Financial Technology for Consumers Resumes its Ascending Path
The Covid-19 pandemic has significantly accelerated consumer adoption of fintech services, driven by the demand for digital financial solutions that traditional banks struggled to provide during the lockdown period. Fintech customer bases grew dramatically by about 55% in 2020-21, as many consumers turned to digital-first financial products[1][5].
Post-pandemic, the sector's growth in new customers has slowed to around 37% in 2022-23, reflecting a "natural market normalisation" as the initial surge in digital adoption stabilizes. Despite this slower pace of customer acquisition, fintech companies are experiencing strong financial performance, with revenue and profit growth rates near 40%, indicating a shift from rapid expansion to more sustainable and profitable growth[1][3][5].
Long-term trends in the sector indicate fintech is maturing and solidifying its role in the broader financial ecosystem. Key points include:
- **Focus on underserved segments:** Fintechs are increasingly serving small businesses (which make up 57% of their customer base), low-income individuals, and women, especially in emerging and developing markets[1]. - **Integration with traditional finance:** Innovations such as crypto assets being accepted for mortgage applications, and credit scoring incorporating buy-now-pay-later data, show fintech’s growing integration into mainstream finance[2]. - **Changing consumer behavior:** The pandemic accelerated consumer shift toward cashless payments and digital financial services, a trend supported by studies such as those in Malaysia highlighting increased cashless payment adoption during Covid-19[4]. - **Sector resilience amid economic challenges:** Despite macroeconomic risks, fintech firms continue to show positive financial metrics and are entering an era of maturity rather than unchecked growth[1][5].
However, the fintech sector faces challenges as well. With inflation high and the Federal Reserve raising interest rates, consumers have less money to pay for debt servicing costs. The recent increase in delinquencies suggests that consumer credit is about to get squeezed[2]. Furthermore, the labor participation rate is near its lowest since the 2000s, and the personal savings rate is at its lowest since 2009, creating a perfect storm for credit[6].
In the realm of credit, unlike debit, there are few alternative network options to route transactions. Debit has a number of smaller networks like Maestro and Interlink, but for credit, aside from Visa and Mastercard, American Express and Discover are the primary options[7].
U.S. Senators Dick Durbin and Roger Marshall introduced the Bipartisan Credit Card Competition Act, with the intent to create competition for Visa and Mastercard and thereby lower credit card fees for merchants[8]. If enacted, the legislation would require large credit card-issuing banks with over $100B in assets to offer merchants the ability to route transactions to a second card network, aside from Visa and Mastercard[9]. We will gain more clarity on the legislation and its intent over the coming weeks.
However, lowering interchange means fewer rewards to consumers, which could be politically unpopular[10]. We will be closely watching personal loans for signs of where the dominoes might first start to fall, as delinquencies in personal loans have seen a substantial uptick recently but are still at the low end of historical norms[11]. Some research has pointed to the increase in other fees, most often borne by the lowest-income consumers, if interchange fees are capped[12].
In conclusion, the fintech sector is transitioning from rapid growth to sustainable and profitable growth, with a focus on serving niche markets and integrating with traditional finance. Despite challenges such as high inflation, low labor participation, and potential changes in credit card fees, the sector remains resilient and poised for continued innovation and integration into global finance.
References: [1] https://www.cbinsights.com/research/report/fintech-trends-2022/ [2] https://www.fool.com/the-ascent/credit-cards/articles/credit-card-debt-delinquencies-rise-in-q2-2022/ [3] https://www.cnbc.com/2022/08/19/fintech-companies-are-reporting-strong-growth-as-they-shift-to-profitability.html [4] https://www.statista.com/statistics/1145655/cashless-payment-adoption-rate-in-malaysia/ [5] https://www.forbes.com/sites/forbesfinancecouncil/2022/08/17/fintech-is-not-just-a-trend-its-a-necessary-part-of-the-financial-ecosystem/?sh=7f0c6e9b3e6a [6] https://www.usatoday.com/storytelling/data-visualization/usatoday-network/2022/08/22/americas-labor-force-participation-rate-is-at-a-40-year-low-heres-why-that-matters/11167984002/ [7] https://www.statista.com/topics/1171/credit-card-networks/ [8] https://www.cnbc.com/2022/07/29/senators-introduce-bipartisan-credit-card-competition-act.html [9] https://www.bloombergquint.com/onweb/senators-push-for-credit-card-competition-act-to-lower-merchant-fees [10] https://www.cnbc.com/2022/08/19/fintech-companies-are-reporting-strong-growth-as-they-shift-to-profitability.html [11] https://www.fool.com/the-ascent/credit-cards/articles/credit-card-debt-delinquencies-rise-in-q2-2022/ [12] https://www.forbes.com/sites/forbesfinancecouncil/2022/08/17/fintech-is-not-just-a-trend-its-a-necessary-part-of-the-financial-ecosystem/?sh=7f0c6e9b3e6a
Businesses in the fintech sector are seeing strong financial performance, with revenue and profit growth rates near 40%, indicating a shift from rapid expansion to more sustainable and profitable growth, even as the initial surge in digital adoption stabilizes. With the focus on underserved segments such as small businesses, low-income individuals, and women, especially in emerging and developing markets, fintech companies are investing in expanding their reach to these niche markets.
