Revenues of fintech firms globally rose at a compound annual growth rate of 14% between 2021 and 2023, even as funding and valuations plummeted, Boston Consulting Group (BCG) and QED Investors said in a report on Wednesday. The trend can be attributed to the fact that key fintech players have achieved profitability and are scaling rapidly.
The report was prepared on the basis of insights from interviews with more than 60 global fintech chief executive officers and investors to outline the key forces shaping the industry and the trends that will drive innovation.
On an average, valuation multiples of fintechs have fallen to 4x in 2023 from 20x in 2021. Similarly, equity funding declined to $42 billion in 2023 from $144 billion in 2021.
“Profitability and compliance are now the cornerstones of fintech success,” says Deepak Goyal, BCG managing director and senior partner. “They are essential for attracting continued investment, scaling operations and building lasting and valuable companies.”
The industry has witnessed a shift from the ‘growth at all costs’ model to the one focused on profitable growth, with margins improving by 9 percentage points on an average, the report said.
Going ahead, the report highlights that the industry is entering a prolonged period of higher interest rates that will continue to increase funding costs. In such a scenario, the days of ‘growth at all costs’, funded by cheap capital, are over. The emergence of new norms by various regulators across the globe will also be eyed.
The report highlighted that digital public infrastructure has accelerated the adoption of real-time payments in countries like India and Brazil. The digital payment infrastructure in India is the Unified Payments Interface and the same is Pix for Brazil.
“While the success of the India and Brazil DPIs is unequivocal, it is by no means certain that other countries, including developed markets, will be able to replicate it,” the report said. “Much depends upon the current market context and the maturity of various layers.”