In this report, we dig into trends including “buy now, pay later” (BNPL) and insurtech product expansion, in addition to covering secular tailwinds and headwinds that will impact fintech companies in 2021. Retail banks have led the charge in upgrading digital experiences to match fintech in their core banking products. —further evidence that while technical innovation is important, a sound business model remains critical. We strive to provide individuals with disabilities equal access to our website. Robinhood, a US-based stock-trading fintech, simplified stock trading by offering zero commissions through its easy-to-use mobile app with solid UX. Average deal size is growing as well, particularly in Asia, where it is almost twice as large as the global average, due largely to a number of mega deals. And concerns about monopolistic behavior could well prevent Western tech giants from developing the sort of integrated financial services offerings we see from Ant Financial or Tencent in China. Shifting traditional mindsets and operating models to deliver digital journeys at a start-up pace is no easy feat for a financial behemoth. Industrial & Commercial Bank of China, China Construction Bank, Bank of China, and Agricultural Bank of China. As a result, while consumer lending platforms are increasingly incorporating iterative machine-learning approaches to steadily improve existing performance, they do not need to take a quantum leap in AI to do so. LOS ANGELES, United States: The global Briefcases market report offers fine intelligence that prepares market players to compete well against their toughest competitors on the basis of growth, sales, and other vital factors. This should allow the fintechs to prove their concepts and build their reputations, while fine-tuning their product offerings for larger customers. While AI shows great promise, it is likely to be more of an evolution than a great leap forward into new data sources and methods. China’s fintech ecosystems are structurally different from their counterparts in the US and Europe. Let us take a look at some fintech trends … Fintech lenders Qudian and PPdai went public in 2017 and listed at $7.9 billion and $3.9 billion market cap at IPO, respectively. In the US and Europe, which have stringent regulatory requirements and well-established banking offerings, efforts have been more fragmented and large technology players have been limited to payments offerings and some small-scale lending offerings. Attackers now need to find more robust ways to differentiate themselves from incumbents. At least in the short term, winners may not be characterized by completely new modeling approaches or the most complex algorithms, but by the ability to combine advanced analytics and distinctive data sources with their existing business fundamentals. In general, incumbents were initially slow to respond directly to fintech attackers, perhaps for fear of cannibalizing strong legacy franchises. While overall funding remains at historically high levels, technology investors globally are increasingly investing in proven, later-stage companies that have shown promise in attaining meaningful scale and profits. However, incumbents remain cautious, with blockchain remaining in prototype mode—and the leap to revenue-generation has yet to take place. Reinvent your business. Examples include a joint fintech laboratory launched by Bank of China with Tencent; and an agreement between China Construction Bank, Alibaba, and Ant Financial to digitize customer banking experiences. Great UX is now the norm. Our global report Financial services technology 2020 and beyond: Embracing disruption examines the forces that are disrupting the role, structure, and competitive environment for financial institutions and the markets and societies in which they operate. CBS fintechs are likely to continue, therefore, to target smaller banks or focus on non-core areas. We expect both partnerships and acquisitions to increase as a result. Despite much hype about fintech—particularly blockchain-based solutions—entering the space, no start-up has gained anywhere near the scale of TransferWise, a digital business built on top of traditional payments rails, rather than a reinvention using the latest tech. 1.2. McKinsey’s analysis based on CB Insights data. The technology giants that orchestrate them have access to enormous amounts of data to develop and refine their offerings (e.g., tailoring services to different user segments based on their lifestyle and habits) and can assess risk more effectively based on customer social media profiles (Tencent’s WeChat messaging app) or spending behaviors (Alibaba’s Tmall and Taobao e-commerce sites). Financial institutions are engaging with fintech start-ups either as investors or through strategic partnerships. tab, Engineering, Construction & Building Materials, McKinsey Institute for Black Economic Mobility. tab. A Financial System That Creates Economic Opportunities • Nonbank Financials, Fintech, and Innovation iii Table of Contents Executive Summary 1 Nonbank Financials, Fintech, and Innovation 4 Emerging Trends in Financial Intermediation 6 Summary of Issues and Recommendations 9 Embracing Digitization, Data, and Technology 15 Digitization 17 Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. Customers, as a result, require more reasons to switch to new fintech offerings. In some instances, ING has built strategic partnerships with the companies they invested in, such as the automated online lending platform Kabbage. Financial services and technology are locked in a firm embrace, and with this union comes both disruption and synergies. Funding Circle, the UK P2P lender, listed in October 2018. Investment professionals and firms have entered a period of accelerating transformation. Digital innovation is often hindered by legacy IT, particularly the core banking system (CBS), and the costs of changes are high. Meanwhile, global venture capital (VC) fintech investment in 2018 has already reached $30.8 billion, up from $1.8 billion in 2011 (Exhibit 1). The rise in delinquent accounts calls for a closer look at portfolios and emphasises the need for better collection strategies. “Fintech” covers a range of different models. These ecosystems have innovated and scaled rapidly. The research study lays emphasis on key growth opportunities and market trends apart from critical market dynamics including market drivers and challenges. CBS fintechs may face an uphill battle with larger institutions, given long sales cycles and risk aversion, particularly for something as important as core infrastructure. In this report, we dig into trends including “buy now, pay later” (BNPL) and insurtech product expansion, in addition to covering secular tailwinds and headwinds that will impact fintech … While both investors and employees require a path to liquidity, many fintech founder-CEOs have preferred to stay in the private market to avoid the burdens of public listings—as well as the batterings received by other fintechs that tested the IPO market. While there are comparatively fewer standalone players in China, those that are successful are by no means small. To cut through the headlines and buzzwords that saturate the discussion of fintechs, we now take a closer look at current trends, and the implications for both incumbents and attackers. They're about the battle for the value chain. We use cookies essential for this site to function well. The investing public is also enamored of fintechs: Zhong An made waves with its $11 billion IPO valuation last year, while Ant Financial is reported to be raising a pre-IPO round valuing the company at $150 billion. Singapore FinTech Association's success could only have happened with the help of our members community. For incumbent financial institutions, the biggest hurdles relate to organization and skills as much as investing in technology at scale. But first, it built its user base with free product offerings. The popularity of fintech has spiked in recent times with 96% of global consumers admitting to being aware of at least one fintech service. Ten global fintech trends 1. An increasing number of incumbents and fintechs are realizing the benefits of combining strengths in partnership models. It hit $1 billion in loans in just eight months while many competitors took over a year. 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