"Four Trends Including Embedded Finance to Lead Fintech"

Boston Consulting Group Announces Fintech Outlook Report

Analysis suggests that embedded finance, connected commerce, open banking, and generative AI will lead the fintech (finance + technology) industry over the coming years.

According to the report "A New Formula for Fintech Success: Soundness, Profitability, and Growth" released by Boston Consulting Group (BCG) on the 26th, global fintech revenue grew at an average annual rate of 14% from 2021 to 2023. Although funding sizes and company valuations have both plummeted, major fintech firms are rapidly expanding their businesses while achieving high profitability.

Based on insights gained from interviews with more than 60 global fintech CEOs and investors, the report introduced key factors influencing the fintech industry and new trends driving innovation. It forecasts that four trends?embedded finance, connected commerce, open banking, and generative AI?will lead the fintech industry for the next several years.

Embedded finance is expected to grow to a $320 billion market by 2030. Embedded finance refers to non-financial companies integrating fintech capabilities into their platforms to support payment services and provide financial services. The small and medium-sized business (SMB) segment accounts for about half of the embedded finance market, approximately $150 billion. The consumer segment is expected to reach about $120 billion by 2030. The corporate segment is projected to generate around $50 billion in revenue. In the short term, existing fintech firms are likely to maintain an advantage, but over time, larger and more established banks are expected to expand their market share.

Connected commerce is also a promising area. Connected commerce combines various platforms and IT technologies to create new business opportunities. It is emerging as a so-called "killer application" and is expected to become a new revenue source for banks. Banks use more segmented customer data to display personalized advertisements, and sellers pay banks based on sales contribution or traffic. As banks’ core revenue sources continue to face pressure and deposits risk becoming commoditized products in a high-yield environment, connected commerce is expected to become a new future model for banks.

The influence of open banking, which has been limited in banking, is expected to be more significant in advertising. In the advertising sector, open banking is anticipated to expand its influence by providing access to big data, enabling more timely and targeted personalized offers.

Generative AI is analyzed to be a game changer for productivity improvement. In fintech, generative AI is concentrated in areas with significant technological benefits such as coding, customer support, and digital marketing, all under a ‘digital first’ cost structure. Considering this, its impact is expected to be even more pronounced in the short term.

Deepak Goyal, Managing Director and Senior Partner at Boston Consulting Group, said, “The cornerstone of fintech company success lies in profitability and compliance adherence,” adding, “These factors are essential for continuous investment attraction, scaling business operations, and sustaining value as a worthy company.”