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1、October 2023Financial Services PracticeFintechs:A new paradigm of growthExecutive summary 1Chapter 1:Fintech growth then and now 2Chapter 2:The path to sustainable growth 8ContentsThis report is a collaborative effort by Lindsay Anan,Diego Castellanos Isaza,Fernando Figueiredo,Max Fltotto,Andr Jeren
2、z,Alexis Krivkovich,Marie-Claude Nadeau,Tunde Olanrewaju,Zaccaria Orlando,and Alessia Vassallo,representing views from McKinseys Financial Services Practice.After decades of hypergrowth,fintechs have entered a new era of value creation,where the focus is on sustainable,profitable growth.This report
3、examines how fintechs can win in these disruptive times.iiFintechs:A new paradigm of growthExecutive summaryOver 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,b
4、uoyed by the robust growth of the banking sector,rapid digitization,changing customer preferences,and increasing support of investors and regulators.During this decade,fintechs have profoundly reshaped certain areas of financial services with their innovative,differentiated,and customer-centric valu
5、e propositions,collaborative business models,and cross-skilled and agile teams.As of July 2023,publicly traded fintechs represented a market capitalization of$550 billion,a two-times increase versus 2019.1 In addition,as of the same period,there were more than 272 fintech unicorns,with a combined va
6、luation of$936 billion,a sevenfold increase from 39 firms valued at$1billion or more five years ago.2 In 2022,a market correction triggered a slowdown in this explosive growth momentum.The impact continues to be felt today.Funding and deal activity have declined across the board,and there are fewer
7、IPOs and SPAC(special purpose acquisition company)listings,as well as a decline in new unicorn creation.The macro environment also remains challenging and uncertain.In such a scenario,fintechs are entering a new era of value creation.The last era was all about firms being experimentaltaking risks an
8、d pursuing growth at all costs.In the new era,a challenged funding environment means fintechs can no longer afford to sprint.To remain competitive,they must run at a slower and steadier pace.In this report,we examine how fintechs can continue to grow in strength and relevance for customers,the overa
9、ll financial ecosystem,and the world economy,even in disruptive times.Based on research and interviews with more than 100 founders,fintech and banking executives,investors,and senior ecosystem stakeholders,we have identified key themes shaping the future of fintechs.To help fintechs capitalize on th
10、ese themes,we also provide a framework for sustainable growth,based on an analysis of the strategies used by long-established public companies that have weathered previous economic cycles.1 F-Prime Fintech Index.2 Dealroom.co;McKinsey analysis.1Fintechs:A new paradigm of growthChapter 1:Fintech grow
11、th then and now The fintech industry raised record capital in the second half of the last decade.Venture capital(VC)funding grew from$19.4 billion in 2015 to$33.3 billion in 2020,a 17percent year-over-year increase(see sidebar“What are fintechs?”).Deal activity increased in tandem,with the number of
12、 deals growing 1.2 times over this period.The industry fared even better in 2021,thriving on the backs of the pandemic-triggered acceleration in digitization and a financial system awash with liquidity.Funding increased by 177 percent year over year to$92.3 billion,and the number of deals grew by 19
13、 percent.The funding surge proved to be a one-off event.Funding levels in 2022 returned to long-term trend levels as inflated growth expectations from the 2021 extraordinary results were reanchored to business-as-usual levels,and as deteriorating macroeconomic conditions and geopolitical shocks dest
14、abilized the business environment.The correction caused fintech valuations to plummet.Many private firms faced down rounds,and publicly traded fintechs lost billions of dollars in market capitalization.VC funding was hit hard globally and across sectors,dropping to$459.6 billion in 2022 from$683.1 b
15、illion in 2021.Fintech funding faced a 40 percent year-over-year funding decline,down from$92 billion to$55 billion.Yet,when analyzed over a five-year period,fintech funding as a proportion of total VC funding remained fairly stable at 12 percent,registering only a 0.5 percentage point decline in 20
16、22.Looking ahead,the fintech industry continues to face a challenging future,but there are several opportunities yet to be unlocked.Investors are adapting to a new financial paradigm with higher interest rates and inflation,which has altered their assessment of risk and reward.At the same time,the o
17、nce-in-a-generation technology revolution under way is generating more value creation opportunities.Our 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 6 percent a
18、nnual revenue growth for traditional banking,fintechs could post annual revenue growth of 15 percent over the next five years.These trends are also coinciding withand in many ways catalyzingthe maturation of the fintech industry.Based on our research and interviews,three themes will shape the next c
19、hapter of fintech growth.First,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.Second,despite short-term pressures,fintechs still have room to achieve further
20、growth in an expanding financial-services ecosystem.And finally,not all fintechs are being hit equally hard during the market correction:fintechs in certain verticals and at particular stages of growth are more resilient than their peers.What are fintechs?We define fintech players as start-ups and g
21、rowth companies that rely primarily on technology to conduct fundamental functions provided by financial services,thereby affecting how users store,save,borrow,invest,move,pay,and protect money.For the analysis of this report,we included the following fintech sectors:daily banking;lending;wealth man
22、agement;payments;investment banking and capital markets;small and medium-size enterprise(SME)and corporate services;operations;and infrastructure(including embedded finance,and banking as a service).The analysis excluded cryptocurrency,decentralized finance,and insurtech.2Fintechs:A new paradigm of
23、growthRadical transformation of the banking industry Banking is facing a future marked by fundamental restructuring.As our colleagues wrote recently,banks and nonbanks are competing to fulfill distinct customer needs in five cross-industry arenas in this new era:everyday banking,investment advisory,
24、complex financing,mass wholesale intermediation,and banking as a service(BaaS).3 At the same time,macro tailwinds are powering the growth of fintechs and the broader financial-services ecosystem.Digital adoption is no longer a question but a reality:around 73 percent of the worlds interactions with
25、banks now take place through digital channels.Moreover,retail consumers globally now have the same level of satisfaction and trust in fintechs as they have with incumbent banks.4 In fact,41 percent of retail consumers surveyed by McKinsey in 2021 said they planned to increase their fintech product e
26、xposure.The demandand needfor fintech products is higher across developing economies.In 2022,for example,Africa had almost 800million mobile accounts,almost half of the whole worlds total.5 B2B firms demand for fintech solutions also is growing.In 2022,35 percent of the small and medium-size enterpr
27、ises(SMEs)in the United States considered using fintechs for lending,better pricing,and integration with their existing platforms.And in Asia,20 percent of SMEs leveraged fintechs for payments and lending.6 To capitalize on this demand,fintechs will need to keep up with fast-evolving regulations and
28、 ensure they have adequate resources and capacity to comply.Some European Union member states,such as Ireland,are bringing buy-now-pay-later providers under the scope of financial regulation.7 Meanwhile,the US Consumer Financial Protection Bureau aims to issue a proposed rule around open banking thi
29、s year that would require financial institutions to share consumer data upon consumers requests.8 This would make it necessary for fintechs to ensure they have the available resources and capacity to respond to these requests.A nascent industry in an expanding ecosystemThe banking industry generated
30、 more than$6.5 trillion in revenues in 2022,with year-over-year growth in volume and revenue margins.9 Given the fintech market dynamics,this suggests there is still plenty of room for further growth in both public and private markets.3 Balzs Czmer,Mikls Dietz,Valria Lszl,and Joydeep Sengupta,“The f
31、uture of banks:A$20 trillion breakup opportunity,”McKinsey Quarterly,December 20,2022.4 McKinsey Retail Banking Consumer Survey,2021.5 The state of the industry report on mobile money,GSM Association,April 2023.6 McKinsey 2022 US SMB Banking Survey,2022(n=955).7 Miroslav uri and Verena Ritter-Dring,
32、“Regulation of buy-now-pay-later in the EU:New regime on the horizon,”Law Business Research,February 8,2023.8 Farouk Ferchichi,“The US is one step closer to making open banking a reality,”Finextra,January 19,2023.9“McKinseys Global Banking Annual Review,”McKinsey,December 1,2022.McKinseys research s
33、hows that revenues in the fintech industry are expected to grow almost three times faster than those in the traditional banking sector between 2023 and 2028.3Fintechs:A new paradigm of growthIn 2022,fintechs accounted for 5 percent(or$150 billion to$205 billion)of the global banking sectors net reve
34、nue,10 according to our analysis.We estimate this share could increase to more than$400 billion by 2028,11 representing a 15 percent annual growth rate of fintech revenue between 2022 and 2028,three times the overall banking industrys growth rate of roughly 6 percent(Exhibit 1).Emerging markets will
35、 fuel much of this revenue growth.Fintech revenues in Africa,AsiaPacific(excluding China),Latin America,and the Middle East represented 15 percent of fintechs global 10 Net revenue equals revenue after risk minus direct costs.11 Estimate based on historical growth at regional level and expert inputs
36、 from regional leaders in the banking industry(for example,forecast of roughly 80 percent 202122 revenue increase in Latin America).Exhibit 1Web Exhibit of Fintech net revenues by region,$billionGlobal fntech net revenue share by region,level of development,%1Net revenue is defned as revenue after r
37、isk minus direct costs.Latin America,Africa,Middle East,and Asia,excluding China.Source:Dealroom.co;McKinsey analysisEmerging markets are expected to play a growing role in fntech revenue growth.McKinsey&Company202270834655325463407002220222028202220282028
38、2022202820222028202220282022202820222028North AmericaNorthAmericaDevelopedEmergingLatinAmericaEuropeMiddleEast AsiaPacifc AfricaEuropeAsiaPacifcGlobalLatin AmericaAfricaMiddle East482493085157129+12+12+15+18+27+35+30202228,CAGR,%4Fintechs:A new paradigm of growthrevenues last year.We esti
39、mate that they will increase to 29 percent in aggregate by 2028.On the other hand,North America,currently accounting for 48 percent of worldwide fintech revenues,is expected to decrease its share to 41 percent by 2028.While fintech penetration in emerging markets is already the highest in the world,
40、its growth potential is underscored by a few trends.Many of these economies lack access to traditional banking services and have a high share of underbanked population.Fintechs have had some success in addressing these unmet needs.In Brazil,for example,46 percent of the adult population is said to b
41、e using Nubank,a fintech bank in Latin Americadouble the share two years ago.12 Moreover,while the market cap of private fintech companies has increased substantially over the past decade,the sectors penetration of the public market remains small.13 In the eight years leading up to October 2022,44 m
42、odern fintechs(those that were founded in 1999 or later and went public after 2014)did an IPO,creating a combined market cap of$0.3 trillion.In contrast,during the same period,there were more than 2,500 legacy public financial-services companies(whose average year of founding was 1926)with a combine
43、d market cap of$11.1 trillion.14 Not all fintech businesses are created(or funded)equalLast year was turbulent for fintechs,but there were differences in the fundraising performance of firms based on maturity and segments.Maturity stageCompanies in the growth stage(series C and beyond)showed the hig
44、hest sensitivity to last years funding downturn,with a sharp year-over-year funding decline of 50 percent.Meanwhile,fintechs in the early seed and pre-seed stages were more resilient and increased funding by 26 percent year over year(Exhibit 2).This funding outperformance of firms in the early and p
45、re-seed stages was a 12 Oliver Smith,“Nubank turns$141m profit in Q1 as Brazilian market share nears 50%,”AltFi,May 16,2023.13 Michael Gilroy,Chase Packard,and Leslie Wang,Fintech and the pursuit of the prize:Who stands to win over the next decade?,Coatue,October 24,2022.14 Ibid.Exhibit 2Total fntec
46、h funding by round,$billionShare of VC funding in fntech companies,%Source:D;McKinsey analysisFintechs in seed,angel,and early venture capital stages posted funding growth in 2022.McKinsey&Company20020332022002255Series C+Series ABSeed,angel,earlyventure capital(VC)A
47、verage11.810.312.510.913.512.0201822,CAGR,%202122,CAGR,%+18+16+10+22484030+265Fintechs:A new paradigm of growthconsequence of the longer time to maturity,which gives start-ups more time to get through periods of economic uncertainty and recover any losses before an eventual sale.VerticalsFunding for
48、 B2B fintech segments last year was more resilient than for those in B2C,with smaller funding declines(Exhibit 3).The two B2B verticals that were least affected were(1)BaaS and embedded finance and(2)SME and corporate value-added services.These two verticals recorded year-over-year funding declines
49、of 24 and 26 percent,respectively.In contrast,funding for payments-focused fintechs dropped 50 percent.Even then,payments and lending received the largest shares of total fintech funding.Funding for B2B segments grew at more than 25 percent annually between 2018 and 2022,driven by an increasing numb
50、er of businesses adopting off-the-shelf solutions provided by digital-native firms(including payments,open banking,and core banking technology)to address challenges arising from using legacy banking infrastructurefor example,limited flexibility,slower speed,and high costs.Exhibit 3Web Exhibit of Glo
51、bal funding growth by fntech segment,%1Banking as a service.Small and medium-size enterprises.Includes core banking technology,regtech,and open banking.Source:Dealroom.co,2023Business-to-business segments recorded smaller funding declines from 2021 to 2022 than did business-to-consumer-focused fntec
52、hs.McKinsey&CompanyEmbeddedfnance/BaaSSME andcorporateservicesInvestmentbanking andcapital marketsWealthmanagementPaymentsDailybankingTop 2 for funding growthLendingOperations and infrastructure36322724211843Global funding change by fntech segment,%Embeddedfnance/BaaSSME andcorporateservicesInvestme
53、ntbanking andcapital marketsWealthmanagementPaymentsDailybankingLendingOperations and infrastructure2426363450473653Global funding by fntech segment total value,$billionEmbeddedfnance/BaaSSME andcorporateservicesInvestmentbanking andcapital marketsWealthmanagementPaymentsDailybankingLendingOperation
54、s and infrastructureTop 2 for funding growthTop 2 for limited funding loss4.07.63.48.211.06.011.63.51.22.51.33.55.23.19.93.92022021226Fintechs:A new paradigm of growthMany businesses continue to rely on legacy banking infrastructure that limits flexibility and speed and can often be more
55、costly.To address these challenges,businesses are benefiting from using off-the-shelf solutions provided by digital natives for services such as payments,open banking,and core banking technology.For BaaS and embedded finance,demand is led by customer-facing businesses looking to control their users
56、end-to-end experience.Meanwhile,SMEs have been underserved by traditional financial-services providers,despite the fact they represent about 90 percent of businesses and more than 50percent of employment worldwide.15 And in developing countries,the finance gap for micro,small,and medium-size enterpr
57、ises(MSME)is estimated to be approximately$5 trillion,or 1.3 times the current level of MSME lending.16 Fintech firms have successfully addressed some of SMEs needs worldwide,especially in developing countries.15“Small and medium enterprises(SMEs)finance,”The World Bank,accessed October 10,2023.16“M
58、SME finance gap,”IFC,accessed October 10,2023.7Fintechs:A new paradigm of growthChapter 2:The path to sustainable growth The current churn in the markets makes it prudent for fintechs to define their next move carefully.After all,they are operating in a much different environment than in years past.
59、In their hypergrowth stage,fintechs had access to capital that allowed them to be bold in their business strategy.They could make revenue generation their foremost objective;profits were expected to follow.The narrative has shifted since last year.The time between funding rounds for fintechs increas
60、ed by more than five months from the first to the fourth quarter of 2022.The average value of funding rounds decreased by 50 percent over the same period.17 These changes are forcing fintechs to find newer ways to extend runways and adjust their operating models to make decreasing amounts of cash la
61、st longer.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 emphasizing profitability,not just growth in customer adoption numbers or total revenues.“In the past,the reward went to fintechs that showed grow
62、th at all costs,which led to healthy valuations,”said one Africa-based growth equity investor.“Now it is about the sustainability of the business,the addressable market,and profitability.”So how can fintechs get on a path of sustainable,profitable growth?In 2019,McKinsey conducted an in-depth study
63、of the growth patterns and performance of the worlds 5,000 largest public companies over the preceding 15 years.The researchers analysis identified ten rules for value-creating growth.18 According to the research,companies that set growth strategies addressing all available pathways to growth were 9
64、7 percent more likely to achieve above-peer profitable growth.19 This set of rules adopted by public companies that have lived through economic cycles and periods of uncertainty can also be useful for fintechs as they transition to a sustainable growth model.Based on our analysis of these rules and
65、interviews with more than 40 fintech industry leaders,we expect four pathways to deliver the most impact for fintechs.17“SVBs challenges will accelerate valuation down rounds,startup mortality,and layoffs,”CB Information Services,March 15,2023.18 Chris Bradley,Rebecca Doherty,Nicholas Northcote,and
66、Tido Rder,“The ten rules of growth,”McKinsey,August 12,2022.19“Choosing to grow:The leaders blueprint,”McKinsey,July 7,2022.In a liquidity-constrained environment,fintechs and their investors are emphasizing profitability,not just growth in customer adoption numbers or total revenues.8Fintechs:A new
67、 paradigm of growthCost discipline When fintechs had access to abundant cash and funding was easy,they placed more emphasis on growing rapidly than on managing costs.Targeted cost savings have become a bigger priority today,as fintechs seek ways to lower expenses and achieve profitability while main
68、taining customer satisfaction and pursuing customer growth and acquisition.Our research has found that 50 percent of public fintechs(following their IPO)were profitable in 2022.And the key differentiator between profitable and nonprofitable fintechs was cost management,not revenue growth(Exhibit 4).
69、While both categories recorded year-over-year revenue growth of 13 percent,profitable fintechs posted a median 3 percent decrease in costs.Nonprofitable fintechs,in contrast,saw costs rise by 27 percent,which affected their profit margins.Successful implementation of cost management efforts is the k
70、ey for fintechs in their next phase of evolution.Several leaders are already making moves:60 percent of our survey respondents said their firms are significantly managing costs.An executive at an African mobile payments firm said they are now negotiating every cost and making sure the firm is thinki
71、ng for the long run.Consider the example of the Indian fintech company Paytm,which specializes in digital payments and financial services.The firm had had a target of achieving breakeven by September 2023 but was able to achieve this six months ahead of schedule.It did so through disciplined cost ma
72、nagement,revenue growth across businesses,and a business model with strong operating leverage.20 While fintechs establish a clear focus on costs,they should also consider adjusting how they operate,thereby creating a more agile and flexible organization that can deal with the current environment.Aro
73、und 80 percent of the interviewed fintechs report that they are currently making changes to their operating models.Of these,66 percent cite a focus on profitability and a sustainable cost structure as being among their top three reasons.Such adjustments to the operating model are most sustainable wh
74、en institutions also reinforce the control functions to protect customers and stay on top of regulatory changes.A shift from hypergrowth to sustainable growth would also result in a greater focus on strong unit economics.To do this,fintechs ensure that the profitability view is embedded across the b
75、usiness.For example,assessment of the value of adding new customers would evolve from efficiency-only metrics such as the customer acquisition cost(CAC)to a more holistic approach.In this example,one 20“Our discipline in cost management sustains and grows profitability,”Paytm,February 20,2023.Exhibi
76、t 4Web Exhibit of Proftable and unproftable fntechs in 2022,%Source:McKinsey analysis,based on a sample of 120+public fntechs around the worldStrict cost management,not revenue growth,is the key diferentiator for fntech proftability.McKinsey&CompanyRevenue delta202122Cost delta202122Revenue delta202
77、122Cost delta202122Proftablefntechs Unproftablefntechs+13+133+279Fintechs:A new paradigm of growthway to embed profitability into acquisition investment and decision making is to compare the CAC with the projected lifetime value(LTV)of a customer,using the LTV/CAC ratio to assess the marginal return
78、 on investment for acquiring every new customer.In Latin America,for example,68 percent of fintechs self-reported an LTV/CAC greater than five,which indicates a potential for fintechs to increase spending and further fuel growth without sacrificing profitability.Measured growth As leaders develop gr
79、owth strategies,an important question is where growth should come from.Fintechs can grow sustainably by taking three steps:building a strong core,expanding into adjacent industries and geographies,and shrinking to grow.Identifying which steps will be most accretive to growth will depend on the uniqu
80、e circumstances of each fintech;some might find value in pursuing all three steps,while others could choose to focus on one.Regardless of the circumstances,this decision will have greater longer-term consequences in the current environment,compared with the earlier high-funding phase.Focus on buildi
81、ng a strong core as a precursor for expansionThe first step in cracking the growth code involves focusing on the local market and developing a healthy core business.According to our research,companies that focus on their core business and have a strong home market are 1.6 times more likely to genera
82、te peer-beating returns.21 For fintechs,the key will be to relentlessly focus on growth in their core business.As a North American fintech executive told us:“Its a bit of back to basics.On a core product or offering,18 to 24 months ago,you would have built additional pieces on it to upsell and cross
83、-sell.Now,were looking to double down on the core business and make sure its a stable,viable operation.”To do this,fintechs must tailor their value propositions to their focus markets.Lets take the example of B2C fintechs.Our recent research(McKinseys Retail Banking Consumer Survey and Global Bankin
84、g Pools)quantified the potential drivers for growth at B2C fintechs.Cross-selling will likely drive growth for fintechs in emerging economies,while those in developed countries will likely see greater growth from capturing new customers.Around 72 percent of revenue growth for companies in Brazil,for
85、 example,is expected to come from cross-selling,in contrast with 25 percent and 30percent for the United Kingdom and the United States,respectively,with the remaining growth coming from new customers(Exhibit 5).There is arguably less potential for new-customer development in developing economies,giv
86、en their high fintech penetration.Across the competitive landscape,as markets are highly heterogenous,a dedicated strategy for each region is recommended.For example,our analysis found that in the United Kingdom and the United States,fintech revenue share is split almost equally between incumbent di
87、gital banks and pure fintech players.In contrast,digital incumbents in Germany and pure fintech players in Brazil could dominate bankings revenue share in their respective markets.Expand into adjacent segments and geographiesAfter building a strong core,fintechs can consider expanding into other seg
88、ments and geographies as a second source of growth.According to our previously published research,companies that do so are 1.2 to 1.3 times more likely to generate sizable returns than peers that focus solely on their core.22 Today,however,expansion is no longer a must-do strategy.It may be most adv
89、antageous for companies that have strong footholds in their core markets and can use some competitive or ownership advantage to expand elsewhere.The key is to pursue measured,value-creating growth.A case in point is OPay,which started as a mobile money platform in Nigeria and has since expanded acro
90、ss financial-services verticals.OPay now offers peer-to-peer payments and merchant and card services.21 Chris Bradley,Rebecca Doherty,Tido Rder,and Jill Zucker,“Growth rules:Which matter most?,”McKinsey,March 6,2023.22 Ibid.10Fintechs:A new paradigm of growthShrink to growFintechs are moving from hy
91、pergrowth to sustainable growth,but that growth may not necessarily be consistent across all parts of the business.If fintechs divest from underperforming parts of their portfolios and scale back from regions recording limited growth,they can reinvest that capital into high-performing segmentsa stra
92、tegy we call“shrinking to grow.”In our research,companies that use this approach are 1.4 times more likely to outperform their peers.“In the past,many fintechs expanded geographically,even if it didnt make much sense,”an executive at a Latin American fintech told us.“Now they will have to focus on t
93、heir profitable segment and geography and stop expanding where they are not.”Some fintechs have been deliberate about using a shrink-to-grow strategy,changing track if an expansion strategy did not materialize as expected or the local market had more potential for growth.German robo-adviser Scalable
94、 Capital,for example,announced plans to discontinue Exhibit 5Share of retail banking revenue pool held by innovative players,%Share of retail banking revenue pool held by traditional players,%Fintech growth by customer type,%Source:Based on McKinseys Retail Banking Consumer Survey,2021Fintechs value
95、 proposition should be tailored to the specifcs of the local market.McKinsey&Company4.56.33.912.7BrazilUSUKGermany3.33.51.82.110.72.02.81.2202213.19.63.35.34.39.82025202220252022202520222025202220252022202520222025202220257.316.63.313.33.53.9New customersCross-sell to existing customerDigital brands
96、 linked to traditional playersNeobanks,fntechs,digital brokers,and robo-advisers2872703075257426BrazilUSUKGermanyBrazilUSUKGermany87.383.495.586.993.790.496.192.7202225,CAGR,%+29+64+17+30+34+17+60+1711Fintechs:A new paradigm of growthits Swiss operations as of 2020 to focus on other markets because
97、the implementation of the Financial Services Act in Switzerland would have required the company to manage two regulatory frameworks simultaneously.Meanwhile,Wealthsimple,a Canadian online investment platform,exited from the United Kingdom and the United States in 2021 to concentrate on its local ret
98、ail market and expand its product portfolio into new financial-services areas.Similarly,in late 2020,San Franciscobased fintech LendingClub shut down its retail peer-to-peer platform called Notes to focus on other products.Programmatic M&A Many companies will conclude they can achieve the steps outl
99、ined in this reportlaunching new features,building new capabilities,and pivoting toward new revenue streams and segmentsmore swiftly through thoughtful acquisitions and partnerships than by relying on pure organic development.Fintech firm Block,for example,completed its acquisition of the buy-now-pa
100、y-later platform Afterpay in January 2022 to accelerate its strategic priorities for its seller and cash app ecosystems.23 Nearly 60 percent of fintech executives in our survey told us they are considering an acquisition in the next 18 months.Moreover,with IPO and SPAC(special purpose acquisition co
101、mpany)activity slowing considerably since last year,many fintechs that might otherwise go public are turning to private markets for funding.Take the example of the British fintech Zopa,which intended to list by 2022 but eventually decided to put IPO plans on hold in response to challenging market co
102、nditions.In the interim,the firm has been raising capital from its shareholders,including$92 million in February.24 M&A transactions increase significantly during periods of economic uncertainty,when they also tend to deliver higher returns.During the global financial crisis,around 45 percent of ban
103、king M&A deals showed positive excess two-year total shareholder returns(TSR)between 2007 and 2009.25 In comparison,less than 30 percent of banking deals posted positive excess two-year TSR between 2010 and 2020.26 Across industries,companies actively making acquisitions worth 10 percent or more of
104、their market cap in total had an average TSR of 6.4 percent between January 2007 and January 2008,compared with 3.4 percent for the less active companies.27 However,not all M&As are successful.Many fail to create value due to contrasting values and cultures,mismatched productmarket fit,and inflated
105、revenue forecasts in the pursuit of customer engagement and growth at all costs.Keeping the culture alive What has made fintechs so disruptive over the years?The answer lies largely in their ability to innovate and differentiate.Since fintechs are not as encumbered by legacy systems and processes,th
106、ey can be more agile in using emerging technologies to anticipate and solve customer needs.Typically,they also have a customer-centric and collaborative approach to deliver innovation with cross-skilled teams.Innovations have happened across fintech verticals.Neobanks like Chime and Monzo,designed a
107、round a simple and intuitive user experience,have changed assumptions about the role of branches in traditional retail banking.In the United Kingdom,for example,the total number of bank and building society branches fell by 40 percent between 2012 and 2022.28 Robo-advisers such as Wealthfront and Nu
108、tmeg disrupted the traditional wealth management industry by offering low-cost,accessible alternatives to individuals lacking access to personalized financial advice.Funding Circle introduced the peer-to-peer lending concept to the financial sector,bypassing traditional banks(which had owned this re
109、lationship)and enabling direct lending between parties.23“Block,Ipletes acquisition of Afterpay,”Block,January 31,2022.24“Zopa raises 75 million,”Zopa Bank Limited,February 1,2023.25 As of the year of the deals announcement.26 McKinsey Fintech Quarterly Radar,Q1 2023.27 Brian Salsberg,“The case for
110、M&A in a downturn,”Harvard Business Review,May 2020.28 Lorna Booth,Statistics on access to cash,bank branches and ATMs,House of Commons,September 1,2023.12Fintechs:A new paradigm of growthIncumbents are fast catching up with these innovations by ramping up investments in new technologies.Around 94 p
111、ercent of banks in a recent survey said they plan to invest more in modern payments technology to support end user demand for better payment capabilities over the next two to three years.Of these,65 percent said they intend to make significant or moderate levels of investment.29 Many incumbents are
112、also partnering with BaaS platforms to overhaul their digital capabilities.Examples include Fifth Third Banks acquisition of Rize Money in May 2023 and NatWest Groups partnership with Vodeno Group in October 2022 to create a BaaS business in the United Kingdom.To retain their competitive advantage,f
113、intechs must continue to innovate.The next big disruptor is always around the corner.Technologies like generative AI are predicted to revolutionize the competitive landscape of finance over the next decade(see sidebar“Generative AI and the future of banking”).WeBanks CFO Arthur Wang is one executive
114、 who appreciates the urgency.He told us,“Even though our bank has been around for almost eight years,we consider ourselves a start-up.Were always exploring better fintech technology.WeBanks strategy is to provide better,more 29“94%of banks eyeing investment in modern payment tech,to keep pace with f
115、intech innovation,”Finastra press release,March 8,2023.Generative AI and the future of bankingArtificial intelligence(AI)technologies are increasingly integral to the world we live in,and investors are taking notice.Generative AI is among the advanced technologies for which investments are accelerat
116、ing,thanks to its potential to transform business.According to McKinsey research published in June 2023,generative AI could add the equivalent of$2.6 trillion to$4.4 trillion annually across as many as 63 use cases.Generative AIs impact on the banking industry will be significant,delivering benefits
117、 beyond existing applications of AI in areas such as marketing.As our colleagues have written,this technology could generate an additional$200 billion to$340 billion annually in value,arising from around 2.8 to 4.7 percent increase in the productivity of bankings annual revenuesif the use cases are
118、fully implemented.1 For fintech,we expect a commensurate impact,if not more,given the already high exposure to tech.Generative AIs impactand resulting reinventionwill span three broad categories:1.Automation.Half of todays work activities could be automated between 2030 and 2060,according to McKinse
119、y estimates.2 Fintech firm Intuit,for example,has introduced a generative AI operating system on its platform.Its custom-trained large language financial models specialize in solving tax,accounting,cash flow,and personal finance challenges,among others.3 2.Augmenting and enhancing productivity to do
120、 work more effectively.Generative AI could enable labor productivity growth of 0.1 to 0.6 percent annually through 2040,depending on the rate of technology adoption and redeployment of workers time to other activities.Morgan Stanley is building an AI assistant using GPT-4 to help the organizations w
121、ealth managers quickly find and synthesize answers from a massive internal knowledge base.4 3.Acceleration.Organizations can use generative AI to extract and index knowledge to shorten innovation cycles,thereby enabling continuous innovation.To capture these opportunities,fintechs need an ecosystem
122、of capabilities and partners that will allow them to move fast.First movers will accrue competitive advantage as they build their capabilities and mobilize with a focus on value,rather than rushing to deliver pilots.To do this,fintechs should consider investing more in people and change management,g
123、iven generative AIs unique potential to influence the future of work.Fintechs could think about developing a medium-to longer-term talent strategy and find ways to emphasize change management and adoption.Fintechs that delay building their capabilities risk becoming the disrupted instead of the disr
124、uptors.1 “The economic potential of generative AI:The next productivity frontier,”McKinsey,June 14,2023.2 Ibid.3 “Intuit introduces generative AI operating system with custom trained financial large language models,”Intuit press release,June 6,2023.4“Morgan Stanley Wealth Management announces key mi
125、lestone in innovation journey with OpenAI,”Morgan Stanley press release,March 14,2023.13Fintechs:A new paradigm of growthinclusive financial servicesto the mass population as well as small and medium-size enterpriseswith leading technology.We do business 100 percent online,so we rely on technology.”
126、30 A tight labor market has also made it more challenging for fintechs to attract and hire tech talent.Our survey uncovered a shift in the perception of fintechs as riskier employers.As a Europe-based fintech executive told us:“Fintechs are less attractive now because it is clearer that it is a high
127、 risk job compared with established institutions.On the other hand,large fintechs are laying off,which can create a new pool of talents to attract.”In such an environment,fintechs must work toward strengthening their culture and mission and,consequently,their hiring strategy.One European payments fi
128、ntech,for example,has differentiated strategies based on the profile of open roles.An executive at the firm says it has been easier to recruit people for junior roles,since these workers are more eager to join a growing organization.“It is a different story with experienced profilesfor example,manag
129、ement team or 35-plus yearswhere recruiting is more difficult and retention is crucial,”he said.To attract such people,the firm offers stock options and other incentive packages.Meanwhile,an Africa-based payments and remittances fintech casts a more global net:“We hire globally,regardless of locatio
130、n,gender,or race,”an executive told us.“We have no quotas and try to just find the best person for each role.”The fintech industry is undergoing a sea change,so players will have to evolve to survive.Approaches will vary,depending on each fintechs maturity level and its vertical and geographic focus
131、.The framework for sustainable growth,described in this report,provides a strong foundation:1.Measured growth based on a stable core.Ensure there is a strong and stable core business with a targeted and proven market fit before expanding,rather than trying to grow while strengthening the core.2.Prog
132、rammatic M&A.Pursue M&A strategically and establish mutually beneficial partnerships based on a programmatic strategy rooted in value sharing(with incumbents and other fintechs),as opposed to pursuing M&A only as a response to a low-valuation environment.3.Cost discipline.Control costs to withstand
133、the new funding environment while remaining flexible,nimble,and compliant.4.Keep the culture alive.Maintain the agility,innovation,and culture that have been the bedrock of disruption so far.Decisions taken today will likely set the pace for fintechs over the mid to long term.The present conditions
134、therefore call for a careful evaluation and focused implementation.Lindsay Anan is an alumna of McKinseys San Francisco office,where Alexis Krivkovich and Marie-Claude Nadeau are senior partners;Diego Castellanos Isaza is a consultant in the London office,where Fernando Figueiredo is a partner and T
135、unde Olanrewaju is a senior partner;Max Fltotto is a senior partner in the Munich office;Andr Jerenz is a partner in the Hamburg office;and Zaccaria Orlando and Alessia Vassallo are associate partners in the Milan office.The authors wish to thank Sonia Barquin,Franois Dorlans,Carolyne Gathinji,Eitan
136、 Gold,Carolina Gracia,Sheinal Jayantilal,Uzayr Jeenah,Yelda Kayik,Mayowa Kuyoro,Marina Mansur,Farid Minnikhanov,Bharath Sattanathan,Rinki Singhvi,and Katharine Watson for their contributions to this report.30 See“Making financial services available to the masses through AI,”McKinsey,August 9,2022.14Fintechs:A new paradigm of growthOctober 2023 Copyright McKinsey&CompanyMcK McKinsey McKinsey