Has Fintech Overpromised And Underdelivered?

Despite the significant buzz surrounding the transformative power of fintech, it would be fair to say that it hasn’t swept the financial sector as quickly as anticipated. However, the prospect of change remains immense, promising a powerful but slower wave of transformation than seen in other industries.

A key reason lies in the very nature of financial industries. These are heavily regulated sectors that have been entrenched for decades, if not centuries. They operate with legacy systems, both in terms of technology and processes. Changing these systems is not as simple as introducing a new app or gadget. It requires navigating a complex maze of regulations, ensuring security and trust, and often, overhauling deeply ingrained corporate cultures.

Financial services, unlike trending consumer goods, don’t have the same level of direct customer interaction or engagement. Most people don’t change their banking or financial service providers frequently, if at all. The inertia is substantial. This leads to a slower adoption rate of new fintech solutions, even if they promise better efficiency or reduced costs. Changing one’s bank or insurer isn’t as simple as switching from one candy brand to another.

But here’s where the real story lies: even though fintech’s disruption is more gradual, its potential impact is profound. Imagine the vast ocean where a giant wave takes time to build up. While it might not crash onto the shore instantly, when it does, its power is unparalleled. .

Fintech remains a leading investment category. According to a recent report by Boston Consulting Group (BCG) and QED
QED
Investors, some $420 billion in VC funding has been injected into fintech startups since 2016, creating over $1.1 trillion in exit value during the same period.

Despite this recent slowdown, VC funding in fintechs during the second quarter of 2023 amounted to more than $7.4 billion. While this represents a decline compared to previous quarters, it is important to consider the exceptional nature of the previous quarter, which was skewed by a megaround from Stripe.

In June this year, Visa said it will buy Brazilian fintech, Pismo, for $1 billion in cash, marking one of the biggest fintech deals of the year globally and further reinforcing confidence in the sector.

But despite these promising developments the fintech sector only holds a mere 2% of global financial services revenues. So has Fintech overpromised and underdelivered? There will be a long-tail effect. Fintech’s transformative capacity is still in its growth phase, and its long-tail effect promises to reshape the financial landscape dramatically. As regulations adapt and consumer awareness grows, we’ll see an acceleration in adoption rates.

The bottom line is that while fintech may not have disrupted the financial sector overnight, underestimating its long-term influence would be a mistake. For those keeping an eye on fintech, patience isn’t just a virtue; it’s a savvy investment strategy. The wave is coming, and when it does, it will be monumental.