Financial Industry's Future

The financial services sector is currently undergoing a significant transformation driven by the rapid development of fintech. As we delve into the world of financial technology, it's imperative to recognize the key trends that are shaping the industry both regionally and globally. Fintech is not just a passing trend - it's a force to be considered with, poised to become a $1.5 trillion industry by 2030, according to the Boston Consulting Group.

Vibrant hubs such as Singapore, the UK, the US, and India have emerged as thriving clusters for fintech innovation. These regions host a multitude of fintech corporate headquarters, and it's no surprise that they are at the forefront of the industry. Moreover, fintechs do not confide in a single market. They are boldly expanding their operations across borders, especially within the same region as their headquarters.

The global fintech industry has displayed remarkable strength and resilience, even amidst the challenges posed by the COVID-19 pandemic. Customer growth rates have soared, averaging above 50% across industry verticals and global regions. This surge in growth is propelled by consumer demand, which has been identified as the primary driver across all regions.

However, it's not all smooth sailing for fintechs. They face significant challenges, with macroeconomic factors and the funding environment being key obstacles to growth. These challenges are particularly pronounced as global inflation and interest rates soar. Despite these hurdles, there's an air of optimism surrounding the regulatory environment. The majority of fintechs view the regulatory landscape favorably, rating it as adequate and a significant supporting factor for their operations.

Additionally, fintechs are venturing into underserved segments, expanding the provision of financial services and products to these often-overlooked groups. What's intriguing is that a substantial portion of their customer base and total transaction values stem from these underserved segments. This is a clear indication of the industry's commitment to inclusivity and accessibility.

As we look ahead, it's evident that artificial intelligence (AI), the digital economy, embedded finance, and open banking are poised to shape the future of the fintech industry. Fintechs have identified AI as the most relevant topic for the industry's development in the coming years, with 70% of them citing its significance.

The future of fintech is incredibly exciting and filled with boundless opportunities for innovation and growth. It's a landscape where technological advancements, evolving business models, and a commitment to inclusivity are steering the industry toward new horizons. As we track the trajectory of the global fintech industry, it's clear that collective efforts are essential to illuminate the path for the development of digital financial services.

Financial service executives have long been challenged to move forward on aggressive technology initiatives, although new forces are increasing the appetite and capacity for change.

Financial institutions are striving to keep up with the pace of innovation.

Financial institutions are undergoing large-scale modernization projects but are often still hampered by aging technology infrastructure; for instance, as of 2019, as many as 70% of banks were still reviewing their legacy and core banking platform implementations, and 43% of US banks were still using COBOL, a coding language to 1959.

New permissions are empowering fintech with greater force.

Recent industry forces have given financial institutions new permission to make radical changes to their operating models; for example, in the middle of the pandemic, 63% of customers stated they were more willing to try digital applications.

Executives still need to figure out where to place bold bets for the future.

To compete in a changing operating environment, most financial services executives have targeted AI and cloud as clear investment priorities in the near term. However, many executives are still grappling with understanding the impact that the coordinated deployments of emerging technologies could have and developing a powerful innovation strategy accordingly.

The future of the fintech industry holds great promise, driven by technological advancements, innovative business models, and a dedication to inclusivity. As the industry expands and transforms, financial service executives must embrace new technologies and navigate a dynamic operating environment. Empowering AI Business Leaders newsletter serves as a tool to enable leaders to thrive amidst the era of AI.

Courtesy and sources:

The following sources were referred to:

World Bank, COVID-19 Drives Global Surge in Use of Digital Payments [Press release], 29 June 2022, https://www.weforum.org/centres/centre-for-financial-and-monetary-systems/projects/the-future-of-global-fintech/.

IMF, Institutional Arrangements for Fintech Regulation: Supervisory Monitoring, 2023.

https://www.weforum.org/centres/centre-for-financial-and-monetary-systems/projects/the-future-of-global-fintech/

Boston Consulting Group (BCG), Fintech Projected to Become a $1.5 Trillion Industry by 2030 [Press release], 3 May 2023, https://www.bcg.com/press/3may2023-fintech-1-5-trillion-industry-by-2030.