It’s an understatement to say that the FinTech market has been a hot button topic recently.
From the Robinhood fiasco to a startup boom reminiscent of the dot com craze, both average consumers and venture capitalists are keeping a steady finger on the FinTech pulse.
But, like most industries, FinTech suffered during the emergence of COVID-19.
Mckinsey reports that “investment into the sector dropped by 11% globally” during the first six months of 2020 when “compared to the same period in 2019.”
An 18% drop in investing during July was even more precipitous. But, do these figures represent the industry slowing from a sprint to a crawl?
Maybe, but current data and predictive models say otherwise. Although investments into FinTech startups have slowed, the industry as a whole is still full speed ahead.
Research And Markets appraised the Global FinTech Market at 7301.78 billion dollars in 2020.
And reports the industry is expected to continue its forward momentum – projected to grow at a CAGR (Compound Annual Growth Rate) of 26.87% through 2026.
Additionally, when evaluating business demand for FinTech capabilities through 2024, Gartner predicts that 60% of organizations will seek AI use cases in financial management solutions.
Understanding Demand for FinTech Capabilities
The global financial crisis that happened between 2007 and 2009 ought to be considered when speaking to the rising demand for FinTech products and services.
The “Great Recession” led to a global GDP decline of 5.1% and left millions of people unemployed, without savings, and with mortgages too expensive to handle.
Experts point to rampant deregulation within the financial sector as the primary cause.
It’s hard to say that the financial crisis started the FinTech boom. The consumer reaction to the fallout of the recession, and particularly the reaction to the Wall Street bailout of 2009, comes to mind as a prominent landmark within a period of shifting consumer perception.
In 2006, Gallup found that Americans’ confidence in banks sat at 41%. That number decreased sharply in 2009, when just 22% of Americans expressed high confidence in banks.
In 2012, the percentage reached an all-time low, at 21%.
Although the figure has since risen and now sits at 33%, it’s a sharp decline in confidence amongst a continuing downward trend from the heyday of traditional banks in America, when 60% of Americans expressed high confidence in banks in 1979.
The government reaction to the financial crisis also played a large role in the FinTech boom.
An increase in regulation and government oversight, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010, led to banks giving more attention to compliance, security, and risk management.
While this was welcome, it arguably served to further clog up the already bulging bureaucracy of big banks, leaving less time for innovation in an already slow-to-adopt industry.
The rise of consumer demand in several industries contained within the larger umbrella of the financial industry also cannot be ignored.
The interest in cryptocurrency and retail investing has boomed in recent years. And, financial literacy has shown itself to be a growing trend among today’s consumers.
With a noticeable peak in consumer investing interest occurring in December of 2017, the same month Bitcoin surged to nearly $20,000 after starting the year under $1,000.
The lack of consumer confidence in traditional banks and increased regulations by the government left the financial industry in an interesting predicament.
Innovators in the FinTech field noticed a glaring consumer need for a nimbler, more streamlined and transparent way of banking. Not to mention a massive business need for advanced analytics, automation, and artificial intelligence.
It was clear that the traditional banking model was begging to be disrupted. And that venture capitalists felt the same way. Mckinsey reports venture capital funding for startups in the FinTech space grew more than 25% a year from 2014 on, until the steep decline in 2020.
What’s Next for FinTech?
Banking isn’t the only area of the financial industry that has felt the impact of the FinTech boom. FinTech has changed the concept of finances as a whole.
Companies like LendingHome provide short-term bridge loans for those in real estate. Others seek to simplify the lending process, or allow you to leverage cryptocurrency for loans.
Consumer facing FinTech companies have boomed over the past decade.
The B2B space has benefitted drastically from these products and services as well, whether innovation occurs in-house or through acquisition.
Software solutions such as Fundbox, can analyze large groupings of data and draw credit conclusions in under three minutes, replacing hours of tedious manual labor.
Torpago, a corporate card and expense management platform, automates expense reports and provides virtual credit cards for company employees.
In many cases, those leading the FinTech boom got started in traditional finance.
When asked about the future of FinTech, Brent’s insights and observations align with the data.
“We will continue to see rapid acceleration within the embedded finance space. In 2021, we saw significant adoption and growth, specifically with BNPL companies like Affirm, Klarna and others offering their solutions to consumers via point of sale and check out.”
“In 2022 I anticipate that more software and technology companies will add financial service offerings to complement their core product and generate more revenue per customer.”
“Financial services are going through a massive transformation from the legacy providers.”
“I believe that the enablement companies powering these offerings behind the scenes, such as card issuing and banking as a service will continue to see rapid growth in 2022 and beyond.”
Nothing is certain in this tech-centric business climate as industry leaders and the data say that FinTech innovation and growth will continue trending for the foreseeable future.