APAC region to surpass US by 2030 to become world's largest fintech market

The Asia-Pacific (APAC) region, spearheaded by India, China and Indonesia, is poised to outpace the US and become the world’s top fintech market by 2030, at a projected compound annual growth rate (CAGR) of 27 per cent, according to a report on Wednesday.

These regions, which are an underpenetrated market with nearly $4 trillion in financial services revenue pools, have the largest fintechs, a voluminous underbanked population, a high number of small and medium-sized enterprises, and a rising tech-savvy youth and middle class, according to the report by Boston Consulting Group (BCG) and QED Investors.

Moreover, revenues from fintech firms globally are projected to grow sixfold by 2030, from $245 billion to $1.5 trillion, the report adds. The sector, which currently holds a 2 per cent share of the $12.5 trillion in global financial services revenue, is estimated to reach the 7 per cent mark over this period.

“Customer experience remains poor. More than half the world’s population remains unbanked or underbanked, and technology continues to unlock new use cases in leaps and bounds,” says Deepak Goyal, BCG managing director and senior partner and co-author of the report.

“All stakeholders must therefore seize the moment. Regulators need to be proactive and lead from the front. Incumbents should partner with fintechs to accelerate their own digital journeys,” he adds.

While payments led the last era, B2B2X and B2b (serving small businesses) will lead the next. B2B2X is made up of B2B2C (enabling other players to better serve consumers), B2B2B (enabling other players to better serve businesses), and financial infrastructure players.

The B2B2X market is expected to grow at a 25 per cent CAGR to reach $440 billion in annual revenues by 2030, supported by growth in embedded finance and financial infrastructure; while the B2b fintech market is expected to grow at a 32 per cent CAGR to reach $285 billion in annual revenue by providing solutions to credit-starved and poorly served small businesses.

India, the report says, is undergoing major fintech activity with the emergence of local champions such as PayTM and Razorpay. “There is a clear opportunity in the country for fintechs to provide financial-services access to India’s 190 million unbanked adults, especially as smartphones are ubiquitous while bank accounts are not,” it adds.

Indian regulators, it says, are taking an “active role in shaping the market through such vehicles as UPI, Aadhar, Rupay, and Digilocker. We expect major fintech revenue growth in India to be spurred by expanding GDP (a CAGR of 7 per cent per year), the rise of the educated middle class, younger demographics coming of age, and increasing fintech penetration. Further areas of growth will be in lending, neobanking, and wealthtech.”

Saurabh Tripathi, who leads BCG's Financial Institutions practice in the Asia Pacific, says that, for emerging markets, innovation in finance is critically important as is risk management.

“The emerging paradigm will be to have a lot of fintech innovation take place leveraging public digital goods and a mandated highly regulated open banking framework. We believe this will make Asia Pacific the most prolific region for Fintech innovation,” he adds.

However, the bulk of fintech revenues in the APAC region still come from China, which is expected to remain the frontrunner for the foreseeable future.

“Attractive demographics, native technology and engineering capabilities, prudent regulations combined with the sheer necessity to innovate for accelerating the upliftment of a large mass of humanity makes APAC the center of gravity for fintechs,” says Yashraj Erande, MD & Partner, BCG.

Fintechs, however, the report says, need to conserve cash and stretch their runways to get through the “funding winter” without resorting to raising money at lower valuations.

Regulators, it suggests, should consider levelling the playing field via such actions as enabling faster pathways for banking and payment institution licenses, supporting digital public infrastructure, and facilitating an open banking ecosystem.

The report emphasizes that while recent bank crises – such as SVB and Credit Suisse – have made regulators more sensitive to asset/liability management, in addition to creating guardrails, regulators must ensure they are not overregulating the industry and thereby stifling innovation.