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The state of FinTech: a recap of 2020 and a glimpse into 2021

2020 was a very challenging year for most industries, and FinTech was no exception. However, the FinTech industry seems to have weathered the storm that continues to ravage the globe. Below we discuss three of the main trends KAE identified as defining for the industry.


Maintained growth & consolidation

Following the outbreak of the pandemic, investment budgets were slashed in most industries as uncertainty began to overshadow strategic planning. Less so in FinTech. Investors seem to have retained their confidence in financial technology as global FinTech investment reached $44 billion in 2020 – an increase of 14% from 2019. Unsurprisingly, the US was the main catalyst of growth, attracting the largest share of capital with $22 billion – up by almost a third from the previous year. More surprisingly, although Brexit seems to have contributed to a 9% year-over-year drop in funding, the UK retained its position as the #1 destination for FinTech investment in Europe.

Consolidation has been an ongoing theme in the industry, and the new challenges of 2020 further accelerated this trend. While lesser known / emerging start-ups continued to struggle to convince venture capital investors, more established FinTechs secured investments of record high value. Visa’s $5.3 billion acquisition of data aggregation start-up Plaid (blocked by US regulators since) and SoFi’s £1.2 billion purchase of banking-as-a-service provider Galileo were prime examples of the high-value M&A activity that dominated the industry. Venture capital also continued to pour into FinTechs sitting at the top of the unicorn’s horn, with Stripe ($850 million), Chime ($700 million) and Klarna ($650 million) raising the highest amount of funding throughout 2020.

Going forward, with the growing size of such deals, regulators are likely to increasingly scrutinize direct takeovers – which could somewhat hinder the pace of consolidation. However, the industry seems to be ahead of the game, with some players focusing on incremental investment in their strategic partners (also referred to as “creep acquisition”) that are more likely to get the green light from regulators. The example of Visa’s ever strengthening partnership with and stake in Klarna is a template many other legacy players could try and emulate in 2021 and beyond, as they strive to maintain their stronghold over the industry.


Riding the waves of the pandemic

The accelerated pace of digitalization we saw throughout every aspect of our personal and business lives is one of the main reasons why the FinTech industry as a whole has withstood the challenges posed by the pandemic. As most of our activity defaulted to remote, FinTechs that cater to this new paradigm saw immense growth.

FinTechs offering online / mobile banking, payments, investment or lending to individuals and / or businesses saw record adoption rates and continued their shift from the periphery to the mainstream. In Europe, FinTech app usage grew by 72% in the direct aftermath of the pandemic outbreak, while the top seven digital banks in the US grew their cumulative user base by 39% throughout the year. Moreover, the boom experienced by e-commerce and m-commerce across the world also helped power the FinTechs that feed off these ecosystems.

While most of us will hope remote is not the new normal, digital is seemingly here to stay – offering a plethora of opportunities for FinTechs to capture. Payments start-ups Deserve and Plastiq, digital banks Upgrade and BlueVine, investment platforms Pagaya and EasyKnock and online lenders LendingPoint and C2FO are currently amongst the fastest growing FinTechs that are gearing up to challenge their more established peers as well as incumbents this year.


Embedded finance

For some time now, offering financial services is not legacy banks’ prerogative anymore. However, businesses whose core focus is outside financial services, have traditionally relied on partner lenders / payment providers to satisfy their customers’ financial needs. Then came a new phenomenon: embedded finance, namely “nonfinancial companies offering financial products and services to their customers while retaining complete control over the customer experience” – a market tipped to be worth $7.2 trillion globally by 2030. So far, Amazon has spearheaded this space, recently extending its lending propositions to cater to not just its merchants but also consumers with its buy-now-pay-later offering. Shopify white-labelling Stripe’s payment acceptance engine is another successful business model others might want to follow. We expect BigTechs and other non-financial giants to join the game soon; and while payments and lending seem to present the clearest opportunities, other types of financial services are likely to be trialled too. FinTechs often have a niche technology that is superior to that of their partners, or offer a fitting complementary service. This represents a win-win proposition: software-as-a-service providers of the likes of Solarisbank, Railsbank, Modulr, Marqeta and Treezor will be more than happy to remain behind the scenes and capitalise on their partner’s vast customer base.

2020 was a tough year and 2021 did not exactly start off on the right foot either. Still, while the FinTech sector is likely to have its casualties, the industry will also produce winners. The flux caused by the pandemic is not just about its threats but also opportunities and their agility puts FinTechs in prime position to capitalize on these. 2021 is shaping up to be another interesting year for the industry.



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Chris Holmes

Chris Holmes

Senior Vice President

KAE Consulting

Member since

06 Dec 2018



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