June 16, 2023 | 5-minute read (890 words)
In 2021, the global financial technology (fintech) market was worth over $115 billion. That number is expected to grow to a staggering $937 billion by 2030. North America is leading the charge as the region with the biggest appetite for fintech products, but with its accelerating rate of technology adoption, the Asia Pacific region isn’t far behind.
With a compounding annual rate of growth (CAGR) of over 26%, it’s no wonder the fintech market is having an outstanding impact on traditional banks and their customers around the world. From changing how people save and exchange money, to bringing cryptocurrency and blockchain into daily conversation, fintech has become one of the most influential industries on the planet.
Fintech can be divided into six broad categories
While there are endless uses for fintech, the types of fintech products available can be generally lumped into one of these six categories:
1. Banking services. Online banks that offer savings accounts, checking accounts and common bank features — without a brick-and-mortar location — are quickly becoming popular among users who value convenience and accessibility over location. Because these virtual banks require significantly less overhead, they’re often able to offer better customer service and more competitive interest rates than traditional banks.
2. Personal financial management (PFM). Apps that help users track their spending, budgets and savings goals all in one integrated dashboard fall into the PFM category of fintech.
3. Payment facilitation. Payment facilitation fintech products, like those that facilitate person-to-person transfers or secure online wallets, are becoming more popular as the gig and freelance economies grow. Plus, these products can offer greater data security for those concerned about sharing their credit card or bank account information with every merchant they shop with.
4. Integrated financial services. Financial services, like online wallets or pay-over-time programs, are popping up on websites and apps across every industry. These on-demand services offer consumers the payment solutions they need without involving a third-party bank — reducing costs and increasing convenience for both parties.
5. Lending. Fintech has revolutionized the lending industry by offering crowdfunding solutions for consumers and better risk management technology for lenders. Because of fintech advances, it’s easier than ever to access and loan cash.
6. Wealth management. New fintech solutions empower financial advisors and wealth managers to create detailed financial plans and strategies — based on consumer data, market trends and personalized inputs. These valuable tools help investors maximize growth and track their wealth with highly accurate, real-time data.
Within each of these broad fintech categories, there are four general types of users: Banks, B2B companies, B2C companies and consumers. Because the market for fintech is so broad, there are innumerable opportunities to develop a popular fintech product yourself — or leverage one within your own company.
The impact of fintech on traditional banks
In 2021, the number of consumers in the U.S. who use fintech to handle their everyday finances spiked from 58% to 88%. That means the majority of American adults use financial technologies frequently and are becoming increasingly comfortable with tech solutions. It’s no wonder that fintech is likely to have the greatest impact on the consumer banking sector, where users are cost-sensitive and convenience-minded. While that’s great news for the fintech companies these users support, for smaller traditional banks that aren’t yet leveraging fintech tools, this trend suggests they may be losing valuable customers to independent technology. Local banks that lack a national presence or convenient online tools may see their customer bases shrink as easily accessible fintech replaces many of the benefits of small, local banking.
Fortunately, many major and national banks realized the value of fintech early on. Beginning in 2010, banks began acquiring fintech startups and investing in the technology themselves. For example, between 2016 and 2017, the number of fintech deals rose sharply— from 1,800 deals to nearly 2,700.
The fast pace of acquisition, coupled with the major investment by banks around the world, suggests traditional banks are embracing fintech — not trying to stop it.
How can your business leverage fintech?
The impact of fintech is undeniably clear in the banking sector. But how is it affecting startups? Particularly those that aren’t in the fintech industry themselves?
If your startup isn’t already embracing fintech innovations to streamline your processes, safeguard your data and provide your customers with tech-centric purchasing experiences, look for ways to integrate fintech tools into your operations. Technologies like AI-based financial automation, encrypted transaction tools, and convenient online wallets can enhance your customer experience and boost your bottom line.
Another way your startup can use fintech to its advantage is to offer easy integrations with your customers’ favorite fintech tools. If your customers prefer to pay with PayPal or Stripe, for example, capitalize on their preferences by offering these payment options. Or, if your consumers tend to use budgeting tools or crowdfunding solutions, be sure your product or software integrates seamlessly with their go-to tools.
Whether your startup is already leveraging fintech, or providing convenient ways for your customers to integrate their fintech with your product or service, remember to stay agile and innovative. Fintech is a dynamic industry developing at a lightning pace. By continuously adapting your strategies to changing times, you can capitalize on the growth fintech is enabling — and grow your own venture in the process.