Fintech and the Future of Finance
Financial Technology, or fintech in the modern world innovation that automates and improves the use of financial services. Fintech is introduced to facilitate companies, business owners and individuals to better manage and process their financial transactions with the help of different software and algorithms on mobile phones and computers. This research discusses some start-ups and giants of fintech companies to identify their financial situations and the current market share. Moreover, the study focuses on the future of finance and its impacts, uses of fintech in different sectors, and what kind of challenges and highlights its solutions in the fintech industry.
Startup Fintech Companies
The Ant Group is a subsidiary company of Alibaba Group. Ant Group is also known as Ant Financial or AliPay. It facilitates the customers in processing their payments at different points of sale. The company’s valuation inflated to $313 Billion in 2020 due to the boom in the fintech industry during the pandemic. The valuation was later dropped to $78 Billion in 2023.
It is one of the most successful startups from Singapore in the fintech industry. Grab is a startup fintech company that focuses on connecting customers and drivers via a mobile application. After successfully launching in Singapore, the company expands its operations to Thailand, Malaysia, Myanmar, Indonesia and etc. As of Feb 2023, the company’s valuation is estimated at $12.67 Billion.
It is one of the leading financial technology companies in India. The company aims to provide loans and working capital requirements for small and medium-sized enterprises. The company has raised around $200 million in 12 funding rounds. The company’s vision is to expand its portfolio and capture other markets in the long term.
Largest Fintech Companies in the U.S.
Square is one of the leading fintech companies in the finance and technology sector in the United States, founded in 2009. It is famous for mobile payments and merchant services aggregator. Square raised $150 Million in 2014, at a valuation of $6 Billion. In 2015, they went for an initial public offering and raised around $243 Million. In 2015, the stock price was $9, which increased to $289 in August 2021, making its all-time high in history, which makes the company’s valuation around $120 Billion.
Stripe is a private fintech company founded in 2011. The company’s primary focus is facilitating the payments of some of the largest companies in the world. Moreover, it also entertains small business owners and individuals for processing their payments worldwide. Furthermore, it provides services on various e-commerce platforms. The value of the company was $36 Billion in 2020. In 2023, the company’s valuation has increased to $95 Billion, almost thrice in a short period.
The company provides an online platform for trading cryptocurrencies, including bitcoin and Ethereum. The company went public in April 2021 with a valuation of $65.3 billion. The share price of the company was initially set at a price of $250 per share. The company made its all-time high of $342 share price in the same month of going public. As of 2023, the company’s valuation is 60 Billion with a share price of $232.
Fintech Banking Companies
The NuBank is one of Latin America’s largest private fintech companies, founded in 2013. The company provides services like digital banking to customers and corporate clients. The company has almost 40 million customers in the country (Brazil). The company’s customer base makes it the most prominent digital bank worldwide.
It is one of the largest fintech companies in the United Kingdom. It provides digital banking services to more than 16 Million customers and 500 Thousand businesses in the country and worldwide. The company was founded in the year 2015, and the current valuation of the company amounts to $33 Billion.
Paytm is a secured digital wallet that meets almost all your financial needs. It enables you to transfer your funds. Moreover, it allows you the facility of debit and credit cards. Paytm was launched in Noida, India, in 2011. It is an excellent fintech innovation for the Indian fintech industry. The company’s annual revenue was around $660 Million in 2022, with a valuation of $2.3 Billion.
Global Market Size
The value of the global fintech market was at $220 billion in 2022. The growth in the fintech industry accelerated after the pandemic time period. Since then, the fintech industry has expanded each year significantly and is expected to reach $851 billion by 2030. The global fintech industry is expected to grow at an annual cumulative growth rate of 18.5%.
Market Share by Region
North America is the most advanced in financial technology. 36% of the users of fintech are from North America. It is mainly due to better financial knowledge and understanding by North Americans. Moreover, it is also due to better infrastructure and availability of resources within the region. 31% of the users of financial technology are from APAC, which means Asia Pacific. It is mainly due to the greater population in the region. In addition, a tech boom in the countries like Singapore, China and India has increased the use of fintech technology in daily life. Europe contributes 19% to the fintech market, as the region’s population is very low. Moreover, South America and the rest of the world amount to 14% of users. The percentage is comparatively low because of the less developed regions’ lack of knowledge and resources.
Comparison of Fintech Adoption
The Fintech market industry is expanding faster than ever, according to the Global Fintech Adoption Index survey conducted in 2019. It showed that fintech is booming across the world. Moreover, the fintech industry expansion of six different regions was also noted to show the potential of the fintech industry. The six markets shown are Australia, Canada, Hong Kong, Singapore, the U.K. and the United States. A significant percentage of the population adopted fintech in the surveyed market. Moreover, all the countries showed a significant increase in the fintech adoption percentage. In addition, it also states that it is just the beginning of financial technology. Soon, the world will adopt this technology.
Source: Global Fintech Adoption Index
Fintech Technology – Usage
Fintech is becoming more popular daily because of its usage and the features it offers to its users and customers. Before the development of fintech and technology, all businesses and individuals had to waste their time in long queues for bills and other payments. Still, fintech has completely changed the dynamics of the industry. Now anyone can pay the bill or be accessible anywhere in the world. No one has to rush to banks or any financial institutions. Like online bill payments and money transfers, fintech offers many other services, including budgeting and financial planning, saving and investments, borrowings, and even insurance.
Source: Global Fintech Adoption Index
Future of the Finance
In recent times, there has been a shift of customers and businesses towards non-cash or cashless transactions. The shift towards a cashless society is due to the ease and convenience of electronic payments and wallets.
The report states that in 2020, 14.5% of the world’s transactions were non-cash. It is estimated that by 2025, over 25% of the world’s transactions will be through instant payment applications and e-money.
Over the years, financial technology has won the trust of customers and businesses, which is evident from the growth rate in the fintech market.
Impact of Fintech
In recent years, the fintech industry has developed and expanded significantly. Moreover, the impact of the fintech industry on other industries is also noticeable. In the world of globalization, no country or industry is in solitude, and the impact of one country or industry is faced by others too. In this case, the impact of the fintech industry on other industries is usually positive.
The retail industry includes all the shops and companies that sell goods and services to customers. The retail industry in the world is expanding each year. The global market size of the retail industry in 2020 was $23.74 Trillion, which will increase to $27.34 Trillion in 2022. Moreover, it projects to increase to $31.27 Trillion by 2025.
The telecommunication industry comprises all worldwide telecommunication companies. Telecommunication companies aim to connect people worldwide via phone, internet, airwaves, and cables. It can be seen that since the boom in the fintech industry, the telecommunication industry is also expanding. In 2020, the industry’s global market size was $1553 Billion, projected to reach $1595 by 2024.
The telecommunication industry has already reached its full potential and is leading toward its decline or stability. But the boom in fintech has pushed the industry a little bit further, which projects it to increase by $42 Billion from 2020 to 2024.
Digital banking refers to the online banking system with no requirement for extensive paperwork. In recent years, there has been a significant increase in the number of digital banking users. The convenience, safety and speed of digital banking have attracted a lot of customers in recent years.
Furthermore, it is expected to grow further at a noticeable rate. The global market size of the digital banking industry in 2021 amounted to $7.9 Trillion, projected to reach 10.3 Trillion in 2028. The digital banking industry is expanding at an expected cumulative annual growth rate of 4.50%.
Financial technology has a significant impact on the education industry. During the pandemic in 2020, financial technology worldwide was used significantly in the education sector. Since then, the implementation of fintech in the education sector has started to increase with each day. The worldwide education industry by revenue amounted to $5.07 Billion in 2020. After that, the education industry started to expand each year. Moreover, the market size expects to reach $9.49 Billion by 2025. The major use of fintech in the education sector is in the payment of fees by students and payment of teachers by the institutions
Use of Fintech in different Markets
The use of financial technology is becoming common and easy to use day by day.
Banking and payment services are the most widely used category by Small and Medium enterprises, accounting for almost 56%. After banking and payment, the most widely used category are financial management, financing and insurance. The use rate per category is the percentage of small and medium enterprises that use at least one fintech service.
As of 2019, China is considered a developed market in terms of financial technology infrastructure. In China, the users of banking and payment services amount to 92%, which is significantly high in comparison to 63% of users in emerging markets. These rates reflect the viability of financial technology in these markets. In the developed regions, these rates are high, representing that the infrastructure is established enough to support the use of financial technology. Moreover, in emerging markets, the rates are low as there is room for the development of the infrastructure to support the use of fintech.
Fintech in emerging markets can capture a significant portion by serving individual customers and small and medium-sized businesses. Some critical services like banking and payment option can be provided to the customers. The ease of opening and maintaining a digital payment account would attract many customers, as they prefer to go for convenience and speed, which are not available in traditional banking and payment methods. So it can be a turning point, and only banking and payment services for the customers with ease and convenience would attract many customers in the emerging markets.
There is a difference in the use of fintech in emerging and developed markets. In emerging markets, the most widespread use of fintech is in online payments, transfers, bill payments, invoicing, machines, readers and etc. However, in the developed markets, fintech is slightly different, or fintech is utilized on a greater scale. Developed market use fintech in payroll management, online billing, bookkeeping and online payment processing tools etc. Fintech in developed markets is very intelligently used, saving business costs and providing ease to customers.
Challenges for the fintech Industry
The fintech industry is growing each year globally. People are becoming increasingly aware of the usefulness and benefits of the fintech industry worldwide. Be it a developed or emerging market, the fintech industry is expanding in all markets regardless of the infrastructure and development in the sector. However, as the market grows, the risks and challenges also increase, addressing them is a must before it causes a hindrance in the development or growth of the market. The information below shows the challenges faced by the fintech industry and how it can overcome them.
The safety and security of digital financial assets are among the most significant challenges the fintech industry faces. In traditional banking and other financial institutions, the financial assets are guarded by guards, vaults, lockers, CCTVs, bulletproof doors and other possible safety measures. However, in the fintech industry, it is much more complex and complicated to guard the financial assets in possession of the banks, institutes or an individual person. Digital financial assets are always at risk as there are plenty of hackers, data breaches and cyber attacks that can adversely affect and may result in the loss of digital assets.
As financial technology becomes more common daily, the number of cyber-attacks and data breaches is also increasing significantly. To avoid such situations and protect your digital valuables, the fintech industry has developed various safety and security protocols to guard your valuables. These safety and security protocols include biometric verification, which enables the authorized person to access the account only. Moreover, real-time notifications also alert the users if someone logs in to their accounts, and they can block the account immediately, which instantly helps them to freeze their assets. The hacker can not take anything from the account. Furthermore, other security measures include two-factor authentication, data encryption, AI security analysis, etc. These security measures have made fintech a safe and secure platform without risks or threats. This is also evident because the fintech industry is growing each year significantly.
Lack of Mobile and tech expertise
One of the main things that attract customers towards fintech and digitalization is the easy-to-understand and easy-to-use software and application that does not require one to be an expert in computers and systems. The simpler the software and application, the more likely it attract users. Unfortunately, there was not much importance given to making the application easier. Due to the lack of technically qualified individuals in this field, they only focused on providing fintech options rather than making it easier and more attractive.
Companies should give great importance to the outlook and user experience of the software and applications. In this domain, America has made significant progress in digitalization and making fintech easy and simple. The survey conducted in America stated that 76% of Americans access their banks through the mobile application. To solve this problem, companies can partner with the experienced and focused team that works to develop the application interface or outsource this department to companies that have mastered the art of making the application more attractive, efficient and simple.
Compliance with Government regulations
The finance industry is one of the most regulated industries by the government. To set up any business in the financial sector, a lot of paperwork and formalities must be completed before starting the business. Even if you use minimal financial software that does not require blockchain and other critical technologies, the business has to meet many legal requirements. Financial services organizations must follow all the local and international regulations the regulatory authorities implement. As it requires a lot of sensitive information to gather, following all the rules and regulations strictly is a must.
Financial institutions must obtain all the legal formalities before starting their operations to avoid fines and penalties. Moreover, they can hire a legal consultant to guide them through the legal procedures. In addition, if the business is on a large scale, they can maintain a legal department in-house to save them from fines and penalties and make them compliant with all government policies.
User Retention and User Experience
It is extremely important to offer a platform or digital application that is easy to use. However, the easier to use and simple it is, the more easily it can be hacked and become a cyber-attack target. If there are multiple checks and verifications before logging into the application, the users will not prefer it anyway. When the users do not like the interface and experience of the application, they will switch to the competitors in the market.
To solve this problem, companies should focus on developing a system or application that offers a perfect ratio of security to user experience. They must integrate security protocols like biometric verification that are very quick to use and enhance the application’s safety and security. Other security protocols include face recognition, enhancing user experience and security. OTPs and other receiving codes on a cell phone are now old-fashion and time-consuming, which may add security to the system. Still, users want quick and better security measures like fingerprint and facial recognition. By implementing efficient and modern security measures, companies can avoid this problem.
The Oak Business Consultant researches the topic and analyzes it extensively. After a detailed analysis, we conclude that fintech or financial technology has a lot of potentials. The world is moving towards a cashless and paperless society in the coming years. Digitalization will be very common, which is only possible with the help of financial technology. Furthermore, we analyzed the impact of fintech on other industries and concluded that fintech has positively affected the revenues and market size of almost all the other industries.
In addition, we concluded that the countries like China are shifting towards fintech in the most significant way. In the coming years, China will be the leader in financial technology. Other countries with developed infrastructure and public awareness about fintech will also be shifting towards fintech. Countries that want to benefit from financial technology must spread public awareness about financial technology to their residents and develop a suitable infrastructure that can support the use of financial technology.
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