The fintech sector is poised for significant growth despite recent challenges, according to a recent report from Boston Consulting Group (BCG), a management consulting firm, and QED Investors, a venture capital firm specializing in fintech, titled Global Fintech 2024: Prudence, Profits, and Growth.
Drawing on interviews with more than 60 global fintech CEOs and investors, the report highlights a shift towards sustainable economics and profitability rather than uncontrolled expansion.
From 2021 to 2023, global fintech revenue grew by 14% annually, despite declining funding and valuations.
The report highlights that major fintech players are now achieving profitability and growing rapidly, reflecting changing industry dynamics and innovation trends.
Deepak Goyal, Managing Director and Senior Partner at BCG, said: “Profitability and compliance are now the cornerstones of fintech success. They are essential to attracting continued investment, scaling operations and building sustainable, profitable businesses.”
After the 2021 peak, fintech revenue valuations have declined significantly, with average multiples dropping from 20x to 4x, accompanied by a 70% decline in overall funding and nearly 50% in the past year alone.
The global fintech market has seen robust revenue growth, up 14% over the past two years across all sectors and 21% excluding fintechs with exposure to cryptocurrency and China (both on a compound annual growth basis).
Governments, particularly in countries like Brazil and India, are seeing significant returns on investment in integrated digital public infrastructure, which is driving substantial growth in digital payments and innovation.
The industry is moving away from a growth-at-all-costs approach to focus on profitable growth, with average margins improving by 9 percentage points.
“With an annual global profit pool of $3.2 trillion on a $14 trillion total revenue base, the financial services sector is both massive and ripe for innovation,” added Nigel Morris, Managing Partner of QED Investors.
“Fintechs are growing faster than traditional players and while the $320 billion in fintech revenues today represent less than 3%, the exponential advances of GenAI and the continued growth of embedded finance mean we are only at the beginning of the fintech journey, where the separation between winners and losers is becoming clear.”
The report highlights four key trends that will shape the future of fintech. Embedded finance is expected to reach $320 billion by 2030, driven by SMEs ($150 billion), consumer services like payments and insurance ($120 billion), and enterprises ($50 billion). Established fintechs will benefit initially, while large banks are expected to gain market share over time.
It was also highlighted that connected commerce is becoming crucial for banks, offering new revenue streams and strengthening customer loyalty through targeted marketing based on detailed data. This is particularly relevant in a context where traditional revenue streams are under increased pressure in a potentially more profitable environment.
The impact of open banking on competition in the consumer banking sector is limited, but it significantly influences advertising by enabling personalized offers. Its direct impact on revenue remains modest, but it enables innovative use cases by leveraging its infrastructure.
According to BCG, generative AI (GenAI) improves the productivity of fintech operations such as coding and customer support. Its potential for product innovation is promising but constantly evolving.
To thrive, the report says, stakeholders must prioritize prudent risk management, aim to significantly increase profitability, drive sustainable growth, prepare for IPOs or strategic sales, and support the full development of digital public infrastructure.
