Fintech Projected to Become a $1.5 Trillion Industry by 2030

Boston Consulting Group (BCG) and QED Investors have released a new report, Global Fintech 2023: Reimagining the Future of Finance, stating that financial technology revenues are predicted to increase from $245 billion to $1.5 trillion by 2030. The report also reveals that the fintech sector, which currently holds a 2% share of the $12.5 trillion in global financial services revenue, is estimated to grow up to 7%, with banking fintechs expected to account for almost 25% of all banking valuations worldwide by 2030. 

The report provides an overview of the future landscape of the fintech market and explores the latest trends and opportunities in the industry. It also examines the regulatory environment for fintech companies and the impact of emerging technologies. Despite experiencing a market value decline of over 50% in 2022, the report suggests this was a short-term correction in an otherwise positive trajectory for the industry.

“The fintech journey is still in its early stages and will continue to revolutionize the financial services industry as we know it,” says Deepak Goyal, BCG managing director and senior partner and co-author of the report. “Customer experience remains poor. More than half the world’s population remains unbanked or underbanked, and technology continues to unlock new use cases in leaps and bounds. All stakeholders must therefore seize the moment. Regulators need to be proactive and lead from the front. Incumbents should partner with fintechs to accelerate their own digital journeys.”

APAC to Become the Largest Fintech Market, Led by Emerging Countries

Historically an underpenetrated market with nearly $4 trillion in financial services revenue pools, Asia-Pacific (APAC) is poised to outpace the US and become the world’s top fintech market by 2030, with a projected compound annual growth rate (CAGR) of 27%. This growth will be driven primarily by Emerging APAC (e.g. China, India, and Indonesia), as it has the largest fintechs, voluminous underbanked populations, a high number of small and medium-sized enterprises, and a rising tech-savvy youth and middle class. North America, which currently has the world’s largest financial-services industry, will remain a critical fintech market and innovation hub, projected to grow fourfold to $520 billion in 2030, with the US accounting for a projected 32% of global fintech revenue growth (a CAGR of 17%).

The UK and European Union combined represent the world’s third-largest financial institution market and are expected to witness major fintech growth through 2030, estimated at more than fivefold over 2021 and led by the payments sector. Similarly, Latin American markets, led by Brazil and Mexico, which have established fintech landscapes, are projected to show a revenue CAGR of 29% over the same time frame. The report projects a fintech revenue CAGR of 32% until 2030 in Africa, with South Africa, Nigeria, Egypt, and Kenya being the key markets.

While Payments Led the Last Era, B2B2X and B2b Will Lead the Next Era of Fintech Growth

The first part of the fintech journey was led by payments, accounting for roughly 25% of cumulative equity funding ($120 billion) since 2000. And according to the report, the sector will grow fivefold to $520 billion, driven by cross-border payments, “payment-plus” models (bill pay and payment apps offering adjacent services such as wallet services), and the proliferation of use cases driven by real-time payments.

While payments led the last era, B2B2X and B2b (serving small businesses) will lead the next. B2B2X is made up of B2B2C (enabling other players to better serve consumers), B2B2B (enabling other players to better serve businesses), and financial infrastructure players. The B2B2X market is expected to grow at a 25% CAGR to reach $440 billion in annual revenues by 2030, supported by growth in embedded finance and financial infrastructure; while the B2b fintech market is expected to grow at a 32% CAGR to reach $285 billion in annual revenue by providing solutions to credit-starved and poorly served small businesses.

Spread Businesses in the Developed World Will Face Challenges While Playing a Critical Role in Emerging Markets

Spread businesses in developed markets (which include banks and neobanks, lending platforms, mortgage lenders, and credit unions) will face challenges scaling up profitably and will need to start lending on their own balance sheet while accessing lower-cost funds, one method of which is by acquiring a banking license. One significant challenge is incumbent banks are investing heavily in technology to improve their customer experience and value chains, making it difficult for neobanks to differentiate themselves.

With roughly 2.8 billion underbanked (50% of which reside in emerging economies) and an additional 1.5 billion unbanked (75% of which reside in emerging economies) adults in the world, neobanks will play a key role in expanding financial access.

Regulators Must Be Proactive, Not Indifferent

Regulation of fintechs has traditionally been relatively light, non-proactive, fragmented, and, in some cases, even lagging behind. While recent bank crises have made them more sensitive to asset/liability management, in addition to creating guardrails, regulators must ensure they are not overregulating the industry and thereby stifling innovation.

Regulators should consider leveling the playing field via such actions as enabling faster pathways for banking and payment institution licenses, supporting digital public infrastructure, and facilitating an open banking ecosystem.

Fintechs Need to Focus on Fundamentals and Play Offense; Incumbents Should Accelerate Their Own Digital Journeys by Embracing Fintechs

The landscape today is much different than it was in 2021 and early 2022 when so many fintechs were able to attract higher funding. Today, fintechs need to conserve cash and stretch their runways to get through the “funding winter” without resorting to raising money at lower valuations. They should therefore consider strengthening their competitiveness and pursuing aggressive strategies such as talent acquisition, gaining market share by entering new geographies/markets, and exploring M&A opportunities—while also taking an active role in shaping and embracing forward-looking regulations that enhance customer confidence and drive higher valuations.

Historically, incumbents have tried to buy capabilities by acquiring fintechs. To avoid failed acquisitions and shorten fintechs’ time to market, incumbents and fintechs should form “Value-based Partnerships,” which allow the fintechs to remain independent but with a clear commercial arrangement that is to the benefit of both partners.