BCG Global Report 2023: Challenges For Fintech

According to figures, almost 80% of adults in the world are still either underbanked or unbanked. There is enough room for growth in the fintech sector, especially in emerging markets: 1.5 billion adults globally are still unbanked, with an additional 2.8 billion adults underbanked (defined as not having a credit card, using data from the World Bank Financial Inclusion Project). The total represents more than half the world’s population. Moreover, almost 44% of adults globally are still heavily dependent on cash for major transactions, while 89% use a mobile phone or smartphone.

APAC as the largest Fintech Market

“We at BCG and QED don’t profess to having a crystal ball; we strongly believe that fintech is not just a passing trend but a foundational force that will continue to transform the financial landscape for years to come”, notices the BCG report, which emphasises that the fintech sector is currently holding a mere 2% share of global financial services revenue. It is estimated to reach USD 1.5 trillion in annual revenue by 2030, constituting almost 25% of all banking valuations worldwide. “With 42% of all incremental revenues, the largest market is projected to be Asia-Pacific (APAC), especially emerging Asia (China, India, and Southeast Asia), where fintechs will help expand financial inclusion. North America, the largest fintech market, will follow APAC and remain a critical hub for innovation. Europe and Latin America will continue to experience strong growth, propelled by supportive regulators, and Africa can leapfrog its way to a new financial ecosystem, unencumbered by legacy infrastructure”, says the report. Outpacing even the US with a 27% growth rate, Asia-Pacific is poised to become the world’s top fintech market by 2030.

B2B2x and B2B as the fastest-growing End Customers

B2B2X, a business model that allows Business 1 (B1) to use technology to sell its products through Business 2 (B2) that has existing relationships with end-customers or businesses as end-users of the product(s), comprises B2B2C (enabling other players to better serve consumers), then B2B2B (enabling other players to better serve businesses), and financial infrastructure players. With many banks unable to innovate at a rapid pace, fintechs have an opportunity to fill the gap and enable incumbents to compete more efficiently. The model of fintechs collaborating with incumbents rather than competing with them means lower risk for investors and therefore a greater willingness to invest. According to the BCG experts, “B2B2X already represents a fast-growing segment, and there is still room for it to spread its wings. The market is expected to grow at a 25% CAGR to reach USD 440 billion in annual revenues by 2030”.

The majority of global wealth is concentrated among high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals and organizations. Moving up the ladder into the mass-affluent HNW and UHNW segments will remain extremely difficult. “These segments are heavily dependent on human trust and advice, as well as the need for access to illiquid products and alternatives such as lending on invested capital. They also represent most of all wealth (90% in the US), but consist of a relatively small group of individuals (20% of households in the US), making these segments challenging to access through traditional customer acquisition methods,” says the report. The unique digital solutions for wealth management, like Altoo Wealth Platform (see www.altoo.io), have a head start that they can exploit since the human elements of trust and judgement have to match the customer’s digital claims. Those B2B2X players that provide innovative, comprehensive, technical, or analytical tools and serve scaled businesses catering to mass affluent segments will see the most growth.