The fintech bubble continues to expand, even as the market gets closer to saturation. In a recent report, KPMG has identified five sectors likely to continue growing.
Technology spend is now more than $4 trillion, and fintech is continues to grow its piece of the pie. Spending in the first half of 2019 was $120 billion across venture capital, private equity, and mergers and acquisitions. That’s up from $19 million in 2013, as the number of deals has more than doubled.
One of the biggest opportunities for growth is serving the 1.7 billion people that are considered “unbanked” (those that don’t have a financial service provider). And, among that population, fintech companies are targeting regions where the market isn’t saturated with incumbent financial institutions. Latin America, the Philippines, Indonesia, and Africa are ripe targets for fintechs.
Companies like M-Pesa in Kenya are helping to drastically reduce the number of “unbanked” individuals. In 2006, 26.7% of the Kenyan population had a bank account. That number has jumped to 82.9% this year.
As more customers shift to digital banking and payments, the need for enhanced cybersecurity has grown (as has interest in companies providing those services). KPMG suggests that as other technologies, like 5G, continue to evolve rapidly, fintech firms will need to stay ahead of potential threats.
Regtech is another sector that KPMG has its eye on. The EU has been working to tighten up regulation around digital activity. GDPR legislation in the EU created a challenge for companies worldwide, and the recent implementation of PSD2 and MiFID II have created new compliance needs. While the EU has driven interest and investment in technology that automates and facilitates regulatory compliance, other regions like China and Singapore are set to create additional demand.
Wealth management technology (or wealthtech) is another sector getting a second lease on life. Robo-advisors, digital brokerages, and micro-investment solutions led early innovation in this segment. Standalone digital wealth management platforms and neobanks, which added on these services to cut into incumbent market share, led the pack. However, market saturation has started a consolidation phase as customers become more discerning. Despite this, the number of deals in 2019 is up over last year, with $2.8 billion spent on 45 deals during the first six months compared to $1.8 billion invested in 88 deals in all of 2018.
KPMG has its eye on proptech, also, as companies like Zillow, Propertyguru, and Magicbricks work to change how individuals and companies purchase, sell, and rent real estate. However, what started as a segment focused on property discoverability has grown to include mortgage overhaul and “housing as a service,” including AirBnB and its corporate counterpart, the ailing WeWork. This sector shows the most promise, with potential for significant growth. In 2018, $1.4 billion was invested across 82 deals. 2019 saw $1 billion in investments just in the first six months of the year.
While these sectors are showing great potential, the market is becoming crowded. Investors and customers are starting to become more discerning, which is likely to lead to fewer, bigger deals.