In 2023, the average valuation multiples of fintechs have dropped to 4x, a significant decline from 20x in 2021. Similarly, equity funding has fallen to $42 billion in 2023 from $144 billion in 2021.
Despite this downturn in funding and valuations, fintech firms’ global revenues grew at a compound annual growth rate of 14% between 2021 and 2023, according to a report by Boston Consulting Group (BCG) and QED Investors. This trend is attributed to key fintech players achieving profitability and scaling rapidly.
The report, based on insights from interviews with over 60 global fintech CEOs and investors, outlines the main forces shaping the industry and identifies trends that will drive future innovation.
“Profitability and compliance are now the cornerstones of fintech success,” says Deepak Goyal, BCG managing director and senior partner. “They are crucial for attracting continued investment, scaling operations, and building lasting, valuable companies.”
The industry has shifted from a ‘growth at all costs’ model to one focused on profitable growth, with average margins improving by 9 percentage points, the report states.
Looking forward, the report highlights that the industry is entering a prolonged period of higher interest rates, which will continue to raise funding costs. Consequently, the era of ‘growth at all costs’ fueled by cheap capital is coming to an end. The emergence of new regulations by various global regulators will also be closely monitored.
The report also notes that digital public infrastructure has accelerated the adoption of real-time payments in countries like India and Brazil. In India, the Unified Payments Interface (UPI) drives digital payment infrastructure, while in Brazil, it is Pix.
“While the success of India’s and Brazil’s digital public infrastructures is clear, it is not certain that other countries, including developed markets, will be able to replicate it,” the report states. “Much depends on the current market context and the maturity of various layers.”
Source: financialexpress.com
