Over the last decade, it often felt as though fintech startups had a licence to print money.
In 2010, worldwide investment into fintech was $9 billion. Over the next decade, that figure skyrocketed, reaching $216.8 billion in 2019. Funding took a precipitous dip in 2020 thanks to the pandemic. The next year, however, funding bounced back with a vengeance, and fintech spending rose to an all-time high of $225 billion in 2021.
That year, startups like Klarna and C6 Bank raised $1.6 billion and $2 billion, respectively, in funding. It was a clear message. Fintech’s decade of growth was on track to be followed by another, possibly even more frantic one. But then, the story changed.
The great fintech growth slump
The cocktail of technological progress and market-readiness that drove fintech’s decade of hypergrowth soured in 2022. According to analysts at McKinsey, “a market correction triggered a slowdown in this explosive growth momentum. The impact continues to be felt today.”
Funding and dealmaking activity have decreased dramatically across the fintech sector in the last two years. US fintech funding dropped by 36% to $18.2 Billion in 2023, while the UK saw a 63% decrease to $4.2 Billion. A new report published by Tracxn notes that “with inflation, increased interest rates, geopolitical issues, and other macroeconomic conditions, activity across industries has been slow, making it challenging for the investment market.”
Unicorns are still emerging, with four new companies hitting a billion dollar valuation in the US last year. The change of pace is, however, can’t be denied.
A new model for sustainable growth in fintech
Some analysts aren’t worrying about the slowdown, however. At McKinsey, authors of their report, Fintechs: A new paradigm of growth, believe that slowing growth isn’t the crisis some have painted it as. Even though the 2021 “funding surge proved to be a one-off event” and a return to “business-as-usual conditions” caused “fintech evaluations to plummet,” they insist that there are still opportunities to be unlocked in the future.
Combined with generational leaps in data analytics and artificial intelligence (AI), “these trends are also coinciding with—and in many ways catalysing—the maturation of the fintech industry,” write the report’s authors. “The days of growth at any cost are behind the industry, for now at least. In a liquidity-constrained environment, fintechs and their investors are emphasising profitability, not just growth in customer adoption numbers or total revenues.
One Africa-based growth equity investor told McKinsey: “In the past, the reward went to fintechs that showed growth at all costs, which led to healthy valuations. Now it is about the sustainability of the business, the addressable market, and profitability.”
- Fintech & Insurtech
