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The state of the US fintech industry

US fintech industry

To say that fintech is transforming the US financial sector is stating the obvious. It is rapidly transforming how people lend, invest, opt for loans, fund start-ups and even buy insurance.  Statistically speaking,  on an average, one in three digitally active consumers use two or more financial technology (fintech) services. This is indicative of the fact that fintech is on its way to early mass adoption, encouraging customers to actively participate and take charge of their financial journey. We took a closer look at the US fintech market to find out the drivers behind its massive growth and what opportunities it holds for the future.

Technologies such as artificial intelligence, machine learning, and IoT have played a critical role in supporting fintech advancements. Financial services companies all over the world are realizing the opportunities it brings to optimize the various services they offer – from secure and convenient tech-enabled payment methods with digital wallets, such as Android Pay, Apple Pay, varied lending platforms, to robo-advisors to complement the role of traditional financial advisors.

The United States accounts for 57% of the global fintech market and is a clear market leader, followed by Asia and Europe, representing 31%, and 10% respectively. Businesses are increasingly seizing opportunities provided by fintech by personalizing the financial products and enhancing their services. Especially small and medium businesses whose lifeline is funding and comprise an estimated 125 million globally as per The International Finance Corporation (IFC). Consumers in the US have identified the key benefits that they can avail with fintech innovation such as convenience, security, simplicity, transparency, and personalization.

 

Increased investments in fintech

Fintech investments continue to go from strength to strength with increasing collaboration with banks. Private equity firms, venture capitalists and corporate players continue to pour significant capital into fintech start-ups.  The upsurge in online digital-only banks and mobile phone payments has led to an increased adoption of fintech money transfers and payment services. Digital payments is the leading market segment with a total transaction value of US$ 927,070m in 2018. According to KPMG, the overall US fintech investment reached a new high of $5.8 billion in the fourth quarter of 2017.

With the advancements in fintech, the flow of the global capital has scaled. Venture capital funding has proved to be pouring into fintech companies in greater volumes. Accenture reports $27.4 billion poured into fintech startups in 2017, an 18% increase from 2016. The $8.5 trillion (market cap) US financial services industry is disrupted by technology and transforming how customers borrow, save and invest. The estimated transaction value in the fintech market amounts to US$1,265,788m in 2018, which is predicted to grow at 13.9%, resulting in a total amount of US$2,131,986m by 2022. The US and China account for the maximum investments. Thus, investment in fintech is only bound to increase.

 

Reasons for growth in the US fintech market

American companies have attracted the biggest fintech investments from 2010 – 2016, which indicates a clear need for fintech services in the US. Here are some reasons why:

Wider reach: Consumers feeling undervalued/underserved by their service providers are leaning most on fintech. This is an important basis for the fintech firms to gain traction among consumers and promotes financial institutes to collaborate rather than compete, to create positive customer experiences.

Growing millennial influence: According to the projected population from the US Census Bureau, the millennial population (20 to 35) is the largest generation of America at 71 million and is projected to increase to 76.2 million in 2036. This savvy, media-saturated generation demands speed, flexibility, personalization, and convenience through their mobiles. They are primary adopters of the mobile-first era and use the social media platform in a big way. Their spending is estimated to be US$ 10 trillion globally. Their digital relationship with the financial system is different with them opting for non-traditional providers when seeking new ways to spend, borrow, invest and save. They’ve alone attracted US$ 3.7 billion in funding.

Payments services and money transfer remain the most frequently-adopted services across all age groups, with 50% of fintech users leveraging these services, especially in the last 6 months. Millenials are not only comfortable with technology but demand an array of financial services. Undoubtedly, the millennial adoption at 59% in US tops the global millennial average of 48%. The ranges for 35-44 age group are 50% and 41%, respectively. The older generation from 45-64 years are also the growing adopters with 40% using fintech services regularly. This extends to those who are 65 years and older as well rated at 17%.

Big and new tech players: With the growing ubiquity of internet and smartphones, there is immense engagement by the proliferating fintech firms, as they launch their digital-first versions of the existing financial products. The new entrants in the industry are initiating innovative services centering on customer experiences. Major technology players have collaborated with fintech firms to provide new or improved propositions in the retail financial services market. In the past five years – the fintech industry investment have centered largely on retail payments.

 

Future-forward trend

Insurance has made huge strides thanks to technologies such as telematics and wearables that are helping companies provide more customized services. In fact, in 2017, insurance became the second-most popular fintech service. InsurTech companies are leveraging design, technology, and flexible services to make health insurance more appealing to consumers – something that would be beyond the purview of the traditional insurers.

With the next evolution of fintech firms, focused on data sharing, open APIs, biometrics, and application of artificial intelligence (AI), and more, the adoption rate is likely to increase further.

Based on the investment trends so far, we expect B2B fintech solutions facilitating smoother exchanges between suppliers and buyers to rise.

Along with the rise in mobile technology development, AI, blockchain, and machine learning continue to be the top trends due to their vast benefits. These technologies enable organizations to leverage insightful research to better understand the client’s behaviors, demands and expectations.

Rising adoption of fintech in the US is helping companies create and seize more opportunities – and promoting a focus on financial goals by creating a more connected world. Get in touch with us for more in-depth research on specific areas of the fintech and financial services industry.



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