It may be an understatement to say the fintech market has been a hot-button topic in recent years. From the Robinhood fiasco to a startup boom reminiscent of the dot com craze, both average consumers and venture capitalists are keeping a steady finger on the FinTech pulse. 

But, like most industries, fintech suffered during the emergence of COVID-19. Mckinsey reported “investment into the sector dropped by 11% globally” during the first six months of 2020 when “compared to the same period in 2019.” An 18% drop in investing during July was even more precipitous. But, do these figures represent the industry slowing from a sprint to a crawl? 

Maybe, but current data and predictive models say otherwise. Although investments into fintech startups have slowed, the industry as a whole is still full speed ahead. Research And Markets appraised the global fintech market at $7.3 trillion in 2020 and projected it to grow at a compound annual growth rate (CAGR) of 26.87% through 2026. Additionally, when evaluating business demand for fintech capabilities through 2024, Gartner predicts 60% of organizations will seek AI use cases in financial management solutions. 

Understanding Demand for FinTech Capabilities

The global financial crisis of 2007-2009 must be considered when speaking to the rising demand for fintech products and services. The Great Recession led to a global GDP decline of 5.1% and left millions of people unemployed, without savings, and with mortgages too expensive to handle. Experts point to rampant deregulation within the financial sector as the primary cause. 

However, it’s hard to say the financial crisis itself started the fintech boom. The consumer reaction to the fallout of the recession, and particularly the reaction to the Wall Street bailout of 2009, comes to mind as a prominent landmark within a period of shifting consumer perception.

In 2006, Gallup found that Americans' confidence in banks sat at 41%. That number decreased sharply in 2009, when just 22% of Americans expressed high confidence in banks. In 2012, the percentage reached an all-time low, at 21%. Although the figure has since risen and now sits at 33%, it’s a sharp decline in confidence amongst a continuing downward trend from the heyday of traditional banks in America, when 60% of Americans expressed high confidence in banks back in 1979. 

The government reaction to the financial crisis also played a large role in the fintech boom. An increase in regulation and government oversight, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010, led to banks giving more attention to compliance, security, and risk management. While this was welcome, it arguably served to further clog up the already bulging bureaucracy of big banks — leaving less time for innovation in an already slow-to-adopt industry (in the case of artificial intelligence). 

The rise of consumer demand in several industries contained within the larger umbrella of the financial industry also cannot be ignored. The interest in cryptocurrency and retail investing has boomed in recent years. And, financial literacy has shown itself to be a growing trend among today's consumers. A noticeable peak in consumer investing interest occurred in December of 2017, the same month Bitcoin surged to nearly $20,000 after starting the year under $1,000. 

The lack of consumer confidence in traditional banks and increased regulations by the government left the financial industry in an interesting predicament. Innovators in the fintech field noticed a glaring consumer need for a nimbler, more streamlined and transparent way of banking. Not to mention a massive business need for advanced analytics, automation, and artificial intelligence. 

It was clear that the traditional banking model was begging to be disrupted, and venture capitalists felt the same way. Mckinsey reports venture capital funding for startups in the fintech space grew more than 25% a year from 2014 on, until the steep decline during 2020.

What’s Next for FinTech?

Banking isn’t the only area of the financial industry that has felt the impact of the fintech boom. Fintech has changed the concept of finances as a whole. Peer-to-peer (P2P) payment platforms, like Venmo and Cash App, make it possible to wire money to anybody instantly. The consumer lending market as a whole has changed drastically. Companies like LendingHome provide short-term bridge loans for those active in real estate. Other companies work to simplify the lending process, or allow user to leverage cryptocurrency for loans. 

Consumer facing fintech companies have boomed over the past decade. The B2B space has benefitted drastically from these products and services as well, whether innovation occurs in-house or through acquisition. Software, such as Fundbox, can analyze large groupings of data and draw credit conclusions in under three minutes, replacing hours of tedious manual labor. Torpago, a corporate card and expense management platform, automates expense reports and provides virtual credit cards for company employees. 

In many cases, those leading the fintech boom got started in traditional finance. Torpago’s CEO, Brent Jackson, worked as a senior consultant for Deloitte before making the jump to start his own company. When asked about the future of the fintech industry, Jackson’s insights and observations align with the data:

“We will continue to see rapid acceleration within the embedded finance space,” he said. “In 2021, we saw significant adoption and growth, specifically with BNPL companies, like Affirm, Klarna, and others offering their solutions to consumers via point of sale and check out. In 2022, I anticipate that more software and technology companies will add financial service offerings to complement their core product and generate more revenue per customer. The financial services space is going through a massive transformation away from the legacy providers. I believe that the enablement companies powering these offerings behind the scenes, such as card issuing and banking as a service, will continue to see rapid growth in 2022 and beyond.”

While nothing is certain in today’s ever-changing tech-centric business climate, industry leaders and the data say the same thing: Fintech innovation and growth will continue trending upward for the foreseeable future.