According to the report titled “Global Fintech 2023: Reimagining the Future of Finance”, jointly produced by Boston Consulting Group(BCG) and QED Investors, the Asia-Pacific (APAC) region is expected to outpace the United States of America(USA) and become the world’s top fintech market by 2030 with a projected compound annual growth rate (CAGR) of 27%.
- The fintech sector, which currently holds around 2% share of global financial services revenue, is estimated to reach USD 1.5 trillion in annual revenue by 2030(a 6-fold growth), with banking-related fintech representing 25% all banking valuations.
- The sector is estimated to witness revenue share grow to 7% by the end of this decade.
- By 2030, global banking and insurance revenue pools are expected to reach USD 21.9 trillion, a 6% compound annual growth rate (CAGR).
What is The compound annual growth rate (CAGR)?
CAGR is the rate of return (RoR) that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each period of the investment’s life span.It is the mean annual growth rate of an investment over a specified period of time longer than one year.
Key Points:
i.This growth of APAC region will be driven primarily by local champions in emerging APAC that will solve access issues, and facilitate financial inclusion.
ii.The separating emerging APAC like China, India, and Indonesia, from developed APAC like Japan and South Korea, most growth is expected to come from the emerging APAC, since it has the largest fintechs, voluminous underbanked populations, a high number of Small and medium-sized enterprises (SMEs), and a rising tech-savvy youth and middle class.
B2B2X & B2B:
i.The report states that the initial stages of fintechs’ evolution were led by payments, accounting for roughly 25% of cumulative equity funding (USD 120 billion) since 2000, B2B2X (business-to-business to any end-user) and B2B (business-to-business), serving small businesses, will lead the next.
- The B2B2X market comprises B2B2C (business-to-business-to-consumer) – enabling other players to serve consumers, B2B2B (Business-to-business-to-business) – enabling other players to serve businesses, and financial infrastructure players.
ii.B2B2X is expected to grow at a CAGR of 25% to reach USD 440 billion in annual revenues by 2030 supported by growth in embedded finance and financial infrastructure.
iii.The B2b fintech market is expected to grow at a 32% CAGR to reach USD 285 billion in annual revenue by providing solutions to credit-starved and poorly served small businesses.
India and Fintech:
i.India is undergoing major fintech activity with the emergence of local champions such as PayTM and Razorpay.
ii.The Reserve Bank of India(RBI) is taking an active role in shaping the market through such vehicles as United Payments Interface (UPI), Aadhar, Rupay, and Digilocker.
iii.The report projects a major fintech revenue growth in India to be spurred by expanding Gross domestic product (GDP) (a CAGR of 7% per year), the rise of the educated middle class, younger demographics coming of age, and increasing fintech penetration.
Note: The report highlights that the majority of fintech revenues in the APAC region currently originate in China and it is expected to remain a regional leader in the years to come.
Regulatory oversight:
i.The report stated that the regulators must take care not to overregulate the industry and stifle innovation while creating guardrails.
ii.To encourage future growth, regulators will need to lead from the front proactively to develop and enforce policies that protect consumers but do not stifle innovation.
iii.Regulators should level the playing field such as enable faster pathways for banking and payment institution licenses, supporting digital public infrastructure, and facilitating an open banking ecosystem.
