The Geography of FinTech
Introduction
Financial technology, or fintech, refers to the new technology designed to improve and automate the delivery and use of financial services. Since its emergence in the 21st century, more and more fintech startups have developed in different regions of the world. This article begins with an identification of the three fintech market and aims to offer insight into its development across diverse regions, highlighting specific countries and cities that stand out with their highly promising advancements in the field.
Chain 1 - State of Fintech
Fintech is divided into three broad markets: established markets, developing markets, and China's own fintech market. Established markets are characterised by their development within regions rich in legacy institutions, financial infrastructure and regulation. In these markets, investors have access to a wide range of investment opportunities, including stocks, bonds, commodities, and various derivatives.
The developing market encompasses regions with relatively nascent or underdeveloped financial infrastructure and limited regulatory frameworks. In these markets, the initial fintech solutions often emerged from non-financial sectors, (particularly telecommunications and e-commerce). Now, however, they are experiencing more substantial growth, driven by policy changes aimed at integrating these solutions into the core of the financial systems.
Lastly, China is viewed as a market of its own both due to the size of the domestic market and the remarkable ability of fintech companies to harness both financial and non-financial data, facilitating the creation of extensive platforms and service ecosystems. This has given rise to industry giants like Tencent and Ant Financial, with alternative banking solutions gaining widespread adoption.
Chain 2 - North America & Europe
The development of fintech in North America and Europe gained momentum following the aftermath of the Financial Crisis, which highlighted the inadequacies of traditional banks, insurers, and wealth management firms in adopting digitalisation. North America is home to a plethora of fintech activities. Major financial centres such as New York City and Silicon Valley, have fostered the growth of fintech startups, attracting top talents and investors. The United States, leading the charge as a prominent player in the field, is expected to contribute substantially to global fintech revenue growth, accounting for an estimated 32 percent share by 2030.
Europe has established itself as a thriving fintech ecosystem, with several countries and cities at the forefront of innovation and development. Across Europe, significant disparities are evident within fintech ecosystems. Notably, the United Kingdom and Sweden demonstrate superior performance across all critical areas. As for the broader European landscape, the European Union has implemented regulatory frameworks, such as PSD2, that promote competition and innovation in the financial sector. The presence of the Eurozone, which enables cross-border transactions, and the Single Euro Payments Area (SEPA) have further facilitated fintech growth.
Chain 3 - Asia
Asia has become a dynamic hub for fintech development, attracting significant global interest. In 2018, fintech venture capital investments in the region reached a record $39.57 billion. This growth is driven by factors like a youthful, tech-savvy population, unmet financial needs in underbanked areas, and increasing smartphone adoption. In China and India, the majority of adults have already adopted fintech services, indicating a strong appetite for digital financial solutions. Southeast Asia also plays a significant role in the fintech sector, as its substantial unbanked population shows a willingness to embrace fintech offerings, making it one of the fastest-growing fintech markets globally. Lastly, Singapore stands out as a fintech success story in the region, thanks to its open business environment and proactive regulatory approach, which has earned recognition for its fintech initiatives and financial stability efforts.
Chain 4 - Africa
Fintech in Africa is on the rise, with a tripling of tech startups in 2020-2021, totaling around 5,200 companies. About half of these are fintechs, revolutionizing traditional financial services. McKinsey's analysis reveals estimated 2020 revenues of $4-6 billion and penetration levels matching global leaders, sparking a "fintech eruption." African fintech is drawing significant investments, with growing deal sizes and increasing funding. The continent presents immense potential due to its 90% cash transaction rate. If fintech reaches Kenya's penetration levels, African fintech revenues could grow eightfold by 2025, signaling a transformative moment for the continent's financial services.
Conclusion
To conclude, in a rapidly evolving fintech landscape, regions like North America, Europe, Asia, and Africa are witnessing substantial growth. Each area has unique opportunities and challenges, promising to reshape global financial services through innovation, competition, and investment.
Sources:
https://startupgenome.com/article/global-top-20-fintech-ranking-2020
https://www.statista.com/statistics/893954/number-fintech-startups-by-region/
https://www.investopedia.com/terms/f/fintech.asp
https://fintechnews.am/fintech-usa/48649/north-america-fintech-market-set-to-quadruple-by-2030/
https://www.mckinsey.com/industries/financial-services/our-insights/europes-fintech-opportunity
