Unexpected Surprises and Great Distances in the Explosion of the Fintech Market

For many years, the word ‘fintech’ has enjoyed increasing popularity. But to get an idea of whether or not this is just temporary, let’s try to visually illustrate the size of estimated global investment in this sector. For example, let’s draw a straight line between two cities: New York, USA and Addis Ababa, Ethiopia. That’s a straight line of just over 11,000 kilometres.

Now, let’s put stacks of a thousand dollars along this line, all the way from New York to Addis Ababa – a total of $73.5 billion. Well, that’s the total cumulative investment global in fintech… during just the first three quarters of 2019. This is according to an infographic produced by Capgemini and EY and captured by the website Visual Capitalists, which quickly tells you that activity in this sector is a little bit more than just a passing trend or a stroke of luck in the world economy.

The sudden attention on the fintech explosion in 2019 is justified because it’s considered to have been the year of the “mega-deal”. That’s where the figure comes from, those more than 11,000 kilometres of stacks of one thousand dollars that have been invested by investment funds, private capital and merger and acquisition operations in just nine months. Fidelity Investments has been the king of all these investments, thanks to the acquisition of Worldpay to form a conglomerate valued at $43 billion.

Fintech adoption ignores borders and the explosion has put some leaders on map who might be a little unexpected to those who haven’t been following happenings in the sector: China and India lead the way, with 87% of their citizens having used a fintech service at least once, and they’re closely followed by two more relatively surprising markets, Russia and South Africa, each at 82%.

And the surprises don’t end there. The next two places go to Colombia (76%) and Peru (75%), and we have to go down to seventh place before we reach a “western” country, Holland, with some 73%. And who could imagine it, save for subject matter experts, but next on the list is Spain, with an adoption rate of 56%, some way above North America (just 46% in the United States) and France (35%).

So, what’s behind these surprising figures? Well, to a large extent, it’s down to the things fintech services are being used for, which is dominated by payments and money transfers. They’ve been the leading uses since at least 2015, but year on year, they continue to consolidate that position to the point that the average global adoption rate is 75%. Insurance is just below 50%, though it has been growing in recent years, and lower down, at around 30%, we find services related to savings, investments, budgeting, financial planning and borrowing.

At a geographical level, the changes in investment activity in fintech start-ups are also striking. Ten years ago, the vast majority of newly created companies that grabbed investors’ attention were North American (8 out of every 10), but this has since fallen to 30%. The top ranking has instead been taken over by Asian start-ups, which have seen their presence grow from a token percentage in 2009 to represent 55% of investments in the year 2018. For their part, the Europeans continue to suffer ups and downs. No sooner do they achieve a respectable percentage of 20% (2010, 2017) than they fall to figures approaching 5% (2015 and 2018).

In the Fintech storm, it’s also worth taking a look at what banking executives themselves consider to be the impact on traditional banking activity. Two out of every three executives (67%) claim that the greatest impact is on online and mobile payment services, and other “traditional” payment services, such as cards, are also suffering a high impact (63%). However, just 8% of executives believe that wealth and asset management services are the most affected.

All this key data can be topped off with two important points: almost a quarter of those who haven’t used fintech services stick to their traditional financial service provider because of trust. However, 1 in every 3 people surveyed around the world (about 27,000 people) says that they would consider a new provider if it enabled them to enjoy the use of new services.

All these figures paint an increasingly clear picture for the banking industry of a disruptive phenomenon with only one possible response: to join in, as the majority of the largest organisations have already started doing. Given that we started this post talking about distances, perhaps some valid advice in such changing times, both for new players and for traditional actors, would be the words of José Ortega y Gasset: “From wanting to be to believing that one already is, that’s the distance from the tragic to the comic”.

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