The global fintech market was valued at $6.5 trillion in 2021 and is estimated to grow at a compound annual growth rate (CAGR) of 13.9% between 2022 and 2028 to reach $16.65 trillion.
The fintech industry is rapidly growing, primarily due to growth in digital banking. Between 2010 and 2020, there was a 50% drop in cash used in the United States. In addition, the COVID-19 pandemic accelerated the adoption of mobile wallets and digital payment options. As a result, digital payment transaction value increased to $5.2 trillion in 2020, up from $4.1 trillion in 2019. This year, mobile transactions are projected to grow by 121% to comprise 88% of all banking transactions eventually. By 2025, the number of users in the digital payments segment is expected to reach 4,929.55 million users.
Record Fintech Investment
Fintech is now the largest funded category globally. It received more than $210 billion in the capital in 2021 across venture capital, private equity, and cross-border M&A. Global venture capital investment in fintech reached a record $115 billion in 2021. That eclipsed the previous 2018 high of $53.2 billion. Corporate VC-related investment made up $50 billion of that total. That is more than double the $24 billion seen in 2020. Worldwide, private equity firms were more active in the fintech sector in 2021, with a record 144 deals accounting for over $12 billion in investment. That is twice the previous high of $5 billion in 2018. Cross-border M&A in fintech saw a record 275 deals worth $36.2 billion in value compared to a total global fintech M&A deal value of $83.1 billion. There was also a threefold increase in the number of companies going public in 2021 compared with 2020.
In the fintech industry, there are many opportunities across several verticals and locations in what is still essentially an untapped market.
Trends to Watch
Today, the number of crypto traders on the market has increased tenfold. Investment in cryptocurrency and blockchain surged to $30 billion in 2021, up from $5.4 billion in 2020.
In 2021, the By-Now-Pay-Later (BNPL) space, also known as Installment Payments or Point-of-Sale Financing (POSF), also saw robust investment, ranging from Klarna’s $1.2 billion VC raise to PayPal’s acquisition of Japan-based Paidy for $2.7 billion.
This year, big tech is expected to make big moves in banking and insurance, particularly in embedded finance. Last year, venture capitalists allocated $4.25 billion to embedded finance investments, nearly triple that of 2020.
Last year, there was also rising interest in fintech, which can help companies better use their data and its role in decision-making using AI and machine learning.
A solid global GDP and trade growth will continue to drive demand for cross-border payments, a market estimated to reach $156 trillion this year.
The peer-to-peer (P2P) lending space is becoming more mainstream, now offering government-backed loans, inflation-beating returns, and new levels of support for small- and medium-sized enterprises (SMEs). These platforms are expanding into new markets and continuing to innovate.
Financial management technology using artificial intelligence (AI) and machine learning provides personalized experiences with financial processes for consumers without their input. As a result, these autonomous financing apps will become more prevalent in guiding consumers on where to invest and how to manage risks.
Digital-only banks continue to grow in popularity due to advancements in AI, biometrics, online banking, and cybersecurity. Currently, 89% of Americans use mobile banking services, and 70% report that mobile banking is their preferred way to the bank. The neobank sector was valued at more than $30 billion in 2020 and is projected to grow at a CAGR of 47.7% over the next eight years.
Finding and retaining talent is likely the most significant challenge facing fintech companies. The majority of companies are still adapting to emerging technologies, such as cryptocurrency. This can make it difficult to onboard the right talent while being forced to compete with the big players. This lack of skilled professionals could impede market growth over the next few years.
M&A in Fintech
The fintech industry is expected to see more consolidation and collaboration in 2022.
There is an abundance of venture capital funding available and a need to expand markets. There is also a need for accelerated growth in certain areas, where organic growth is too slow for businesses to keep up with emerging technologies and their competitors. This will be especially true for later-stage companies that will struggle to hit revenue benchmarks to defend high valuations. Existing financial institutions are also looking to expand their solution offerings and innovate their technology. 82% of traditional financial organizations plan to increase their collaboration with fintech companies in the next few years. That is likely because 88% of incumbent financial institutions feel that some of their business will be lost to standalone fintech companies in the next five years. Consumers also demand that they enjoy a more seamless digital experience when it comes to handling their money. Financial companies will have to adapt to this demand if they do not want to lose business. M&A will be a crucial strategy to address these issues.
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkIntl.com
Europe: Michael Lawrie at +44 (0) 161 359 4400 / Enquiries@BenchmarkIntl.com
Africa: Anthony McCardle at +27 21 300 2055 / McCardle@BenchmarkIntl.com
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Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $8.25B across various industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 14 offices across the world, have assisted thousands of owners with achieving their personal objectives and ensuring the continued growth of their businesses.
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