The fintech industry is poised for significant growth despite recent challenges, according to a recent report by Boston Consulting Group (BCG), a management consulting firm, and QED Investors, a venture capital firm specialising in fintech, titled Global Fintech 2024: Prudence, Profits, and Growth.
Drawing insights from interviews with over 60 global fintech CEOs and investors, the report highlights a shift towards sustainable economics and profitability over unchecked expansion.
From 2021 to 2023, global fintech revenues grew annually by 14%, despite declining funding and valuations.
The report underscores that major fintech players are now achieving profitability and rapidly scaling up, reflecting evolving industry dynamics and innovation trends.
Deepak Goyal, Managing Director & Senior Partner, BCG, stated: “Profitability and compliance are now the cornerstones of fintech success. They are essential for attracting continued investment, scaling operations, and building lasting, valuable companies.”
Following the peak of 2021, fintech revenue valuations have markedly decreased, with average multiples falling from 20x to 4x, accompanied by a 70% decline in funding overall and nearly 50% in the past year alone.
The global fintech market has sustained robust revenue growth, expanding by 14% over the last two years across all sectors and by 21% when excluding fintechs exposed to cryptocurrency and China (both on a compounded annual growth basis).
Governments, particularly in countries such as Brazil and India, are seeing significant returns on investments in integrated digital public infrastructure, driving substantial growth in digital payments and innovation.
The industry is shifting away from a growth-at-all-costs approach to one focused on profitable growth, with average margins improving by 9 percentage points.
“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,” added 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.”
The report outlines four pivotal trends shaping the future of fintech. Embedded finance is forecasted to reach $320 billion by 2030, driven by SMBs ($150 billion), consumer services like 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 enhancing customer loyalty through targeted marketing based on detailed data. This is particularly relevant as traditional revenue sources face pressure in a potentially higher-yield environment.
Open banking’s impact on consumer banking competition is limited, but it significantly influences advertising by enabling personaliSed offers. Its direct revenue impact remains modest, yet it empowers innovative use cases leveraging its infrastructure.
According to BCG, Generative AI (GenAI) is boosting productivity in fintech operations such as coding and customer support. Its potential in product innovation is promising but still evolving.
To thrive, the report stated, stakeholders should prioritise prudent risk management, aim to increase profitability significantly, foster sustainable growth, prepare for IPOs or strategic sales, and support comprehensive digital public infrastructure development.
