According to a report by Boston Consulting Group (BCG) and QED Investors, revenues of fintech firms worldwide increased by an average of 14% each year between 2021 and 2023. This growth occurred despite a decline in funding and valuations. The report suggests that this trend can be attributed to the success and rapid expansion of major fintech players.
To create the report, BCG and QED Investors conducted interviews with over 60 CEOs and investors in the global fintech industry. The goal was to identify the key factors shaping the industry and the trends that will drive innovation.
The report also reveals that the valuation multiples of fintech companies dropped significantly from 20 times in 2021 to 4 times in 2023 on average. Similarly, equity funding decreased from $144 billion in 2021 to $42 billion in 2023.
BCG’s Managing Director and Senior Partner, Deepak Goyal, emphasizes the importance of profitability and compliance for the success of fintech companies. He states that these factors are crucial for attracting continued investment, scaling operations, and building valuable and sustainable companies.
The report highlights a shift in the industry from a “growth at all costs” model to a focus on profitable growth. As a result, profit margins have improved by an average of 9 percentage points.
Looking ahead, the report predicts that the industry will face a prolonged period of higher interest rates, leading to increased funding costs. This means that the era of pursuing growth at any cost, fueled by cheap capital, is coming to an end. The report also mentions the emergence of new regulations by regulators worldwide, which will have an impact on the industry.
The report also points out that digital public infrastructure, such as the Unified Payments Interface in India and Pix in Brazil, has accelerated the adoption of real-time payments in these countries. However, the report cautions that it is uncertain whether other countries, including developed markets, will be able to replicate the success of these digital payment systems. The success will depend on the specific market context and the maturity of various layers within each country’s financial ecosystem.