Fintech
4 Major Themes Shaping the Future of Fintech: BCG Report
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In recent years, the fintech sector has witnessed various ups and downs; however, the industry has a bright future in the global market. From 2021 to 2023, global fintech revenues grew at a compound annual growth rate (CAGR) of 14% and 21% when excluding fintechs exposed to cryptocurrencies and China. Even though funding has dropped by 70% and valuations have dropped from 20x to 4x on average, the potential for the next few years is still huge.
Four Themes That Will Shape the Future of FinTech
Embedded Finance
Integrated finance will grow to a $320 billion market by 2030, integrating financial services directly into everyday tools and platforms. About half of this market will come from small and medium-sized businesses ($150 billion), while the consumer segment, which includes payments, insurance and loans, will account for $120 billion. The enterprise segment will generate $50 billion. Established fintech companies will benefit the most in the short term, but larger traditional banks will gradually gain a larger share.
Connected commerce
Connected commerce will change the face of banking by creating new revenue streams, increasing customer loyalty, and will also enable banks to offer a marketing channel to their SMB and corporate customers. Banks will use detailed customer data to display personalized ads, and merchants will pay banks based on the sales or traffic generated by these ads. While traditional revenue sources are under pressure, connected commerce offers a promising new business model for banks.
Open Bank
Open banking that allows third-party developers to build applications around financial institutions will continue to be relevant, but it is unlikely to change the basis of competition in consumer banking. However, you will see a greater impact on advertising: access to transaction-level data will enable more timely, targeted and personal offers.
Generative AI
Generative artificial intelligence (GenAI) is already significantly improving productivity in financial services, especially in areas such as coding, customer service, and digital marketing. Fintech companies, with their digital-first approach, are seeing significant benefits. While the impact on new product development will take longer, it is expected to follow as the technology matures.
India; the emerging fintech ecosystem
India is a bright market in fintech as its government is enjoying the fruits of investment in integrated digital public infrastructure, large growth in digital payments and numerous innovations, with a greater focus on unit economics and profitability rather than to growth at all costs with margins improving by 9 percentage points on average. Insights from BCG and QED Investors’ Global Fintech 2024: Prudence, Profits, and Growth report.