By Laura Muñoz Tarrío

Fintech start-ups have received more than $420 billion (€397,800) in venture capital funding since 2016 globally, which has positioned them first in volume of investment received, ahead of those focused on health, business software, energy and transportation, as Dealroom reports. The term fintech, born from the combination of the words finance and technology, refers to companies that offer financial services through technological means in an accessible and agile way, according to Acelera Pyme.

Despite these positive figures, Dealroom reports that, during the second quarter of 2023, fintechs only took in $7.4 billion (€6.995 billion), the lowest figure recorded since 2018. In this regard, Boston Consulting Group’s (BCG) Global Fintech 2023 report explains that over the past 12 months the sector has experienced “a necessary short-term correction framed by a progressive growth story” mainly due to a dampening of enthusiasm for growth-stage companies (B-D series) that have weak products or markets. However, it stresses that annual fintech revenues are expected to reach $1.5 trillion (€1.4 trillion) by 2030.

Digital payments, the big attraction for fintechs

Today, nearly 80% of the global adult population remains unbanked or underbanked, according to BCG, meaning that they either do not have access to the conventional financial system or rely on alternative services, such as check cashing centers, money orders or pawnshops. In this context, fintechs are emerging as a solution to the “problems with innovation and customer experience” presented by traditional banks, as BCG explains. However, these start-ups, which could have become their competitors, have proven to be allies to this sector by “contributing new ideas that banks have the capacity to scale”, according to Acelera Pyme.

Dealroom looks at eight fintech business models: payments, financial management solutions, mortgages and loans, wealth management, insurance, regulation, banking and cryptocurrencies, and decentralized finance. Meanwhile, sources such as CB Insights also include others such as capital markets technology. However, both agree that the subsector dedicated to digital payments attracted the most investment during 2022, $20.8 trillion (€19.7 trillion) according to CB Insights’ State of Fintech 2022 report.

Photo: At the forefront of finance: fintech and the digital transaction revolution Credits: Unsplash.

Which fintech start-ups are at the forefront of innovation?

Currently, the value of fintechs exceeds 3 billion dollars (2,836 million euros), according to Dealroom. The United States is at the forefront of this market with a total of 5,730 active start-ups. It is followed by the United Kingdom (2,439), India (1,512), Canada (1,376), Germany (978), Spain (977) and France (903). To reach Latin America, we have to move up to eighth place, where Brazil is (869), and ninth, where Mexico is (844), according to Finnovating’s FinTech Global Vision 2023 report.

In this landscape, there are many companies that stand out, either for their business model, innovation or growth. One of them is the U.S.-based Stripe, which offers services for accepting payments, sending transfers and automating financial processes. Other success stories include the British company Revolut, which specializes in mobile banking, card payments, money transfers and currency exchange, and the U.S.-based Ripple, which allows banks and financial institutions to carry out direct transactions without the need for a central bank correspondent, thanks to blockchain technology.

In Spain, start-ups such as Pagantis, a platform that allows consumers to pay for goods and services in monthly installments through an automated process on e-commerce portals, are noteworthy. Also, OpenPay (owned by BBVA since 2017), which uses biometrics to make transactions or money transfers between friends, and Fintonic, which offers users information about their personal finances, as well as investment insurance and specific loans.

In Latin America, there are others such as Brazil’s Neon, which facilitates access to financial services for individuals, self-employed people and small companies, and Mexico’s Jeeves, which has created a platform where start-ups operating in several countries simultaneously can control all their expenses instantaneously.

The fintech sector is opening up new opportunities for accessibility and efficiency in the financial world thanks to its agility and user-centered innovation capacity. This new approach to finance became vital in the wake of the COVID-19 pandemic because of its ability to adapt to the digital environment. Now, these start-ups, far from becoming the new competitors of traditional banking, are for the most part working alongside it to co-lead the future of transactions.