. Setting the conditions for sustainable growth
across the ecosystem
- For fintechs: Beginning the journey to IPO (or strategic sale)
and beyond
- For incumbents: Retail banks need to become digital engagement
platforms
- For governments: Support the creation of comprehensive and
integrated digital public infrastructure
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
gregoire.eric@bcg.com
QED Investors
Ashley Marshall
+1 518 577-9984
ashley@qedinvestors.com
About QED Investors
QED Investors is a global leading
venture capital firm based in Alexandria,
Va. Founded by Nigel Morris
and Frank Rotman in 2007, QED
Investors is focused on investing in disruptive financial services
companies worldwide. 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
Boston Consulting Group
partners with leaders in business and society to tackle their most
important challenges and capture their greatest opportunities. BCG
was the pioneer in business strategy when it was founded in 1963.
Today, we work closely with clients to embrace a transformational
approach aimed at benefiting all stakeholders—empowering
organizations to grow, build sustainable competitive advantage, and
drive positive societal impact.
Our diverse, global teams bring deep industry and functional
expertise and a range of perspectives that question the status quo
and spark change. BCG delivers solutions through leading-edge
management consulting, technology and design, and corporate and
digital ventures. We work in a uniquely collaborative model across
the firm and throughout all levels of the client organization,
fueled by the goal of helping our clients thrive and enabling them
to make the world a better place.
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SOURCE Boston Consulting Group (BCG)