Fintech Future Outlook for 2021 and Beyond
Fintech startups kicked off the new year with over ten investment deals, each worth $100 million and above, within just two weeks into January. Although impressive, it was hardly surprising. VC-backed fintech companies had just wrapped up 2020 with a staggering $41.7 billion in funding.
For years, the fintech industry has been the darling of venture capitalists. Then, the pandemic hit the world! Suddenly, the industry uncovered the inefficiencies and transactional difficulties inherent to traditional financial institutions. As many have highlighted, the C behind the rapid changes in 2020 in Financial Services was Covid, rather than a C level executive. Fintech found themselves with a windfall. A McKinsey report paints a colorful picture of the accelerated adoption of fintech solutions during the pandemic. People across different wealth brackets, age groups, and other demographics began flocking to fintech solutions for their every financial need — payment, investments, lending, crypto and overall banking. What does this mean for the financial industry? What will the future look like for the average financial decision-maker?
A Big Shake and Wake
The rise of fintech as competition is in the face of the large banking institutions. Specifically, 88% of the legacy leaders in the industry believe that fintech companies will “siphon” off a considerable part of their business within the next five years. Jamie Dimon, CEO, JPMorgan Chase, had grimly warned his peers way back in 2015, “Silicon Valley is coming. There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking.” Well, what do you know — years later, Silicon Valley and the broader disruptor community of fintech startups are here! As of January 2021, “Jamie Dimon says JPMorgan Chase should absolutely be ‘scared …. about fintech threat”.
Unicorns Vs. Sloths? Not So Much!
There were 79 fintech unicorns across the world at the end of January 2021. Fueled by their dynamic culture, technological innovations, and a customer-obsessive approach, fintech companies continue to win more customers globally. In response to the rising threat, 77% of the traditional financial institutions are focusing on innovations targeted at retaining their customers. More importantly, they are partnering with fintech companies to offer them new products, services, and features to their customers. A typical comment in the industry for these initiatives is an “innovation theatre” if they do not progress beyond marketing and sandbox environments. The focus is on the incubators, accelerators and investment ecosystems to work with this community and drive progress to product integration and or M&A — especially in a year like 2021. As the legacy leaders continue to flex, the startups diversify their platforms through M&A and diversification of their offerings, often to improve their position with the market and regulators.
The Final Frontier
Despite the meteoric growth of fintech solutions in the early years, many groups remained mostly ignorant. The pandemic changed that too. Older generations witnessed the highest adoption of fintech solutions in 2020. However, the younger generations continue to be more active users. In any case, fintech solutions have increased access to credit, financial convenience, and innovative financial solutions. The most pronounced impact of the fintech revolution is currently unfolding in Asia-Pacific and Latin America. Accelerated by a large younger population, the countries in these regions have witnessed the highest fintech adoption. In some of the economies like Hong Kong, Singapore, and South Korea, fintech adoption stands at an incredible 67%. Naturally, 39% of fintech deals are being struck away from the traditional tech hubs like the US, the UK, and China.
More Money. More Fintech
Despite the threat of a global recession, the world’s stock markets rallied past $95 trillion in market capitalization. The explosion is crazy in the investment space, especially for seed stage. Gen Z is entering the race through syndicates, the crowdfunding platforms are providing democracy to access the capital and the position of legacy venture capital firms is evolving quickly due to the lower cost of capital and increased access. Fintech can range from startups and scaleups to FAANG companies working their way deeper into the ecosystem. Increased investments are evident in the fintech space. With SPACs offering them new exit opportunities, they have one less concern. As of February 10th, Eight SPACs formed in 24 hours and as of Mid March, SPAC fundraising increased over 2000% over the previous year.
I’d love to hear from you — and how I can help your team talk about fintech and work in the future innovations and impacts that are possible.
— Christina shares candid insights and ideas based on her work, network and passion for payments and financial services. She focuses on the latest innovations from products and growth to people during the day while teaching students and mentoring entrepreneurs at night. All views are my own. —
