A well-reputed name in the fintech industry, fintech entrepreneur Michael Zetser talks about how the sector has been growing for over a decade now without any signs of slowdown. Not only has it managed to reshape the ways people think about payments, but has also introduced new financial products year after year. In 2019, the global fintech market had a valuation of $111 million, but this number has increased to a staggering $165 billion in the first half of 2023.
However, considering the influx in funding in the sector, experts like Michael Zetser predict the fintech market will see an even bigger rise in the next decade. The COVID-19 pandemic accelerated the growth in the sector because traditional banking, lending and insurance services were unavailable, thereby driving people towards fintech services. While it is easy to see that the industry is booming and will continue doing so, the question is why? There are a number of key factors that are driving growth in the industry and these include.
First and foremost, Michael Zetser states that the primary factor powering the fintech industry is none other than technology. It has transformed financial services, which have become almost unrecognizable as compared to a decade earlier. Algorithms and machines have helped automate processes that were previously done by humans. To put it simply, traditional finance has been transformed by technology in a variety of ways.
It has seen productivity improve, as automation has enabled faster operations, thereby freeing up time to focus on innovation, strategy and other challenging tasks. Moreover, fintech has enabled companies to offer a variety of financial services via app and online, which has eliminated intermediaries, such as banks and brokers. This has given people direct access to information and services.
Most importantly, technology has also empowered fintechs to reduce their costs because they have had to hire fewer employees, while maintaining and even enhancing their productivity. These cost savings can be translated into reduced fees for financial services, which makes fintech products and solutions more attractive to people. Thus, it helps in driving the growth of the overall industry.
Financial technology companies had engendered changes in accordance with customer expectations from the get go. According to Michael Zetser, when the financial crisis hit back in 2008, customers had lost their trust in traditional financial institutions, which made fintech firms more attractive due to their lower charges, greater accessibility and faster services.
There has now been a shift and customer expectations are now bringing change in the financial industry. In the last decade, people have become accustomed to greater convenience and an enhanced customer experience in every industry and this also applies to the financial sector. This is where fintechs can play a key role because they are a lot more flexible than traditional banks, which enables them to fulfill their customer needs in a better way.
Fintech adoption had also accelerated due to the COVID-19 pandemic. According to the Swiss Finance Institute, there was an increase in download rates of fintech apps during the pandemic lockdowns, as they went from 29.2% to an impressive 32.8%. Even those who were hesitant earlier had no choice but to use fintech services for managing their finances because traditional banks has not been prepared to offer their services remotely.
Entrepreneurship can be highly challenging due to regulations, but Michael Zetser reveals that the financial technology industry is at an advantage here. This is due to the fact that the licensing framework and regulations applicable to traditional banks are a lot more rigid than those for the fintech industry. This allows fintech firms to introduce financial products a lot more easily and with greater agility, which has helped boost growth of the industry.
In addition, governments have also been encouraging digital banking and this was even before the global COVID-19 pandemic. Back in 2016, nine of the largest banks in the United Kingdom had been ordered to share their transaction data with licensed startups by the Competition and Markets Authority. This enabled fintechs to provide customers new solutions for managing their finances through smartphones. The UK is currently leading the fintech industry internationally and has continued to make advancements in the sector.
According to fintech icon Michael Zetser, industry evolution is also a driver powering the fintech industry’s growth. A new phase of development is now beginning, as the sector has reached maturity. Companies are now a lot more sophisticated and they now have access to a greater amount of capital, which has empowered them to reinvent and scale banking services and financial products.
For instance, the pioneer peer-to-peer (P2P) lender in the UK, Zopa, which was founded in 2005, has transitioned into a bank. Likewise, Revolut is another fintech unicorn that operates as a bank in various EU countries and also provides crypto services.