The Fintech trends for 2021 we talked about in this article are starting to take shape. But analyzing a market is not just about trends. For a proper understanding of how fintech works, it’s important to also look at its biggest growth markets.
It’s an insight for anyone involved in fintech, as it can shed light on opportunities, and show market potential for the future.
What Are Growth Markets?
As the name suggests, growth markets take shape when the size of the market continues to grow at an increased rate. In theory, this process can be attributed to any market, since all markets are “growing”.
But the “increased rate” is an important factor to keep in mind. Growth markets aren’t expanding simply because of population growth and organic adoption of new technologies or products. Rather, growth markets exist whenever there is a substantial increase in customer acquisition over a shorter period of time.
And these growth markets for fintech are not in short demand, especially thanks to the digitization brought about by the pandemic.
Massive Growth In Emerging Markets
Emerging markets have puzzling challenges to overcome. For the longest time, emerging markets struggled with bottlenecks when adopting new technologies, mostly because of a lack of capital. Besides a lack of capital, cultural obstacles, and familiarity with traditional solutions made it hard for new technologies to penetrate the market.
Financial and banking solutions are at the heart of the problem in some areas. Take Mexico for example. A few years ago, 60% of their rides were paid for in cash. While people had access to smartphones to order an Uber, most of them didn’t have a bank account, so they’d only be able to pay in cash. But last year put adoption of digital payment methods in hyperdrive.
The CoVid pandemic is a big factor for what are the biggest growth markets in fintech right now. The need for immediate digitization has brought a lot of fintech solutions to the forefront. While this is a direct result of lockdown social distancing measures, the convenience and efficiency of fintech solutions isn’t likely to be lost on people from emerging markets. This means that we can expect continuous adoption of fintech solutions in emerging markets, even after the pandemic is history.
Another important aspect to huge fintech growth in emerging markets is private capital. Entrepreneurs and private investments make it easier for the general population to adopt new technologies and boost digitization efforts. A great example of this at play is China.
China: A Study Of Fintech Growth
The lending scene, bolstered by local entrepreneurs creating value in the Chinese market, have both accelerated growth for fintech lending. A few years ago, Statista Xinhua reported that over $300 billion in consumer loans was circulating the Chinese market, which translates to over 16 new loans every second.
But of course, local entrepreneurs and private capital aren’t the only forces driving the Chinese fintech growth. Right now, 87% of the Chinese population uses digital payment methods, and this is also thanks in part to government intervention. Since the early 2000s, the Chinese government has made a lot of efforts to limit the financial market to Chinese companies, raising domestic capital and encouraging the creation of fintech solutions in the long-term.
The industry also went unregulated for a long period of time, up until 2015 when new law was passed to protect consumers. By then, however, big fintech companies have already become larger than some banks or traditional financial institutions. Again, we recommend this analysis by Viviana Zhu, taking a deep dive into the Chinese fintech market, its history, and prospects for the future.
Europe: Accelerated Fintech Growth
Like in the case of emerging markets, the CoVid pandemic put fintech in overdrive in Europe. Being forced to isolate didn’t really bring new technologies in Europe. However, it increased adoption of existing technology to a level not expected for a few more years. Fintech lending, digital payments, and even cashback platforms have seen a booming growth in the past year and a half. Investment rounds are also more frequent, and larger in size. The total number of investments in the sector has actually more than doubled compared to similar time periods before the pandemic.
However, while fintech as a whole is on the rise in many parts across the globe, there are still a lot of bottlenecks in technology adoption and growth. The US, by comparison, doesn’t struggle with as many obstacles.
The US: A Diverse Fintech Landscape
Some analysts posit a Chinese domination in fintech, and a takeover from US’s position as a trendsetter in the industry. While that can be a possibility in the future, the US is still leading change in the fintech sector, and it’s still one of the biggest growth markets for fintech.
Take fintech lending for example. The US has undisputable dominance in the sector, with more companies activating in the niche, and more capital to support fintech solutions. Moreover, regulation, and the intricacies of the US financial system, support diversity and growth in fintech.
If you want to analyze individual companies, you can read this research on fintech startups in the US, and the huge capital they amassed.
A Glimpse Into The Future
Fintech solutions actualize an old and outdated system. The banking and financial sectors, without improvements from fintech, offer a bad customer experience, and a lack of transparency, which can be seen in tragedies like the 2008 economic crisis.
With fintech put into overdrive by the CoVid pandemic, solutions to transparentize and improve banking processes will gain a wider adoption. And that’s not just in emerging markets, China, Europe, or the US. These are the biggest growth markets at the moment, but the effect of CoVid touched fintech in the entire world. Analyzing most fintech markets today is probable to reveal an accelerated growth compared to similar time periods before 2020.
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