Based on research and qualitative interviews with about 100 founders and fintech stakeholders, one report posits a possible future of fintechs.
According to a qualitative report on the global fintech landscape by McKinsey, the boom in such firms saw a market correction in 2022, and there is now a slowdown in the decades-long explosive growth momentum.
As macro-dynamic headwinds become uncertain, funding and deal activity declining across the board —with fewer IPOs and Special Purpose Acquisition Companies listings, as well as a decline in new unicorn creation — the authors of the report assert that fintechs have entered a new era of value creation where the focus is on sustainable, profitable growth.
Key opinions of the report include:
- Fintechs accounted for 5%t of the global banking sector’s net revenue. This share could increase to more than US$400bn by 2028, representing a 15% annual growth rate of fintech revenue between 2022 and 2028, three times the overall banking industry’s growth rate of roughly 6%.
- Emerging markets are expected to fuel much of this revenue growth. Fintech revenues in the Asia Pacific region (excluding China), Africa, Latin America and the Middle East represented 15% of fintechs’ global revenues in 2022, estimated to increase to 29% in aggregate by 2028.
- Fintech funding faced a 40% Year-over-Year (YoY) funding decline from US$92bn to $55bn, after industry funding increased by 177% YoY in 2021. Yet, when analyzed over a five-year period by McKinsey researchers, fintech funding as a proportion of total venture capital funding had remained fairly stable at 12%, registering only a 0.5% decline in 2022.
- To capture the extra US$200bn to US$340bn that generative AI adds to overall banking revenues, the report recommends fintechs to include a medium- to long-term talent strategy and find ways to emphasize change management and adoption. One suggested framework involves:
- Ensure there is a strong and stable core business with a targeted and proven market fit before expanding, rather than trying to grow while strengthening the core.
- Pursue mergers and acquisitions strategically and establish mutually beneficial partnerships based on a programmatic strategy rooted in value sharing (with incumbents and other fintechs), as opposed to pursuing M&A only as a response to a low-valuation environment.
- Control costs to withstand the new funding environment while remaining flexible, nimble, and compliant.
- Maintain the agility, innovation, and culture that have been the bedrock of disruption so far.
