Fintech globally

An industy just two decades old, Fintech has exhibited explosive growth.

McKinsey has calculated the market capitalisation of all publicly traded Fintechs at July 2023 to be $US550 bn. In addition, the more than 270 'unicorns' had a combined valuation of more than $US936 bn.

In 2023, Fintechs have been estimated by Boston Consulting Group to hold a mere 2% of global financial services revenue.

Fintech in the UK

As at April 2023, the FCA reported that the UK was the most attractive destination for financial technology investment in Europe and globally is second only to the USA.

In AI, the UK is ranked third in the world for research and development. A third of all European AI companies are based in the UK with the UK hosting twice as many AI compaies as its next closest European rival.

Growth dynamics

Principally three major growth areas have been identified for Fintech companies:

• As a result of the radical transformation of the traditional banking industry (eg payments);
• Opportunities being created though a rapidly expanding financial services ecosystem (eg embedded finance); and
• Where Fintechs are more established or more vertically integrated (eg B2B).

Overall, Fintechs are expected to post an annual year on year growth of 15% pa for the next 5 years compared to 6% year on year growth for traditional banks.

Critically, funding for Fintechs since 2022 has tightened with direct consequences for growth. Whereas before growth at any cost was considered acceptable, now it's sustainable profitability that's key. The time between funding rounds have increased by more than 5 months since the first to the fourth quarter of 2022 with the average value of funding received decreasing by some 50% in the same period.

This obviously means Fintechs need to focus on costs to make decreasing amounts of cash last longer.