Have you ever transferred money through a phone or checked your bank statement using an app? If yes, then you are already a part of a multi-billion industry called FinTech. It is changing the economy globally by changing how we conduct our financial transactions. FinTech has a wide area of operations, including cashless transactions, cryptocurrencies, and AI-based financial advice.
What is FinTech?
The word FinTech is a combination of the words ‘financial’ and ‘technology’. FinTech can be described as automation and improvisation of banking and financial services using technology. The rising use of smartphones, e-commerce, mobile wallet, and digitized money fuel the FinTech industry. FinTech is more consumer-focused rather than business-focused.
In a study, one out of every three people from 20 major economies said that they have used at least two FinTech platforms.
Startups focused on payment and lending are getting the majority of funding. Not only startups, but big established companies are expanding their horizon to FinTech. With more than half of FinTech users, China and India are leading the way.
Development and use of cryptocurrencies such as Bitcoin and Ethereum have also known uses of FinTech. Though this area of FinTech catches most eyeballs, major operations still lie in traditional banking and financial services. FinTech is drastically changing how we pay and borrow money.
How Big is the FinTech Industry?
The FinTech industry is expected to reach a $324 billion industry by 2026. Between 2022 and 2026, the expected compounded annual growth rate (CAGR) for the industry is 25%. The magnitude of growth of e-commerce business is also influencing FinTech. During the same period, the Superlative Annual Growth Rate (SAGR) for e-commerce is anticipated at 12%.
FinTech has knocked down many records of funding in 2021. FinTech funding has increased by 169% from 2020 to $131.5 billion in 2021 – the highest on record. Venture capitalists invested more than double year-over-year – from $46 billion in 2020 to a record $115 billion investment in 2021 in FinTech globally.
As per the KPMG report, FinTech investment in the Asia-Pacific region almost doubled – from $14.7 billion in 2020 to $27.5 billion in 2021. FinTech companies in their early stages are also experiencing higher funding.
Why is FinTech Growing?
The current FinTech industry growth is a result of 3 factors, which we are going to discuss further in the article.
1 . Open banking APIs
Open banking has revolutionized the financial sector. Open banking systems provide the financial information of their customers to third parties using application programming interfaces (APIs).
Payment Initiation Service Providers (PISP) access customers’ bank accounts to enable them to conduct financial transactions through a third-party app. Account Information Service Providers (AISP) can access the customers’ bank account details. Such data gathered from multiple accounts can be used to provide analytics and other services.
Today, every bank has its mobile applications. Such applications enable customers to perform financial transactions and transfer money across the globe within a few clicks. This has accelerated the demand for FinTech in the banking sector. The transaction of money is completely different now.
Now, many platforms provide loans with automated credit history checks. Long, tiring, paperwork is eliminated with the new lending system. Making online payments can be done sitting at your home through a mobile application.
2. Serving People Without a Bank Account
During the pandemic, we relied majorly on contactless payment systems to get our essentials delivered to home. But this is not so obvious to many people around the world.
Approximately 2 billion people worldwide have no bank account. Most of these people are from developing countries like China, India, and Mexico. Even developed countries also have this problem. In the US alone, there are 4.5 million people who do not have a bank account.
Kenya is setting a benchmark in this field. It extended its financial services through a mobile banking system called M-pesa. Kenyans pay bills, transfer money, take loans using M-pesa. Around 96% of people in Kenya are users of this app.
Still, having a bank account is not enough. Many traditional banking functions are expensive. These higher charges often restrict people from taking a loan or having a savings account. It is a huge market opportunity to provide people with no or limited banking services. Many startups are focused on providing basic financial services at a cheaper rate with an easy interface. Reaching out to those people can help boost the growth of any FinTech company.
3. Contactless Payments During Pandemic
The pandemic has reshaped the entire FinTech industry. Consumers using mobile payment, banking, and financial services through apps have increased drastically. FinTech products and services saw a sharp rise in demand. Almost every government has encouraged contactless payment to prevent infection. The sudden rise in work-from-home, e-commerce, and e-learning has contributed to a greater extent to the growth of FinTech.
While most businesses were shutting down during the pandemic, FinTech is one of the few industries which experienced sharp growth. Even after the pandemic, FinTech is sure to rise only due to its convenience. Automated payments, payments through QR codes, blockchain, and digital businesses will see an increased popularity post-covid.
Is FinTech the Future?
FinTech has changed the way financial institutions work. Integrating with banking, insurance, and financial service institutions has widened the area of FinTech. There is a lot more potential in this industry.
The industry has just started growing. It is growing wings in many other sectors too. Due to its easy interface and convenience, FinTech is here to stay. Especially millennials are becoming heavily dependent on this technology.
A few experts even believe that FinTech is only 1% complete. Growth opportunities depend on the country you are in, the sector you are operating in, and the amount of digitization. After the pandemic is over and businesses are booming again, FinTech will also go along. Many FinTech startups are educating their users free of cost. Increased knowledge will ultimately result in an increased user base. FinTech is already popular among the younger generation. Now, this is the time to integrate the elderly too!
Seeing the growth FinTech has shown and the amount of investment it is getting, the future of FinTech seems crystal-clear. The world is emerging as the era of the FinTech revolution.