Fintech is one of the fastest-growing industries in the world today.
With that rapid growth comes rapid change.
So, what does the future hold for Fintech?
In the latest Payments Innovation, we take a look at Fintech’s growth and what it means for the industry — from crypto to real-time payment systems and beyond.
Shamir Karkal, Co-founder and CEO at Sila, and Cara Hayward, Director of Strategic Partnerships, North America at Currencycloud, share why they both see a bright future for Fintech as it captures more market share of the lucrative financial services industry.
- Why growth is Fintech’s biggest trend
- The staying power of Fintech
- Other indications warranting optimism for Fintech’s future
Fintech’s biggest trend: growth
Fintech’s meteoric rise and the seemingly constant stream of new players on the scene may lead some to believe the market is getting saturated.
But that couldn’t be further from the truth, Shamir says.
To state the obvious: Fintech is just one slice of the pie when it comes to the greater financial services industry. And that industry is massive.
Financial services are an essential function of a modern economy — of what it means to be human in the modern era. It wouldn’t be a stretch to say financial services are the foundation of our society, without which we would struggle to function.
In fact, according to Shamir, if you tally the entire planet’s combined GDP, it’s somewhere around $100 trillion — and $20 trillion of that is financial services. In other words: A fifth of the world’s entire economic output comes from financial services.
Yet, how much of that pie do you think belongs to Fintech?
According to Shamir, Fintech’s slice barely scratches 1% of the financial service pie. That means even the titans of Fintech are an infinitesimally small sliver of the total market.
And while banks and traditional FIs won’t be disappearing any time soon, one look at how quickly market dynamics can change should make you think twice about betting against the young, innovative, tech-driven players joining the game. The industry is already being disrupted — and Fintech has barely gotten started.
Fintech’s staying power
Growth may be the defining trend of Fintech, but is that trend a long-term paradigm shift or a passing fad?
For Shamir, it wouldn’t come as any surprise to see Fintech make up 10% or more of the financial services industry by 2030. And while some Fintechs will no doubt fall by the wayside, he’d bet on others becoming giants by the close of the decade.
Cara couldn’t agree more. She emphasizes the shifting relationship between traditional finance and Fintech as evidence for Fintech’s longevity.
Where many banks once ignored or dismissed Fintech, their eagerness in recent years to become sponsor banks and partner with these upstart financial institutions points to the industry accepting the staying-power of Fintech. And these partnerships are a boon for both banks and Fintechs.
Banks can tap into the agility and nimbleness that fosters Fintech’s spirit of innovation, keeping up with the changing times; Fintechs, on the other hand, can benefit from the stability that established financial institutions have to offer, mitigating the volatility that comes with being an early-stage industry disruptor.
Cara says finding this stability is especially important for Fintechs who, at their current state of maturity, are facing a crossroads.
“It’s going to be really, really important to bootstrap and think through your business plan, and not just the technology,” Cara says. “It’s not just about acquiring users anymore — what is your path to profitability?”
The Fintechs who successfully navigate this crossroads will be the ones with the staying power to thrive in the financial services landscape of the future.
Optimism for Fintech’s future
Clearly, both Shamir and Cara are optimistic on Fintech’s future — especially considering much room for innovation is still available in the space.
Even in the lingering economic turmoil from the pandemic, Shamir points to the fact that BaaS and embedded finance are still finding new use cases regularly. He’s also confident that while it may be getting harder for Fintechs to capture new users, the cost of acquiring them will continue trending down.
Cara expands upon that to emphasize the fact that much of the perceived saturation or slowed growth some worry about in the Fintech space falls on the B2C side of the equation — the B2B space still has plenty of breathing room. Her optimism in this area is, in part, justified by the global rise of real-time payments, which she says are crowding out fee-laden card payments in terms of international adoption.
Of course, certain governmental bodies are contributing to real-time payments’ rapid growth, too.
Moves by countries like India to mandate real-time payments and to ensure international interoperability only add more fuel to surging adoption rates, Shamir says.
Still, there are some roadblocks. Regulation and compliance issues still need to be overcome in many regions and, despite the US being such an economic powerhouse, its sluggishness in adopting real-time payments may slow some of the growth on this front.
This may even lead to a future hybrid state, says Cara, where ACH and RTP interoperability allows both to concurrently hold the title of “industry standard.”
Whether that future becomes a reality is still uncertain. But for Cara and Shamira, one thing is certain: Whatever the future ultimately holds for finance, Fintech will be a part of it.
Fintech’s future is no doubt bright, but only for those helping to build towards that future, as Shamir is quick to point out…
“Ultimately, everybody needs to build towards the future — and if you don’t, there will be long-term consequences.”
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Until next time!