Fintech revenues are projected to grow from US$150 billion in 2018 to US$500 billion in 2030 at an average annual growth rate that’s around three times faster than the broader financial sector’s revenue growth, according to estimates by UBS.

Fintech revenues expected to post 10.5% CAGR during 2018–30, Source: UBS estimates, as of September 2019

With annual double-digit earnings growth expected over the next eight years, fintech is set to be one of the fastest-growing industries globally, the bank says, with key growth segments that include payments, insurtech, wealthtech, capital markets tech, and online lending.

Blockchain and AI at the heart of the fintech disruption

At the heart of these growth verticals will be two technologies, blockchain and AI, which will bring both opportunities and threats to existing financial companies, the report says.

For blockchain, UBS estimates that the technology could generate annual economic value worth US$300–400 billion globally by 2027 across six major industries led by financials, namely financial services, manufacturing, healthcare, public services, utilities and the sharing economy.

Blockchain could generate an annual economic value of US$300–400bn globally by 2027, Source: World bank, Bloomberg, UBS estimates, as of October 2017

The bank identifies six main areas in the financial industry where the technology is expected to have the most impact through disintermediation and automation, resulting in improved efficiency and cost-savings. These areas are post-trade services, compliance, trade finance, foreign exchange (FX) transfers, insurance claims, and digital currencies.

For AI, the technology can be used to a plethora of applications ranging from virtual assistants, chatbots and speech recognition software for regular customer interactions, but also automated wealth management advice, or robo-advisors, as well as risk management and anti-money laundering programs. And in insurance, AI can elevate the industry through better products and pricing, underwriting, target marketing and sales, claims management, and overall data mining.

The report notes that investments in AI have surged in recent years and will increase even further in the future. It cites UBS and IDC’s Worldwide Semi-annual Cognitive/Artificial Intelligence Systems Spending Guide, which predicts that the global banking sector will be spending over US$47 billion in AI by 2020, or more than three times what was spent in 2010 at US$11 billion.

5 fintech segments to watch

In payments, UBS cites several technological trends expected to fuel growth of digital payments. These include declining use of checks and cash, rising demand for real-time digital payments, the ongoing transformation of the traditional brick-and-mortar bank branch, the rise of omni-channel, and rising demand for additional, adjacent services such as loyalty solutions, data analytics and funding flexibility.

In insurtech, technologies including AI, machine learning, the Internet-of-Things (IoT) and blockchain will help modernize the entire value chain, resulting in a myriad of benefits that range from more accurate risk assessment and pricing and more efficient operations and processes, to hyper-personalized solutions and improved customer experiences.

Meanwhile, in capital markets tech, online trading platforms, algorithm trading and crowdfunding platforms, will continue to gain traction and grow, further putting pressure on commission and fees in favor of clients. Similarly, in wealthtech, the rise of robo-advisors will enhance competition in the wealth management business, ultimately benefiting customers through lower prices.

And in online lending, which, according to the report, currently generally accounts for less than 1% of total bank lending in the countries where the platforms operate, the disruption will likely take place just in niche segments including consumer credit and mortgage businesses.

Driving the growth of fintech

Fintech is at an inflection point, the report says, and the industry is set to take off thanks to strong drivers on both the demand and supply sides.

On the demand side, factors including rapid urbanization, the development of technology infrastructure, and the rise of the app economy, will push banking and financial transactions towards digitalization, driving thus demand for fintech services in the forms of digital payments capabilities, crowdfunding platforms, and robo-advisors, among others.

The rise of fintech will also be driven by demand from digital-native millennials, which will be requesting a wider range of digital goods that are conveniently delivered and which meet their varied affinities and needs.

The report cites the case of Asia where millennials have been behind the high e-wallet payments penetration rate.

Millennials drive Asia’s high e-wallet payment penetration, Source: Global Payments Report, Bloomberg Intelligence, UBS as of November, 2018

In addition to strong demand coming from consumers, regulators across the world have supported fintech companies and will continue to do so as they bring much-needed competition to incumbents, resulting in better pricing and innovation in the banking sector, as well as for their potential to facilitate financial inclusion.

Meanwhile, on the supply side, the need for cost savings, and the potential of new revenue streams and increased efficiency, will continue to push incumbent financials to launch fintech services and adopt partnership approaches with startups.