Fintech is a term that most have heard of, but few understand. Fintech can be defined as any new technology applied to drive innovation. This is typically done by improving the automation and delivery of financial services. Simply stated, fintech is the digitalization of the financial services industry. The first credit card companies that emerged in the 1950s could be considered fintech companies. But at that time, the term didn’t exist. Today, fintech reflects an area of robust investment and growth spanning banking, insurance, securities, real estate, title, and other industries. What is driving today’s growth? What steps should companies take today to best align with the current growth and industry transformation?
How Big Will Fintech Be in 2030?
The global fintech market size in 2020 was valued at $111 billion. It is projected to reach about $700 billion by 2030. This is a CAGR of 20% from 2021 to 2030 (source). If this market projection figure is correct, this market is set to explode. The underlying premise for this projection is that the world is going digital. This trend was accelerated during the past two years of the pandemic. When the world sought to work remotely and avoid in-person contact, digital technologies were embraced.
How Has Fintech Impacted the Banking Industry?
The banking industry is a great example of how technology drives change. The Automated Teller Machine or ATM was first introduced in the early 1970s. But it took the technology behind mainframe computers before commercial adoption could go mainstream. By creating a centralized record repository networked with distributed ATMs, it became possible to know how many funds were in every customer’s account to process deposits and withdrawals.
ATM usage exploded because it offered a better user experience. No longer was banking limited to a narrow window of time from 9-3 pm, Monday through Friday. Today, customers can access cash whenever they wanted to – there is no such thing as “banker’s hours!”
Learn more about the history of the ATM by reading this article, A Brief History of the ATM.
Today about 2 billion people across the world do their banking online (source). In just the United States, about 200 million people do their banking from a mobile device (source). Cash can be transferred for free between individuals with Venmo, bills can be paid through payment portals at most major banks, and checks can be deposited by simply taking a photo with a mobile app.
The explosion of digital banking is a great example of why the market outlook for fintech is so strong. People are busy. They want to live their lives on their schedule. Fintech makes this possible by simplifying banking activities so they can be done anywhere.
What Are Fintech Growth Trends in 2022?
Not only is digital banking expanding at a rapid pace, but so too is the investment in Artificial Intelligence, Big Data Analytics, and Blockchain. Each of these technologies can be used to help secure digital transactions, detect fraud, or provide insights into opportunities for business growth or cost savings. With such rapid growth expectations, a big factor driving investment is the criticality to ensure transactions remain secure.
According to the Columbia School of Engineering, these technologies are driving the future growth of fintech as follows:
- Artificial Intelligence – this tech allows fintech firms to better understand their customers by providing businesses with valuable insights into customer behavior and spending habits.
- Big Data Analytics – this tech drives innovation by unlocking new products and services that can be brought to market so companies can predict changes faster in the marketplace to create new, data-driven business strategies.
- Blockchain – this tech enables different ways for goods and services to be purchased, tracked, and consumed across peer-to-peer networks with decentralized, third-party exchange systems.
Increasing demand to simplify and streamline daily activities – such as the shift to digital and mobile banking – coupled with a surge of investment in new digital technologies is driving the growth of fintech. This growth will spill over and impact companies in other industries, such as real estate and title.
What Should be Done to Best Prepare for the Surge in Fintech?
The first step is to recognize that a tidal wave of fintech investments has already been made and will continue to grow at an increasing rate during the 2020s decade. Those companies still clinging to manual or paper-based processes will be left behind when the share of the wallet of prospective customers is all digital.
It will be critical to have modern, open systems infrastructures that can accommodate quick changes driven by a level of innovation that is aggressively being invested in. The “bar” of what level of technology sophistication is needed to be a profitable business that is connected to the financial services ecosystem will continue to increase. Those companies not committed to making that investment will soon fall far behind.