The financial technology (fintech) industry—just like any other sector—is undergoing changes and facing its own unique challenges in this time of COVID-19. If you have yet to wrap your head around the idea of ordering everything from groceries to your latest gadget online, then brace for more radical transformations currently in the works in the financial industry. These fintech trends will simply impact everything that involves money, from payment to banking.
Blockchain is set to take the stage big time, pushing the capabilities of digital wallets. Nations will be happy to adopt all these tremendous technologies if regulations, security, and national standards are well in place.
Despite the chaos and uncertainties that COVID-19 brought upon economies worldwide, fintechs across the globe reported growth on average in Q1 and Q2 2020 (University of Cambridge, 2020). Though this growth was not the same for all regions. and markets, the industry as a whole was quick to respond to the challenges of the pandemic by tweaking their products and services or adding new ones based on ongoing market conditions.
However, fintechs still contend with significant headwinds in operations, fundraising, and regulatory challenges across the world. For example, before the pandemic happened, fintech startups were already having difficulties in funding as many investors chose to prioritize fintech with an established and clear business model (Deloitte, 2020). There are also interest cuts and the global slowdown of economies that fintechs need to face.
On the upside, experts believe that the fintech industry will be able to take advantage of new opportunities created by the COVID-19 crisis. The continued social distancing requirements, for instance, are pushing the need for digital payments. Digital wallets are booming with nations in a virtual scramble to set national standards.
When the pandemic began, the usage of digital wallets surged to 83% and pundits project the industry will be worth over $10 trillion a year by 2025 (TelecomTV, 2021). Moreover, 2020 saw over 779 billion digital transactions worldwide, which is expected to grow 13% in the coming years and making cash payments the least common payment method by 2022 (Capital On Tap, 2020).
The Fintech Industry
Fintech often comes with a large price tag. Usually, this is an upfront cost and can cause quite a bit of sticker shock. However, the technology is aimed to optimize financial services and banking. Cutting-edge innovations like artificial intelligence and blockchain are ushering new ways of doing business.
There are many fields affected by fintech, particularly:
- Personal finance
- Electronic payments
- Venture capital
- Wealth Management
In the coming years, all of these are getting a digital facelift. The tides are turning and more than ever, companies need to get on board or risk sinking the ship. Brands who are pioneers in the fintech sector include:
- Goldman Sachs
- JP Morgan
To drive the point home, we’ve compiled a list of some of the most recent stats to support the argument that fintech is the future and won’t be going anywhere, anytime soon.
There are a lot of general arguments to make for the fintech market and working this into your business model. When it comes to market share and data analysis, the numbers always come out on top.
- The global financial sector is expected to be worth US$26.5 trillion in 2022 with a CAGR of 6%.
- The fintech market share across 48 fintech unicorns is now worth over US$187 billion (as of the first half of 2019). That is slightly over 1% of the global financial industry.
- In a 2015 Goldman Sachs study, it was estimated that fintech may eventually disrupt up to US$4.7 trillion of revenue that traditional financial services now make.
- 60% of credit unions and 49% of banks in the U.S. believe that fintech partnership is important.
- One of the biggest fintech products is digital payment, which holds 25% of the fintech market.
Contemporary expectations can only be met with the best technology. Think about it. Would you do business with a bank that didn’t have a website or offer a form of SaaS? It’s that simple and yet there are still financial institutions like this that exist.
The organizations that put customer needs at the forefront of strategies are those that win the prospects and keep them. Besides, bank accounts are likely to be obsolete in another decade.
- 63% of insurance company CEOs believe IoT will be strategically important to their business.
- E-commerce is one of the biggest growth drivers of fintech, with a CAGR of 10–12% thanks to consumer behavior.
- 64% of consumers worldwide have used one or more fintech platforms, up from 33% in 2017.
- 60% of consumers want to transact with financial institutions that provide a single platform, such as social media or mobile banking apps.
- 96% of global consumers are aware of at least one fintech service or company.
The ability to perform any financial task with a smartphone and mobile app has shaped the user experience of banking. It’s important that the two world’s meet, so modern business can be accomplished. Payment service companies are leading this brigade.
- This year, 90% of users will make a mobile payment with their smartphone.
- By the year 2022, mobile transactions are projected to grow by 121%. This will eventually comprise 88% of all banking transactions.
- Consumer spending in an app store is projected to increase by 92% to $157 billion worldwide in 2022.
- By the year 2022, almost 78% of the United States millennial population will become digital banking users.
- The use of cash at all point of sales has dropped by 42% since 2019 and is projected to be the least-used payment method within four years.
Blockchain is a distributed ledger technology (DLT) that allows data to be stored globally on thousands of servers. It’s simply a means of two people/companies doing business and using a form of cryptocurrency (like bitcoin) as payment. The agreement is what forms the “block” in the chain. It’s a type of financial technology that is revolutionizing central banks and financial markets.
- Approximately 24% of people around the world are already familiar with blockchain technology.
- Blockchain and regtech (regulatory technology) are two of the fastest-growing segments of the fintech industry.
- By 2024, blockchain tech is set to hit US$20 billion.
- Peer-to-peer (P2P) (digital lending) was worth US$43.16 billion in 2018 and is expected to rise to US$567.3 billion in 2026 with a CAGR of 26.6%
Another type of fintech, A.I. is intelligence demonstrated by a machine. This can come in many forms from simple automation to complex machine learning. In the financial sector, it is often used to perform menials tasks that a business would otherwise need to pay a worker to do.
- Superior banking-related chatbot interactions will grow by 3,150% between the years 2019 and 2023.
- By this year, Robo-advisors are expected to manage $2 trillion in assets.
- AI will power 95% of all customer interactions in the next decade, with consumers expected to prefer interaction with machines over humans.
- AI technologies are expected to increase labor productivity by up to 40% until the year 2035.
- Artificial intelligence could increase the profitability of all industry by an average of 39% by 2035.
What the Future Holds
Fintech has already altered the market forever. Among traditional financial organizations, 82% plan to increase collaboration with fintech companies in the next three to five years. That’s because many companies fear they will lose out. 88% of incumbent financial institutions believe a part of their business will be lost to standalone fintech companies in the next five years. So, there is real fear there.
Consumers demand a seamless digital experience when handling their funds. Financial companies must work to provide this for them or risk losing out. These expectations have given rise to new partnerships between fintech startups, technology companies, and established financial institutions.
It is not rare to see a fintech firm with a B2C model shift to a B2B approach. The brand then offers the technology to larger companies to access greater client pools.
Ultimately, fintech is no different than the technology that is disruptive in other industries (medical=martech). It would be wise, even for a small business, to consider a fintech investment for the future. Last year you may have been able to slide by, but once technology catches up, it surpasses you in nanoseconds.