It initially made money by investing users’ cash balances. Jeff Galvin is a partner, John Qu is a senior partner, and Arthur Shek is an associate partner in McKinsey’s Hong Kong office. Never miss an insight. 2. Fintech finished 2020 on a strong note, with Q4’20 deals up 11%, reversing the space’s 4-quarter decline in activity. Fintech Trends in Asset Management. While overall funding remains at historically high levels, technology investors globally are increasingly investing in proven, later-stage companies that have shown promise in attaining meaningful scale and profits. While both investors and employees require a path to liquidity, many fintech founder-CEOs have preferred to stay in the private market to avoid the burdens of public listings—as well as the batterings received by other fintechs that tested the IPO market. In addition to naming China’s high-potential Fintech startups, the KPMG report also revealed the major industry trends observed in the nascent sector during the past year. In many cases, traditional markers such as repayment history, are still better predictors of creditworthiness than social media behavior, particularly in markets where credit histories (and dedicated agencies to monitor them) are well established. A report from Acxiom addresses several banking transformation trends, including: the growth of partnerships, enhanced use of consumer data, the impact of fintech firms, enhanced ways to build engagement through marketing, and the impact of a platform economy. Robinhood, a US-based stock-trading fintech, simplified stock trading by offering zero commissions through its easy-to-use mobile app with solid UX. High level of regional variation in fintech disruption. CBS fintechs are likely to continue, therefore, to target smaller banks or focus on non-core areas. However, there are signs of a change in mood. Meanwhile, global venture capital (VC) fintech investment in 2018 has already reached $30.8 billion, up from $1.8 billion in 2011 (Exhibit 1). 1 1. As they reach saturation point in their native digital marketing channels, many fintechs are now actively looking for partnerships to grow their business. They're about the battle for the value chain. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. Learn about “Goldman Sachs so far has loaned $3 billion to Main Street America,” Yahoo Finance, April 17, 2018. In general, incumbents were initially slow to respond directly to fintech attackers, perhaps for fear of cannibalizing strong legacy franchises. McKinsey’s analysis based on CB Insights data. JPMorgan’s digital strategy includes recent partnerships with fintechs including OnDeck, a digital small business lender, Roostify, a mortgage fintech, and Symphony, a secure messaging app. Please use UP and DOWN arrow keys to review autocomplete results. In China, where regulation has been more accommodating, ecosystems were formed by technology giants such as Ant Financial, which have directly entered and are reshaping many financial sectors including digital payments, loans, and wealth and asset management. With fintechs scaling and on the path to profitability, executives will have to balance higher liquidity and greater public scrutiny as they consider IPOs. Winners in fintech are primarily emerging at a regional rather than global level, similar to traditional retail banking. These ecosystems have innovated and scaled rapidly. Fintech has evolved considerably in the last few years and continues to change rapidly. From rapidly evolving technology to fundamental demographic shifts, multiple trends are converging to drive significant changes in how people and firms will operate in the finance industry. Despite much hype about fintech—particularly blockchain-based solutions—entering the space, no start-up has gained anywhere near the scale of TransferWise, a digital business built on top of traditional payments rails, rather than a reinvention using the latest tech. Join 600,000+ CB Insights newsletter readers. Fintech investors must be very selective in deploying capital, as we approach the possible endgame in this wave for some sectors and companies. Reinvent your business. China’s fintech ecosystems are structurally different from their counterparts in the US and Europe. A number of Chinese lending fintechs that listed on the NYSE and Nasdaq in 2017 subsequently traded much lower than their IPO prices, driven by reports of bad loans and unfavorable regulations in China. Marcus emerged as an unlikely entrant into consumer finance in 2016, but recently surpassed $3 billion in US consumer lending volumes. —further evidence that while technical innovation is important, a sound business model remains critical. In late 2016, the company launched a successful premium offering called “Robinhood Gold,” which added charges for margin and out-of-hours trading. Other investment banks have focused more on robo-advisory services in their digital efforts. Regulatory complexity within countries and across regions is contributing to regional “winner take most” outcomes for disrupters. Large banks’ traditional procurement and onboarding process for new vendors or applications may present a challenge to newer fintechs that lack a track record and compliance rigor. Shifting traditional mindsets and operating models to deliver digital journeys at a start-up pace is no easy feat for a financial behemoth. Marcus’ success in the US led it to launch in the UK in September 2018, where it captured 100,000 customers for its savings product in the first month Global backdrop . Copyright 2020 CB Information Services, Inc. All rights reserved. A Financial System That Creates Economic Opportunities • Nonbank Financials, Fintech, and Innovation iii Table of Contents Executive Summary 1 Nonbank Financials, Fintech, and Innovation 4 Emerging Trends in Financial Intermediation 6 Summary of Issues and Recommendations 9 Embracing Digitization, Data, and Technology 15 Digitization 17 Each of China’s “big four” banks However, the aggregate investment figures belie a more nuanced set of developments. Indeed, several well-known and well-capitalized fintechs have yet to develop a sustainable business model and may need to find a path to more meaningful revenues quickly to continue to attract capital. A good overview of Fintech with a B2C focus, including market size, business models, consumer views, blockchain technology and company profiles can be found in our Statista Report 2019. Individual US states require licenses for money transfer, which makes US expansion more cumbersome for European operators. Funding Circle, the UK P2P lender, listed in October 2018. has partnered with at least one ecosystem firm in 2017. Third, increasing government regulation will likely gradually weed out noncompliant or less competitive smaller fintechs. tab. They bring to the table their higher speed and risk tolerance, and flexibility in reacting to market changes. As fintech markets mature, attackers that have established a regional presence are now eyeing international expansion. The research study lays emphasis on key growth opportunities and market trends apart from critical market dynamics including market drivers and challenges. This also explains why money-transfer operators in the US, such as Xoom and Remitly, were slower to come to Europe and are not yet operating in Asia as sending markets. 2 Singapore FinTech Association's success could only have happened with the help of our members community. TransferWise used great user experience and distinctive marketing campaigns to grow rapidly, enabling it to successfully disrupt the space, and to report £117 million in revenues in March 2018. The government has tightened control in payments, P2P lending, and robo-advisory in the past year, and the trend is expected to continue. 1.2. This is a preview of the Insider Intelligence Fintech Accelerators premium research report.Purchase this report here. This encouraged many cross-border payments start-ups, such as WorldRemit and TransferWise in the UK, to expand into neighboring European countries before moving across the Atlantic, which requires additional regulatory investment. Many started by trialing digital offerings in non-core businesses or geographical areas, where they could take more risks. Average deal size is growing as well, particularly in Asia, where it is almost twice as large as the global average, due largely to a number of mega deals. Insider Intelligence offers even more fintech coverage with our Fintech Briefing. Many peer-to-peer (P2P) lending fintechs—among the earliest to list in the US—saw valuations drop drastically in the public market. Data compiled by PitchBook show that despite a clear increase in total VC funding, investments in early-stage fintechs decreased by more than half from a peak of more than 13,000 deals in 2014, to around 6,000 in 2017. Examples include a joint fintech laboratory launched by Bank of China with Tencent; and an agreement between China Construction Bank, Alibaba, and Ant Financial to digitize customer banking experiences. For established technology players entering the fintech ecosystem, regulatory challenges may prove a hurdle. As fintechs mature, at some point they must decide whether to go public. This should allow the fintechs to prove their concepts and build their reputations, while fine-tuning their product offerings for larger customers. Vanguard was even earlier to react to the trend, using their existing brand and customer base to grow their offerings rapidly since launching in 2015; digital assets under management reportedly reached $120 billion in 2018. Our global report Financial services technology 2020 and beyond: Embracing disruption examines the forces that are disrupting the role, structure, and competitive environment for financial institutions and the markets and societies in which they operate. Digital upends old models. To successfully enter new markets, they must adapt to new sets of market dynamics and government regulations and select new markets based on a clear understanding of regional variations. Let us take a look at some fintech trends … Notably, winning start-ups often succeed without using completely new technology. Fintech lenders Qudian and PPdai went public in 2017 and listed at $7.9 billion and $3.9 billion market cap at IPO, respectively. For incumbent financial institutions, the biggest hurdles relate to organization and skills as much as investing in technology at scale. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. Press enter to select and open the results on a new page. Customer adoption of truly innovative business models takes time, and smaller-scale attackers may require heavy infrastructure investments over a long period before revenues start coming in. Goldman Sachs’ Marcus consumer lending franchise is perhaps the most high-profile push into digital by an investment bank. collaboration with select social media and trusted analytics partners The most successful fintechs have evolved into execution machines that rapidly deliver innovative products, with dynamic digital marketing campaigns to match. Three trends will shape China’s digital financial services landscape. If you would like information about this content we will be happy to work with you. Subscribed to {PRACTICE_NAME} email alerts. CBS fintechs may face an uphill battle with larger institutions, given long sales cycles and risk aversion, particularly for something as important as core infrastructure. For example, in money transfer, regulatory approval in a single EU country can be passported across the other EU countries. Flip the odds. Today, most financial institutions have transformed their retail user experience, offering full mobile functionality with best-in-class design principles. As a result, while consumer lending platforms are increasingly incorporating iterative machine-learning approaches to steadily improve existing performance, they do not need to take a quantum leap in AI to do so. The top 5 trends in banking and fintech for 2021 aren't about AI or digital transformation. The “move fast and break things” approach that disrupted the advertising industry is unlikely to be tolerated in financial services. In some instances, ING has built strategic partnerships with the companies they invested in, such as the automated online lending platform Kabbage. Ping An is the most advanced of the traditional financial services players in terms of investing heavily in a range of digital offerings and beginning to create a digital ecosystem of its own. The technology giants that orchestrate them have access to enormous amounts of data to develop and refine their offerings (e.g., tailoring services to different user segments based on their lifestyle and habits) and can assess risk more effectively based on customer social media profiles (Tencent’s WeChat messaging app) or spending behaviors (Alibaba’s Tmall and Taobao e-commerce sites). While there are comparatively fewer standalone players in China, those that are successful are by no means small. According to the report, the Indonesian fintech startups landscape is dominated by … Ant Financial—built on the back of Alibaba's e-commerce platform—offers one-stop business-to-consumer fintech solutions, with products such as Alipay for online payments, Yu’e bao for investments from the Alipay wallet, MYbank for digital banking and lending, and many others. our use of cookies, and To cut through the headlines and buzzwords that saturate the discussion of fintechs, we now take a closer look at current trends, and the implications for both incumbents and attackers. 4. Financial institutions are engaging with fintech start-ups either as investors or through strategic partnerships. Financial technology companies in the U.S. raised $3.5 billion in the first half of 2017, according to KPMG, as investors rushed to place bets in buzzy sectors like … Fintech startups received $17.4 billion in funding in 2016 and were on pace to surpass that sum as of late 2017, according to CB Insights, which counted 26 fintech unicorns globally valued at … hereLearn more about cookies, Opens in new As in Jenga, removing or replacing “pieces” of the IT stack can be risky and complicated. tab, Engineering, Construction & Building Materials, McKinsey Institute for Black Economic Mobility. In the US and Europe, which have stringent regulatory requirements and well-established banking offerings, efforts have been more fragmented and large technology players have been limited to payments offerings and some small-scale lending offerings. Despite the lackluster performance of the aforementioned Chinese fintech lenders, another Chinese P2P lender, X Financial, listed in September this year. The investing public is also enamored of fintechs: Zhong An made waves with its $11 billion IPO valuation last year, while Ant Financial is reported to be raising a pre-IPO round valuing the company at $150 billion. New10, the digital bank launched in the Netherlands by ABN Amro in 2017, used Mambu, an infrastructure attacker fintech, for their CBS. This is especially evident for challenger digital banks. In the US, for example, PayPal and Stripe focus mainly on online payments; Betterment and Wealthfront offer digital wealth management; and LendingClub and Affirm are alternative lenders—all proven strategies. United Fintech, the venture launched by Christian Frahm last November, has acquired a 25 percent stake in German fintech, TTMzero with additional plans of increasing the control in the startup to 80 percent over the next three years.. TTMzero was founded in 2013 and offers digitized regtech and capital markets tech solutions. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Industrial & Commercial Bank of China, China Construction Bank, Bank of China, and Agricultural Bank of China. Data-driven iteration, coupled with early and continuous user testing, has led to robust product-to-market fit for these firms. Indeed, the trends outlined in this paper will likely give way quickly to new movements, as new winners emerge and existing leaders mature and diversify. Some have raised significant sums but still struggle to monetize their products effectively; others have not yet delivered a current account product due to complications around licenses and regulations. LOS ANGELES, United States: The global Briefcases market report offers fine intelligence that prepares market players to compete well against their toughest competitors on the basis of growth, sales, and other vital factors. McKinsey’s analysis based on CB Insights data. Use minimal essential Blockchain start-ups, for example, are attracting a significant amount of venture capital with radically new infrastructures for payments and other sectors. Many financial institutions are evaluating replacing their core IT systems in the next five to ten years. We strive to provide individuals with disabilities equal access to our website. Adyen, the Dutch payments fintech, listed in June 2018, and has seen its share price double. SVB’s 2021 wine report analyses the challenges faced by the wine industry, the impact on future sales and consumption trends along with some forecasts. 4 The rise in delinquent accounts calls for a closer look at portfolios and emphasises the need for better collection strategies. But first, it built its user base with free product offerings. Several CBS fintechs have emerged, seeing legacy IT issues as a golden opportunity for disruption. An increasing number of incumbents and fintechs are realizing the benefits of combining strengths in partnership models. What’s next for China’s booming fintech sector? For instance, while infrastructure providers will often succeed or fail based on product or technical capabilities, consumer-oriented start-ups most commonly grapple with customer acquisition costs. cookies, McKinsey_Website_Accessibility@mckinsey.com. Winners in fintech are primarily emerging at a regional rather than global level, similar to traditional retail banking. The buzz surrounding artificial intelligence (AI) applications in fintech is intense, but to date few standalone use cases have been scaled and monetized. This could lead to further consolidation in the next one or two years—more good news for the large technology firms seeking to dominate the landscape. ING Ventures, launched in 2017, is a €300 million fund focused on fintech investing, and has invested in or partnered with a total of 115 start-ups over the last three years. However, incumbents remain cautious, with blockchain remaining in prototype mode—and the leap to revenue-generation has yet to take place. As an example, consider cross-border money transfer, a market that has traditionally been dominated by large incumbents such as Western Union. ... FinTech will drive the new business model. Fintech finished 2020 on a strong note, with Q4’20 deals up 11%, reversing the space’s 4-quarter decline in activity. Insider Intelligence. Something went wrong. We take a look at global fintech investment trends in key financial verticals, partnership activity, top deals, and more. Investment professionals and firms have entered a period of accelerating transformation. Similarly, Tencent provides a wide range of digital financial services on its pre-existing social platform. 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Learn more about cookies, Opens in new tab, Engineering, Construction Building... In deploying capital, as a result, require more reasons to switch to new fintech offerings looking! For disrupters SFA, and has fintech trends report its share price double to attackers! Sectors and companies to go public incumbents such as machine learning, traditional... To review autocomplete results opportunities and market trends apart from fintech trends report market dynamics including market drivers and challenges smaller newer.