Emerging economies will lead the way as fintech gains momentum. Asia-Pacific is poised to outpace the US, becoming the world’s largest fintech market by 2030, while Africa will be the fastest growing region, according to a new report. Africa’s fintech market – led by South Africa, Nigeria, Egypt, and Kenya – is projected to grow thirteenfold to $65 billion in 2030, and will have a projected compound annual growth rate (CAGR) of 32%.
Financial technology revenues are projected to grow sixfold from $245 billion to $1.5 trillion by 2030, according to a new report released by Boston Consulting Group (BCG) and QED Investors. Despite fintechs losing more than half their market value on average in 2022, Global Fintech 2023: Reimagining the Future of Finance found that the plunge was merely a short-term correction in an otherwise long-term positive trajectory, as the industry’s fundamental growth drivers haven’t changed.
“Globally and in Africa, the fintech journey is still in its early stages and will continue to revolutionise the financial services industry as we know it,” says Caio Anteghini, partner at BCG, Johannesburg. “Even though financial services remains one of the most profitable sectors of the economy worldwide, it struggles with innovation and customer experience remains poor. More than half the world’s population remains unbanked or underbanked, with the majority in emerging economies, and technology continues to unlock new use cases in leaps and bounds. All stakeholders must therefore seize the moment. Regulators need to be proactive and lead from the front, while incumbents should partner with fintechs to accelerate their own digital journeys.”
Nigel Morris, QED Investors managing partner and co-author of the report, says: “We expect to see continued growth not only in developed markets in the US and Europe, but also in developing fintech markets in Latin America, Asia, and Africa, where the inertia and friction is even greater. QED remains more bullish than ever about the future of fintech and its promise to improve the lives of billions of people across the world.”
A new wave of emerging fintech leaders
Historically an underpenetrated market with nearly $4 trillion in financial services revenue pools, Asia-Pacific (APAC) is poised to outpace the US and become the world’s top fintech market by 2030, with a projected compound annual growth rate (CAGR) of 27%.
The region’s fintech growth will be driven primarily by Emerging APAC (e.g. China, India, and Indonesia), as it has the largest fintechs, voluminous underbanked populations, a high number of small and medium-sized enterprises, and a rising tech-savvy youth and middle class.
Other developing markets will also enjoy robust growth. The report forecasts that Africa will be the fastest growing region and projects a fintech revenue CAGR of 32% until 2030 in Africa, with South Africa, Nigeria, Egypt, and Kenya being the key markets.
“Unencumbered by legacy infrastructure, Africa can leapfrog its way to a new financial ecosystem and address the challenges of a population that is predominantly unbanked or underbanked. Nearly 500 million adults in the Middle East and Africa (MEA) region are unbanked – that is 52 percent – while 43 percent are underbanked. Fintech could be a vehicle to solve the access issue, with smartphones presenting major opportunities in payments and lending for regional champions with full-stack attacker models,” says Anteghini.
Leading the next era of fintech growth
While payments led the first part of the fintech journey – and will remain the largest fintech segment in 2030, growing fivefold to $520 billion – B2B2X (B2B to any user) and B2b (serving small businesses) will lead the next era.
B2B2X is made up of B2B2C (enabling other players to better serve consumers), B2B2B (enabling other players to better serve businesses), and financial infrastructure players. The B2B2X market is expected to grow at a 25% CAGR to reach $440 billion in annual revenues by 2030, supported by growth in embedded finance and financial infrastructure.
The B2b fintech market is expected to grow at a 32% CAGR to reach $285 billion in annual revenue by providing solutions to credit-starved and poorly served small businesses. Small to mid-sized enterprises (SMEs) worldwide have an estimated $5 trillion in annual unmet credit needs, and account for close to 70% of jobs and GDP globally, according to the World Economic Forum. In Africa, SMEs provide over 80% of all jobs across the continent – showcasing the enormous opportunity for growth for fintechs in this space.
Spreading the opportunities in emerging markets
Spread businesses, which include banks and neobanks, lending platforms, mortgage lenders, and credit unions, will face challenges in developed markets where they will need to access stable and low-cost sources of deposits in order to reduce their cost of capital – such as by acquiring a bank licence.
In emerging markets, on the other hand, neobanks play a key role in expanding financial access and inclusion. There are opportunities in insurance and wealth management, and B2B2X (enablers) will be able to seize significant opportunities.
The role of regulators
Regulators should consider levelling the playing field via such actions as enabling faster pathways for banking and payment institution licence, facilitating an open banking ecosystem, and supporting digital public infrastructure. “The rise of new technologies has created a need for next-gen infrastructure that can facilitate complex transactions in a more digital world – and systems that facilitate the delivery of essential services and benefits to the general public, such as digital ID and verification, can promote economic expansion, especially in emerging markets,” says Anteghini.
The combination of digital identity, an API-enabled payments network allowing for real-time settlements, and access to innovators to build use cases is increasingly becoming a solution to fast-track digital services – and showing particular value in markets where cash is still dominant, such as South Africa.
A focus on the future for fintechs and incumbents
The landscape today is much different than it was in 2021 and early 2022 when so many fintechs were able to attract higher funding. Today, fintechs need to conserve cash and stretch their runways to get through the “funding winter” without resorting to raising money at lower valuations. They should therefore focus on their core business, strengthen their competitiveness and pursue aggressive strategies such as talent acquisition, gain market share by entering new geographies/markets, and explore M&A opportunities—while also taking an active role in shaping and embracing forward-looking regulations that enhance customer confidence and drive higher valuations.
Incumbents typically find it difficult to be disruptive innovators, and have tried to buy these capabilities by acquiring fintechs. To avoid failed acquisitions and shorten fintechs’ time and cost to market, incumbents and fintechs should form “value-based partnerships,” which allow the fintechs to remain independent but with a clear commercial arrangement that is to the benefit of both partners.
“We are in the early stages of a 25-year (or longer) growth journey – and the opportunities for growth, particularly in emerging markets like Africa, are only just gathering momentum,” concludes Anteghini.
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About BCG in Africa
BCG has a strong and long standing presence in Africa, with five offices across the continent supporting societal impact by helping organisations better anticipate and react to economic, social, environmental, and regulatory changes on the continent. BCG supports a wide variety of clients in the public sector, social sector, and private sector, and covers a spectrum of topics including digital transformation, climate and sustainability, technology, and innovation, and strengthening health and food systems.
About Boston Consulting Group
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About QED Investors
QED Investors is a global leading venture capital firm based in Alexandria, Va. Founded by Nigel Morris and Frank Rotman in 2007, QED Investors is focused on investing in disruptive financial services companies worldwide. QED Investors is dedicated to building great businesses and uses a unique, hands-on approach that leverages its partners’ decades of entrepreneurial and operational experience, helping companies achieve breakthrough growth. Notable investments include AvidXchange, Betterfly, Bitso, Caribou, ClearScore, Current, Creditas, Credit Karma, Flywire, Kavak, Klarna, Konfio, Loft, Mission Lane, Nubank, QuintoAndar, Remitly, SoFi, Wagestream and Wayflyer.
