How 2020 Is Still a Big Year for Fintech

Synopsis: Not even a pandemic and recession can stop the acceleration of FinTech adoption. The financial technology sector is predicted to see double digit growth despite of and because of the coronavirus outbreak.

The year 2020 started with the deaths of many beloved personalities, geopolitical tensions, and a pandemic that led to recessions in nearly all economies of the world. However, it’s not all gloom and doom ahead. There are opportunities for the resourceful and ingenious.

The FinTech sector is particularly attractive during a pandemic and recession. According to The Business Research Company, the global FinTech market is set to grow at an annual rate of 24.8% in the next two years. It is projected to become a $309.98 billion market by 2022.

COVID-19 and FinTech growth

Even with the health and economic crises, the financial technology sector is still expected to register double digit growth. A study by Research and Markets estimates a 20% compounded annual growth rate (CAGR) for the global FinTech market even with the pandemic taken into account. Its market value is set to grow to $305 billion by 2025. The forecast was released in June 2020 and is based on historical data from 2015 to 2018. Its base year is 2019, while the estimated year is 2020. The forecast period is for 2021 to 2025.

The research identifies substantial investments in technology-based solutions by banks and financial services firms as the primary growth driver. More financial institutions are embracing the use of technology in financial services to boost efficiency and improve their reach. Additionally, financial technology companies have nearly perfect their solutions that they are able to provide low-cost personalized products.

The COVID-19 pandemic may have slowed down the earlier projections for FinTech growth, but not significantly. Some would even argue that the coronavirus problem partly accelerates the sector’s expansion. A research report by Startup Nation Central reveals a 107% increase in FinTech investments in Israel. Yair Fonarov, FinTech Sector Lead at Startup Nation Central, says that the growth of investments in the sector is not a passing trend. “[The pandemic] will boost the usage and adoption of new technologies. In the long term, the companies that survive the current crisis will see more business opportunities, particularly in the fields of digital payments, fraud prevention, and security,” he adds.

The trend of increased investments is unlikely to change even if COVID-19 is already under control. “This is a one-way street,” says Nigel Morris, founder of QED Investors. Several companies have received more funding as the pandemic made ecommerce and digital transactions a necessity. Online payment and billing company Stripe raised $600 million. Fast, a tech firm specializing in one-click checkout, received $20 million. Similarly, online payment platform Finix attracted a total of $45 million in funding at the start of the year.

Fastest-growing FinTech segments

The technology sub-segment of the global FinTech industry is set to experience the biggest growth according to Research and Markets. This segment consists of sub-segments that attract significant research and development funding. Artificial intelligence and blockchain technology, in particular, are being rigorously tested and enhanced for practical applications. Forecasts set a 21% CAGR for these sub-segments of financial technology for the next five years.

Many FinTech companies employ AI for various functions. Some use it in creating chatbots that interact with customers to answer inquiries, resolve simple concerns, or perform complex tasks such as providing financial advice. Pefin, dubbed as the “world’s first AI financial advisor,”  has been serving thousands of users worldwide. It claims to provide viable financial advice at a fraction of the cost of the services of traditional financial advisers.

Artificial intelligence is also utilized to secure online banking accounts by monitoring activities and detecting possibly anomalous transactions. Shape Security, for example, has an AI system capable of detecting credit card applicable fraud, scraping, credential stuffing, and gift card cracking. Similarly, cybersecurity firm Vectra provides an AI-powered cyberthreat hunting solution for securities exchanges.

Moreover, the field of investing also integrates AI and machine learning. Some FinTech-driven investment firms use artificial intelligence to facilitate arbitrage trading. “In arbitrage and algorithmic trading, speed is the crucial success factor. With the use of advanced technologies such as algorithms and artificial intelligence, traders can take advantage of smart automated trading,” as quoted in a study from Jubilee Ace on algorithmic trading.

Making it big in 2020

The Bank for International Settlements released a paper that examines the economic forces behind FinTech adoption in different countries. “Fintech activity is driven by a range of demand-side and supply-side factors. The available evidence shows that unmet demand is a strong driver in EMDEs and in underserved market segments,” the report writes.

Financial technology addresses needs not covered by conventional banking and financial services. It helps consumers in dealing with restrictive factors such as the high cost of banking, and excessive regulation. FinTech also advances financial inclusion especially as the pandemic-dominated global economy calls for physical distancing, digital transactions, remote work, and other arrangements that minimize personal interactions.

FinTech serves a crucial role in the current economic situation. That’s why it’s not surprising that it remains on track to achieve double digit growth in 2020 and the next few years to come, even with the lingering effects of the pandemic and economic downturn. FinTech companies, however, need to work with regulators, continue innovating, and work on building consumer trust to remain appealing and relevant.


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