Fintech companies and their dynamic digital push have overtaken the world by storm. A global shift to a contactless mode of living and remote working proved to be an impetus for the exponential growth of the “financial technology” industry. The past two years can perhaps be touted as the years of the fintech, as digital monetary transactions became a necessity, and the regular-brick-and-mortar financial institutions had to take a back seat. Even traditional financial institutions accelerated their digital transformation to deliver a seamless customer experience. The need for technology and innovation has changed the dynamics of the industry.
The global fintech market is estimated to have reached a size of USD 112.5 billion in 2021, growing at a CAGR of around 20% approximately. The Americas accounted for the top fintech start-ups as of November 2021, with more than 10,700 companies. Per data from Statista, the EMEA region (Europe, the Middle East, and Africa) is said to have had 9,300+ fintech start-ups, and APAC (Asia Pacific) has just about 6200+. India is poised to be the 3rd largest fintech market in the world, having over 21 unicorns out of 2100 fintech companies as of March 2022. 2020 and 2021 have been a phenomenal bullish run for the fintech industry indeed.
The global movement of industries from response to recovery mode as we continue to deal with the uncertainty brought about by the pandemic has impacted the fintech industry too. With a global recession looming large and the economic impact of the pandemic now being experienced more evidently, several fintech companies are experiencing turbulence. The risk appetites have lowered, IPOs are being deferred, and funding is relatively lower – the bullish streak of the fintech industry has perhaps come to a halt, with the sector experiencing slower growth and is being referred to by several as a slump. Studies indicate that the global fintech funding dropped nearly 33% in Q2 of 2022, as against the Q1 spend. A comparison to 2021 statistics shows a whopping 46% decline. Fintech stocks traded publicly are said to have fallen by 40%. Any industry that experiences a peak is bound to undergo consolidation and lower deals in consecutive years. So is the present case with the fintech industry. Despite the market being trepid, the fintech industry is said to have recorded 3,447 deals in the first half of 2022, as against 5684 and 3674 deals in 2021 and 2020, respectively.
Here is a sneak peek into a few of the sectors within fintech that are likely to experience significant growth in 2022:
Superapps with digital payments:
Paytech continues to witness accelerated adoption across the globe. According to a study by Juniper Research, the adoption of ‘super apps’ will see an uptick in the developing worlds, and the number of digital wallet users could cross 5 billion by 2026. The Asia Pacific region is predicted to be the most adoptive region, where Vietnam, Thailand, and the Philippines are anticipated to lead this trend. Super apps are multipurpose apps that combine digital payments with other services such as e-commerce, wealth management, etc. Alipay, Grab, PhonePe, Gojek, Tata Neu, and PayTM are some of the most popular super apps in the APAC that are likely to witness an increased user base. With social media networking platforms also catching on to this trend, super apps will trend a lot more. For instance, Instagram is tying up with Metapay with plans to enable users to make purchases with their favorite businesses without leaving the chat thread. WhatsApp has also introduced several tools, helping businesses to showcase their products and links to easy payments, thus enabling customers to purchase while communicating with a business.
As contactless payment rose during the pandemic the wearable payments market saw a surge. Also known as tap-and-go payments, wearable payments give consumers the flexibility to make a transaction through any form of handy/portable device. Projected to grow at a CAGR of almost 21%, the global wearable payments market is expected to become a trillion-dollar market by 2027. Providing a seamless digital customer experience is the mantra for all banking and financial institutions. Hence, personal wearable payment devices have become one of the USPs that give the upper edge to attract and retain customers in this digitally driven era. At a global level, Garmin Pay, Samsung (KS:005930) Pay, Apple (NASDAQ: AAPL) Pay are key players, with Mi Pay in India using UPI wearable infrastructure.
Blockchain or Distributed Ledger Technology (DLT):
The blockchain and crypto sector recorded the most deals in H2 2022 – 704 of the 3447 deals. Despite the rapid adoption of blockchain and crypto payments over the past two years, cryptocurrency has been facing heavy skepticism lately due to its unpredictable nature. Several central banks are now coming out with Central Bank Digital Currencies (CBDC) using Distributed Ledger Technology (DLT). In this concept, currencies are backed by central banks to enhance credibility and reduce unpredictability. CBDC will also reduce settlement risk and time for cross-border transactions. DLT or blockchain technology also has a good impact on trade finance, and many leading banks have started using these to expedite cross-border trades. Popular fintech companies in this space include BTCJam(bitcoin-based peer-to-peer lending service), BitPay(bitcoin-based payment processor), Coinbase (NASDAQ: COIN), Kraken(Bitcoin exchange), R3 (consortium blockchain), Contour, SKUChain(Trade Finance).
Another segment that has been slowly gaining popularity is Robo-advisory in the asset/wealth management space. Replacing traditional client advisory meetings, a Robo-advisor analyses investors’ information including risk appetite and needs, among other details. It then recommends the best investment portfolios using a machine learning algorithm, Monte Carlo simulation, detailed global events analysis, etc. The segment is forecasted to witness 2X growth in the next five years and assets under management of US$ 3T. Automated portfolio management is gaining greater adoption, with more customers wanting to be hands-on with their finances and manage them anywhere, anytime. Some notable examples include Cred (an AI-based B2B platform assisting financial institutions to acquire and engage customers with personalized investment options), Responsive.ai (enterprise software for advisors to engage clients and enhance decision-making), and Bambu (digital wealth management software for financial institutions), among others.
Fintech has a lot to offer though we may be experiencing certain slowness presently. While the industry leverages tech and automation to provide a more seamless customer experience, there will always be potential to scale and grow. The onset of COVID-19 highlighted the need to ensure the availability of financial solutions to unbanked customers. Global financial inclusion is enough reason for the fintech industry to continue thriving. A highly agile domain known for its adaptability and innovation, fintech has the potential to maneuver uncertainties and overcome any duress.
Originally Published on – Investing.com