How consumer demand continues to drive global fintech growth

The Cambridge Centre for Alternative Finance (CCAF) at Cambridge Judge Business School and the World Economic Forum have today (18 January) jointly published a new report, “The Future of Global FinTech: Towards Resilient and Inclusive Growth”. The 46-page study reveals that the global fintech industry is maintaining growth momentum driven by strong consumer demand, demonstrating resilience in a challenging fundraising environment, and making meaningful inroads to extend financial services and products to underserved consumers and businesses around the world. The report also finds artificial intelligence (AI) is the most relevant topic for the development of the fintech industry in the next 5 years.

The report was officially launched with a press conference today (18 January) in Davos during the World Economic Forum’s Annual Meeting with a high-level panel including the Governor of the Bank of Ghana Ernest Addison, the Head of Technology and Innovation in Financial Services of the Forum Drew Propson, and the Executive Director of the CCAF Bryan Zhang.

The study gathered data from 227 fintechs across 5 industry verticals (digital lending, digital capital raising, digital payments, digital banking and savings, and insurtech) and 6 regions (Asia-Pacific (APAC), Europe, Latin America and the Caribbean (LAC), Middle East and North Africa (MENA), US and Canada, and Sub-Saharan Africa (SSA)). Six key areas were investigated: fintech business demographics, market performance, market growth factors, regulatory perceptions, customer engagements and fintech activities with societal as well as economic benefits.  

Drivers and barriers for international fintech industry revealed

The global fintech industry continues to grow, with customer growth rates maintaining above 50% across industry verticals and global regions. Over half (51%) of all surveyed fintechs cite consumer demand as the main driver of growth. In some regions, like Latin American and the Caribbean (LAC), almost 70% of surveyed fintechs cited it as the major supporting factor. Other major factors supporting fintech growth are availability of a skilled workforce (39%) and a favourable regulatory environment (38%).  

Macroeconomic factors (56%) and the funding environment (40%) are revealed as the top hindering factors for overall growth. Views about the impact of the funding environment is particularly differentiated regionally: LAC experienced the largest regional drop in funding and surveyed fintechs in this region disproportionally find the funding environment to be a hindering factor to growth. Conversely, in the Sub-Saharan Africa region, fintechs find their funding environment to be more conducive for growth than not, with 52% rating it as a supporting factor.  

The majority of fintechs reflect favorably about their regulatory environment, with 64% rating it as adequate. 38% of surveyed fintechs also cite regulatory environment as a major supporting factor for their operations and growth.  The development of digital regulatory and supervisory infrastructure was regarded as the most conducive to support fintech growth and scalability, with 55% of fintechs rating it as effective.  

How female, low-income and rural based customers are growth areas for sector

As fintechs continue to expand the provision of financial services and products to underserved segments, these segments are becoming a sizeable proportion of their consumer base and total transaction values. Female, low-income, and rural or remotely located customers constitute a substantial portion of fintech customer bases, globally averaging 39%, 40%, and 27%, respectively. In terms of transaction values, regional differences apply. Female customers in the Middle East and Northern Africa account for 54% of the overall transaction values. In contrast, European fintechs report the lowest proportion of female transaction values, at 28%. 

Why fintech regulation must keep pace with innovation, including use of AI 

Artificial intelligence (AI), the digital economy, embedded finance as well as open banking are the issues regarded by fintechs as the most relevant for industry development in the near future. AI is regarded as the most relevant topic for the development of the fintech industry in the next 5 years, as cited by 71% of respondents. Embedded finance, the digital economy, and open banking were all nearly tied as the second most relevant factors (53%-54%) for surveyed fintechs. Conversely, fintechs clearly cite a lack of incentives or mechanisms to contribute to environmental and inclusion goals. A substantial 41% of fintechs emphasise the need for sustainable finance schemes and a further 31% cite the existing schemes as ineffective. 

“It is highly encouraging to see fintech performance remain strong after the pandemic, with average global customer growth rates above 50% from 2021-2022, however, identified headwinds such as a difficult macroeconomic climate and decreased fintech funding cannot be ignored,” said Drew Propson, Head, Technology and Innovation in Financial Services, World Economic Forum. “Overcoming these challenges and realising sustained social and economic benefits from the fintech industry will require continued data gathering to better understand pain points and committed support from public and private sector actors within financial services.” 

“As the global fintech industry continues to grow and evolve, it is imperative that the pace of regulatory and supervisory innovation match that of financial innovation. This report highlights the importance of having an appropriate and adequate regulatory environment that is conducive for the scalable and sustainable development of fintech,” said Bryan Zhang, Executive Director and Co-Founder, Cambridge Centre for Alternative Finance. “The study findings also indicate the enormous potential of digital financial services to widen access to finance for consumers and SMEs by providing more accessible, affordable and personalised financial products and services.”