Recent research from McKinsey finds that growth strategies within the financial technology, or fintech, industry are radically transforming the future of banking.
The new report – titled “Fintechs: A new paradigm of growth” – finds that 73 percent of customer-bank interactions are now digital. Moreover, retail consumers globally now have the same level of satisfaction and trust in fintechs as they have with incumbent banks.
Fintechs are rapidly growing, McKinsey finds. The research shows that revenues in the fintech industry are expected to grow almost three times faster than those in the traditional banking sector between 2022 and 2028. Compared with the six percent annual revenue growth for traditional banking, fintechs could post annual revenue growth of 15 percent over the next five years.
Based on research and interviews with more than 100 founders, fintech and banking executives, investors, and senior ecosystem stakeholders, the global management consulting firm identified key themes shaping the future of fintechs.
“Over the past decade, technological progress and innovation have catapulted the fintech sector from the fringes to the forefront of financial services. And the growth has been fast and furious, buoyed by the robust growth of the banking sector, rapid digitization, changing customer preferences, and increasing support of investors and regulators,” the report says. “During this decade, fintechs have profoundly reshaped certain areas of financial services with their innovative, differentiated, and customer-centric value propositions, collaborative business models, and cross-skilled and agile teams.”
Digital transformation is driving up fintech usage globally, with 41 percent of consumers surveyed planning to expand fintech use, according to McKinsey.
Demand is particularly high in emerging markets where traditional banking is less accessible or where trust in legacy banking remains low. In these markets, fintech providers have opened the door to financial options never used by the vast majority of underbanked populations.
Business-to-business firms’ demand for fintech solutions is also growing. In 2022, 35 percent of the small and medium-size enterprises in the United States considered using fintechs for lending, better pricing, and integration with their existing platforms, the research finds.
“These trends are also coinciding with – and in many ways catalyzing – the maturation of the fintech industry,” the report says.
McKinsey noted two integral themes that will shape the next chapter of fintech growth: fintechs will continue to benefit from the radical transformation of the banking industry, rapid digital adoption, and e-commerce growth around the world, particularly in developing economies; and despite short-term pressures, fintechs still have room to achieve further growth in an expanding financial-services ecosystem.
“To capitalize on this demand, fintechs will need to keep up with fast-evolving regulations and ensure they have adequate resources and capacity to comply,” the report says.