30% of People Think FinTech is Dying... do you?

Is FinTech Dying? Dramatic question — we know. But valid? Let’s evaluate. The Pandemic saw us all embrace the digital out of sheer necessity. We couldn’t just pop to a bank or an ATM; or head to the shops on a whim and pay for goods in-person. FinTech was the solution; filling very evident gaps and making our lives easier when turbulence was the norm. Q1 2021 saw the birth of 31 FinTech Unicorns; $3.8 billion worth of funding into banking-focused FinTechs; and global FinTech funding hit $28.3 billion.¹ It was an impressive year that saw unparalleled innovation; and embedded a keen awareness that FinTech holds the ability to catalyse change on an international scale. But, fast-forward to 2023 and we see a rather different landscape. The first quarter of 2023 saw only 1 FinTech Unicorn come to fruition (this is the lowest number since 2016). Banking-focused FinTech funding fell by 64% QoQ to hit a low of $0.5 billion. And global FinTech funding dropped to $15 billion at the same time.² It’s a bleak picture. And when these statistics are considered in isolation, we’re prompted to prepare for the inevitable funeral of FinTech. Dramatic statement — we know. But is it accurate? We’d argue that it’s not. We recently polled over 1300 technologists and over 70% confidently believe that FinTech is thriving.³ Many respondents stated that FinTech is only at the beginning of its growth; we are yet to see the full breadth of the marketplace’s potential. The drop in numbers between Q1 2021 and the same period in 2023 can be explained. As mentioned, the Pandemic necessitated incomparable innovation. New FinTech’s had to be created to accommodate a new working environment; to tackle unique consumer demands; and to future-proof the industry. Hence, a surge in investment. Post-pandemic, funding normalised to reflect a return to a relatively more standard equilibrium.The drop in funding isn’t suggestive of a decreased appetite for FinTech but instead a return to a less panic-driven relationship between FinTech, investors, the industry and the end-users. It's actually immensely exciting to consider FinTech’s potential in the upcoming years. FinTech has innovated to a point where it can pivot effectively and play a significant role in tackling global financial challenges in the aftermath of COVID-19. Across the globe, 1.7 billion people currently have no access to a bank account; with an additional 2.8 billion adults remaining underbanked. But anecdotal evidence strongly suggests FinTech is playing a significant role in bridging the gap between these demographics and access to vital funds.⁴ FinTech’s are expanding financial inclusion; a move that is associated with catalysing higher GDP growth. Looking at financial services as a whole, it stands as one of the “most profitable segments of the global economy, representing $12.5 trillion in annual revenue pools and creating an estimated $2.3 trillion in annual net profits or additional value — based on one of the highest average profit margins across all industries of 18%.” FinTech currently only holds 2% of this market revenue share; but the global race to become the most prosperous FinTech hub will undoubtedly allow this percentage to increase exponentially.⁵ The Asia-Pacific FinTech market is set to become the world’s largest by 2030, with a compound annual growth rate of 27%. Asia-Pacific will outpace North America, but this region’s development will remain significant. The US houses one of the most mature financial ecosystems but remains underdeveloped in open banking and there are clear issues around customer experience.⁶ Such cumbersome problems will undoubtedly inspire innovation in the coming years. And we can view current employment trends as a further indicator of an exciting future. If we were to class FinTech as a city, it would be the third biggest employer in financial services (300,000 people), sitting behind only London (400,000) and New York (450,000). And this number is set to increase. The CFTE Fintech Job Report predicts there to be 80,000-100,000 job vacancies in FinTech this year — and here at Harrington Starr, we're very much inclined to agree with them.⁶ The Harrington Starr team are exposed to this increasing demand on a day-to-day basis. Despite threats of a recession, firms are still active in onboarding exceptional talent to remain competitive and keep their growth on an upwards trajectory. Opportunity is bubbling right before us. It’s there to be seized. Don’t be discouraged by the drop in FinTech funding or the lack of Unicorns. But don’t view this thinning landscape as the norm or the limit. We don’t think it would be dramatic of us to say that, as we enter this industry take-off phase, it feels like we’re about to witness the FinTech Gold Rush. We need to think global, think strategically, and push geographical, social and economic boundaries. The time to mourn FinTech isn’t now. We’re on the verge of something great. References: [1] The State of Fintech in 5 charts: Funding rebounds due to Stripe, while deals continue to fall in Q1'23, CBC Insights Research Report, April 2023 - https://www.cbinsights.com/research/report/fintech-trends-q1-2023/ [2] The State of Fintech in 5 charts, CBC Insights Research Report [3] Are FinTech's Dying?, Harrington Starr LinkedIn Poll, June 2023 - https://www.linkedin.com/feed/update/urn:li:activity:7074365015029342208 [4] The Promise of Fintech: Financial Inclusion in the Post COVID-19 Era, Ratna Sahay, Ulric Eriksson von. Allmen, Amina Lahrèche-Révil, Purva Khera, Sumiko Ogawa, Majid Bazarbash, Kim Beaton, Monetary and Capital Markets Department (issuing body), International Monetary Fund (publisher), July 2020 - https://www.imf.org/en/Publications/Departmental-Papers-Policy-Papers/Issues/2020/06/29/The-Promise-of-Fintech-Financial-Inclusion-in-the-Post-COVID-19-Era-48623 [5] Global Fintech 2023: Reimagining the Future of Finance, Deepak Goyal, Rishi Varma, Francisco Rada, Aparna Pande, Juan Jauregui, Patrick Corelli, Saurabh Tripathi, Yann Sénant, Stefan Dab, Yashraj Erande, Jungkiu Choi, Jan Koserski, Joe Carrubba, Nigel Morris, Frank Rotman, Matt Risley, Sahej Suri, Boston Consulting Group and QED Investors Research Report, May 2023 - https://www.bcg.com/publications/2023/future-of-fintech-and-banking [6] The Fintech Job Report: Technology is Eating Finance, Centre for Finance, Technology and Entrepreneurship, November 2021 - https://courses.cfte.education/fintech-job-report/