The realm of financial technology has emerged as a remarkable catalyst for change. The industry’s growth rate is skyrocketing, exemplifying its exponential trajectory. Commonly known as “fintech,” this digital force has brought about a complete metamorphosis of the entire financial landscape. Those who were initially hesitant to embrace it are quickly overshadowed by the relentless competition.
The Fintech Industry
Fintech often carries a substantial price tag, typically presenting an upfront cost that can induce considerable sticker shock. Nevertheless, the purpose of this technology is to optimize financial services and banking, introducing cutting-edge innovations such as artificial intelligence and blockchain, which are paving the way for new methods of conducting business.
Numerous fields have been significantly impacted by fintech, notably including:
- Personal finance
- Electronic payments
- Venture capital
- Wealth Management
There are various compelling arguments to support the integration of fintech into your business model, particularly when it comes to market share and data analysis, as the numbers consistently demonstrate its superiority.
The global financial sector is projected to reach a staggering value of US$26.5 trillion by 2022, boasting a Compound Annual Growth Rate (CAGR) of 6%. The fintech market share, encompassing 48 fintech unicorns, currently surpasses US$187 billion (as of the first half of 2019), accounting for slightly over 1% of the global financial industry. A 2015 Goldman Sachs study estimated that fintech has the potential to disrupt up to US$4.7 trillion in revenue generated by traditional financial services. In the United States, 60% of credit unions and 49% of banks recognize the significance of fintech partnerships. Digital payment, a leading fintech product, captures a 25% share of the fintech market.
Consumer Experience Modern expectations can only be met through the utilization of top-tier technology. Reflect on it for a moment: would you engage in business with a bank that lacks a website or fails to offer Software-as-a-Service (SaaS) solutions? It’s a straightforward concept, yet there are still financial institutions that persist without these fundamental elements.
Organizations that prioritize customer needs and place them at the forefront of their strategies are the ones that successfully attract and retain prospects. Moreover, traditional bank accounts are expected to become obsolete within the next decade.
- 63% of insurance company CEOs believe that the Internet of Things (IoT) will play a strategically important role in their business.
- E-commerce serves as one of the primary drivers of fintech growth, with a CAGR of 10-12% thanks to evolving consumer behavior.
- The number of consumers worldwide who have utilized one or more fintech platforms has risen to 64%, up from 33% in 2017.
- 60% of consumers express a desire to conduct transactions with financial institutions that offer a unified platform, such as social media or mobile banking apps.
- An overwhelming 96% of global consumers are familiar with at least one fintech service or company.
The ability to perform any financial task through a smartphone and mobile applications has revolutionized the user experience within the banking industry. Bridging the gap between these two worlds is crucial for modern business achievements, and payment service companies are leading the charge.
This year, an astounding 90% of users are expected to make mobile payments through their smartphones. By 2022, mobile transactions are projected to experience a remarkable growth rate of 121%, constituting 88% of all banking transactions. Consumer spending in app stores worldwide is estimated to surge by 92%, reaching $157 billion in 2022. By 2022, nearly 78% of the United States millennial population will have transitioned to digital banking. The use of cash in all point-of-sale transactions has plummeted by 42% since 2019 and is predicted to become the least utilized payment method within the next four years.
Blockchain serves as a distributed ledger technology (DLT) capable of storing data globally across thousands of servers. Essentially, it provides a means for individuals and companies to conduct business while utilizing cryptocurrencies like Bitcoin for payments. The transactions are encapsulated within “blocks” that form an immutable chain. This financial technology is revolutionizing central banks and financial markets.
Approximately 24% of individuals worldwide are already familiar with blockchain technology. Blockchain and regtech (regulatory technology) are two of the fastest-growing segments within the fintech industry. By 2024, the value of blockchain technology is expected to reach US$20 billion. Peer-to-peer (P2P) lending, a digital lending aspect, witnessed a value of US$43.16 billion in 2018, and it is projected to surge to US$567.3 billion in 2026, exhibiting a CAGR of 26.6%.
Another facet of fintech, Artificial Intelligence (A.I.), manifests as machine-based intelligence, encompassing various forms ranging from simple automation to complex machine learning. In the financial sector, it is frequently employed to carry out mundane tasks that would otherwise necessitate human intervention and remuneration.
The prevalence of superior banking-related chatbot interactions is set to surge by a staggering 3,150% between 2019 and 2023. By this year, Robo-advisors are anticipated to manage assets worth $2 trillion. A.I. is projected to power 95% of all customer interactions within the next decade, with consumers displaying a preference for machine interaction over human interaction. A.I. technologies are expected to enhance labor productivity by up to 40% by 2035. On average, artificial intelligence has the potential to boost industry profitability by 39% by 2035.
What the Future Holds
Fintech has indelibly transformed the market landscape. Among traditional financial institutions, 82% plan to enhance their collaboration with fintech companies within the next three to five years, driven by the fear of losing their competitive edge. In fact, 88% of incumbent financial institutions believe that standalone fintech companies will acquire a portion of their business within the next five years, instilling genuine apprehension. Consumers demand a seamless digital experience when managing their funds. Financial companies must diligently work towards providing such an experience, as failure to do so could result in loss of market share. These expectations have fostered novel partnerships between fintech startups, technology companies, and well-established financial institutions.
It is not uncommon to witness fintech firms with a Business-to-Consumer (B2C) model transitioning towards a Business-to-Business (B2B) approach. These brands subsequently offer their technology to larger companies, allowing them to access broader client pools.
Ultimately, fintech is no different from other disruptive technologies prevalent in various industries, such as medical technology (martech). Even for small businesses, it would be wise to consider investing in fintech for the future. While you might have managed to scrape by last year, the pace at which technology advances surpasses you in mere nanoseconds.