FinTech firms are using their innovative technologies to transform or disrupt the financial services sector. Areas such as mobile payments, peer-to-peer (P2P) and marketplace lending, finance and insurance software, reg-tech and wealth-tech, represent new applications for technology impacting financial services. Fintech represents only 5%, or approximately $675 billion, of estimated global US$13.5 trillion annual revenue for the financial services industry.
There is still tremendous potential for growth in adoption of fintech solutions and products. A recent Global X survey of financial consumer adoption revealed that just 11% of consumers indicated they use mobile wallets on at least a weekly basis, compared to 84% use of credit cards. The same Global X survey revealed that only 6% of consumers make a Peer 2 Peer (“P2P”) payment, at least once per week. This low penetration rate suggests consumer adoption should continue to grow over the coming decade, as fintech companies continue to take market share from traditional financial services firms.
Millennial and Gen Z consumers continue to push for innovative and convenient mobile financial products and services. This new generation is eager to adopt financial solutions and products that offer flexibility, speed and convenience via a mobile application. They want digital finance solutions that allow opening a new account in minutes and provide access to services with just one click. Fintech companies are already having great success in reaching Millennial and Gen Z consumers, identified as being innovators or early adopters.
Substantial growth of the emerging markets middle class will accelerate fintech growth. In China and India, the number of middle-class consumers is growing at 6% per year, compared to just 0.5% growth in developed markets. Globally, the middle class is adding approximately 160 million people each year. In all, Accenture believes there is $380 billion in potential revenue from extending financial services to the unbanked. Fintech firms with digital-only strategies and highly scalable platforms are well-positioned to capitalize on this opportunity.
Scalable technology allows fintech companies to offer solutions to the needs of the unbanked and underserved populations. Highly successful fintechs like Square in the US and PagSeguro in Brazil, have been able to provide affordable hardware and mobile solutions that allow micro, small, and medium size sellers to turn mobile and computer devices into payment and point-of-sale (POS) systems. These populations have been overlooked and underserved by traditional financial service companies. The success of fintech’s such as Square and PagSeguro illustrates how critical safe and reliable payment solutions have become to micro and small businesses. There is great value in delivering secure, affordable and reliable fintech solutions for small business, micro finance and emerging markets.
Less Cash Reliance:
Global consumers have grown less reliant on cash, helping to fuel the rapid growth of mobile payments. In 2018, China alone processed US$41.51 trillion in mobile payment transaction volume. That payment volume represented nearly three times China’s GDP in 2018. Consumers are attracted to the value, convenience and flexibility of mobile payments, as well as the access to greater spending data and rewards.
Despite this early growth, mobile payments still have significant room to grow. For example, in the US, merchants and sellers have to pay high fees to participate in bank-backed, open loop card networks. Given these fees, in a $100 transaction between a merchant and a cardholder, on average only $97.30 goes to the merchant. On the other hand, in China, mobile payments using mobile apps such as Alipay/WeChat Pay a merchant receives ¥99.30 per ¥100 transaction.
The evolution of the financial services industry and the global growth of mobile phone users has resulted in significant opportunities for firms at the intersection of finance and technology. While the fintech sector has evolved and grown significantly over the past decade, penetration rates of various financial technologies remain relatively low. Increased world-wide adoption of mobile payments should be a driving force in fintech’s long term growth.
Jay Jacobs Global X