FinTech Trends Report: Edition 1

Perspectives from Boyden’s FinTech Experts

Lopez: What regional trends are you seeing in fintech? Are there particular markets or regions that are experiencing greater growth or adoption of fintech services?

Ignozzi (U.S.) In the US, it has been a tumultuous few years in fintech, with investments falling over 60% year-over-year (according to CB Insights). However, amidst the challenges, there are clear winners in the industry, with six "unicorns" (startups reaching over $1 billion in valuation) thriving. While uncertainties persist due to economic conditions, inflation, and interest rates, there is a counterbalance provided by a robust stock market and the emergence of intriguing new AI technology, such as Chat GPT.

Salah (UAE): Despite global economic and geopolitical instability, fintech continues to transform the financial services sector and impact individuals and the economy. The competition with traditional banking systems has driven a modernization of the banking ecosystem, emphasizing innovation to reach a wider client base. Fintechs, with their agility and size, are better positioned to quickly and cost-effectively execute innovative projects compared to banks.

Mejia (U.S.) In many developing countries, fintech development has gained significant traction as conventional banks struggle to attract new customers. Latin America is witnessing an unparalleled surge of entrepreneurial spirit amidst addressing pressing challenges. Previously, the region’s banks focused on serving the affluent population due to limited competition and stringent credit criteria. This is now shifting. Slow but steady changes in LATAM, coupled with a growing emphasis on financial inclusion, present immense opportunities for innovators. With an underbanked population ranging from 30 to 50 percent in key Latin American nations, a substantial untapped market awaits attention. Fintech, aiming to provide easier access to financial services than traditional banks, continues to gain popularity and presents significant room for payment-related expansion in the region.

Espaldon (Singapore and China): Several countries across Asia Pacific region, notably, China, India, Hong Kong, South Korea, and Singapore, have been making significant strides in fostering innovation and driving fintech adoption. China specifically, with its vast population and tech-savvy consumers, has witnessed an unprecedented surge. The country's mobile payment services have revolutionized the way people transact, enabling seamless, secure, and convenient payments through smartphones. The widespread adoption of digital wallets in China has not only transformed the retail landscape but has also penetrated other sectors.

This be attributed to various factors: the widespread smartphone penetration, coupled with the convenience and security offered by these digital payment solutions. Additionally, the increasing acceptance of digital transactions by merchants, the rise of e-commerce, and the growing preference for contactless payments. With advancements across AI, blockchain, and open banking, the region is well positioned to shape the future of fintech globally.

Lopez: Mergers and acquisitions have been a common way for fintech companies to scale and stay competitive. How do you see M&A activity evolving within the fintech industry, and what are some of the key factors driving consolidation?

Salah (UAE): The M&A trend has been driven by various players, including strong USD-backed buyers, private equity firms, banks, and technology companies and reflect the industry's recognition of the value in joining forces to leverage complementary strengths and expand market reach. Through mergers and acquisitions, companies aim to enhance their technological capabilities, broaden their customer base, and strengthen their competitive position in the rapidly evolving fintech landscape. This trend is a testament to the dynamic nature of the industry, where collaboration and integration are crucial for sustained growth and innovation.

Mejia (U.S.): The fintech sector saw M&A activity rise sharply this year and as the fintech industry rapidly matures, there will continue to be a wave of consolidation on the horizon. First-time M&A underscores the desire to grow by newly public fintechs, despite low valuations many of these purchases have been made to sustain revenue growth. Like many rapidly growing companies, they are subject to the law of large numbers, and thus organic revenue growth rates inevitably decelerated. We anticipate further acquisitions from businesses that produce free cash flow and have the financial resources and lending power. Acquisitions appear to be pursuing several objectives, including incremental revenue growth, defensive posture, producing profit through scale, bringing on/renovating the talent pool, and fast acquiring of new products and services to cross-sell while lowering execution risk.

Espaldon (Singapore and China): M&A activities have been on the rise in recent years, and this trend is expected to continue in the coming years as fintech companies strive to scale and maintain their competitiveness. The driving factors behind this consolidation include customer acquisition, innovation, geographic expansion, and regulatory compliance.

Ignozzi (U.S.): Executives aspire to be rational decision-makers, and leveraging the value of companies is leading to consolidation, divestitures, and increased M&A activities. Fintech companies are discovering the value inherent in data and customers, making it a driving force behind consolidation. The power of data and a larger customer base are key factors motivating this trend.

Lopez: What role do you see regulation playing in shaping the competitive landscape of fintech? Are there certain regulatory developments that could give certain companies or subsectors a competitive advantage, or will regulation act as a levelling force within the industry.

Mejia (U.S.) Regulation's significance grows as fair lending legislation and regulatory oversight expand, particularly concerning fintechs. Financial institutions must diligently avoid compliance issues and adhere to lending laws. Aligning with regulatory requirements becomes increasingly crucial amid the rising automation trend. Automating non-compliant tasks poses a significant risk of systemic harm to the larger customer base, despite potential efficiency gains.

To compete on a broader scale and streamline compliance across multiple jurisdictions, some fintechs contemplate or pursue bank charters. Banks, aiming to harness the disruptive potential of fintech and cater to tech-savvy customers, actively court and, in some cases, collaborate with them.

Collyer (Canada): In Canada there are significant voices across the banking and fintech communities calling on the federal government to take the lead in modernizing our digital banking and payments systems. Areas such as having a real time national payments system and open banking are seen by the fintech industry as necessary preconditions for driving and accelerating competition and innovation across fintech.

Espaldon (Singapore and China): As the industry continues to grow and expand, regulatory frameworks are essential in maintaining stability and safeguarding consumers. However, the impact of regulatory developments can vary for different companies or subsectors, affecting the competitive landscape in different ways. Regulation can provide certain companies or subsectors with a competitive advantage, while also ensuring a level playing field for others. Common standards and requirements imposed by regulatory frameworks can enable smaller or newer companies to compete more effectively against larger, established firms. These frameworks can also foster innovation and competition by mandating larger firms to open their systems to third-party providers, thereby creating opportunities for startup fintech companies.

Ignozzi (U.S.): Federal and state regulations are playing a positive role in shaping and opening up the industry, although compliance costs remain high. The relaxation of regulations pertaining to data, data ownership, and third-party vendor management has allowed fintechs to become indispensable partners for banks and other companies.

Lopez: How are fintech companies prioritizing ESG (Environmental, Social, and Governance) factors in their operations and investments? What are some examples of successful ESG initiatives in the fintech space?

Espaldon (Singapore and China): Fintech companies are increasingly acknowledging the significance of ESG factors in their operations and investments. By integrating sustainable and responsible practices, they can generate a positive impact on the environment and society, while simultaneously enhancing their reputation and competitiveness in the market. For example, PayPal offers charitable giving options through its platform, and platforms like Lendwithcare facilitate connections between individuals and microfinance opportunities to support entrepreneurs in developing countries.

Mejia (U.S.) The fintech industry is rapidly approaching a crucial turning point, where having an informal ESG strategy without formal governance is no longer sufficient. Consequently, many fintechs are prioritizing the demonstration of their ESG commitment to stakeholders, such as investors, customers, and employees, who are increasingly demanding accountability. While implementing a formal company-wide ESG plan entails risks, it also brings established benefits. Fintech will play a pivotal role in driving green innovation and investment, leveraging digital solutions to equip businesses with tools for measuring their environmental impact. ESG and fintech interactions are already evident in areas such as financial inclusion initiatives, ESG compliance solutions related to data and reporting, and impact investing. The sustainability agenda is reshaping the financial sector worldwide, fostering social good and environmentally friendly initiatives, prompting swift evolution within the fintech industry. This transformation is facilitated by the industry's innovative technology, which promotes further innovation and proves essential in this new landscape.

Collyer (Canada): Fintech organizations have the potential to accelerate and improve ESG investing. As ESG data becomes more standardized, fintech’s can drastically improve ESG due diligence and analysis by deploying innovative data and analytics capabilities. Additionally, over the past 10+ years, fintech investments have also focused on developing new digital tools that provide business intelligence analysis and regulatory reporting solutions for investors, asset managers, and an increasingly wider group of stakeholders.