Fintechs remain strong but with marked differences across verticals and countries

GDS Modellica
25/07/2022
The global fintech sector has managed to withstand the shock of the COVID-19 pandemic much better than was initially anticipated, analysts have observed significant differences across verticals and countries. In particular, advanced economies (AEs) have come out much better than emerging markets and developing economies (EMDEs). This is according to a recent report by the World Economic Forum, The Global Covid-19 Fintech Market Impact and Industry Resilience Study, an enormous 200-page report overflowing with data and analysis.

In today’s post, we will take a quick look at some of the most significant findings contained in the report’s executive summary. However, as always, we highly recommend that you take the time to visit the WEF website to download the report (for free) and read it in full yourself.

General dominance of advanced economies Transaction values in AEs exceeded those in EMDEs for all verticals. Furthermore, in all verticals except payments, growth rates were higher for companies operating in AEs. Whilst issues such as scale and the overall development of the sector may have affected these trends, it is also the case that many EMDEs still lack the regulatory framework to allow fintechs to provide regulated services.

In retail trade, digital payments were the biggest segment by transaction value (63% of the total), followed by digital lending. Although AEs contributed to most of the total value of payment transactions, EMDEs grew faster, demonstrating that there is still significant room for growth in these economies. Regarding digital lending, which represented 20% of the total value of transactions, this continues to be concentrated to a large extent in AEs. In fact, the activity of digital lending companies in EMDEs has reduced, even if in some cases they already started from a very high position (transactions already totalling more than a billion dollars).

One common finding between retail-facing and market provisioning firms was that 30% operate in more than one jurisdiction. Not only this, but the majority of companies that operate in EMDEs have their headquarters in foreign jurisdictions, mainly in AEs.
Customer base, financial inclusion and resilience

One of the report’s most important findings relates to the customer base of these platforms and their potential contribution to financial inclusion. A large proportion of fintech customers are new customers and customers from groups that in many countries have been unattended to by financial institutions. This is not just something that affects low-income households and vulnerable collectives but also SMEs.

As a general idea, low-income customers make up 55% of customers at a global level, but this figure rises to 73% when considering just EMDEs. “This may indicate that fintechs positively contribute to financial inclusion”, claims the report.

This contribution to financial inclusion appears to go hand in hand with firms’ overall resilience. And this is no coincidence. In the last few years, fintech companies have faced significant operational challenges and increased risk, particularly in emerging economies. Some of the most common challenges include:

  • High levels of unsuccessful transactions
  • Platform downtime
  • Increase in liquidity risks
  • Currency volatility
  • Regulatory risks.

Fintechs also reported increases in all costs, except fixed costs. In this area, there were two interesting trends:

  • Fintechs have been actively recruiting new employees in line with their growth, in a market that requires employees with relevant technical skills that are not always available in all jurisdictions.
  • Fintechs have spent a large proportion of their budget on research and development, whilst the reduction of fixed costs appears to reflect a reduction in office costs.


Despite all these operational challenges and increased expenses, fintechs believe that the sector is “relatively resistant”, with overall increases in revenue and turnover. Firms also reported higher capital raising activities compared to the forecasts at the beginning of the pandemic, with higher valuations in EMDEs, which may indicate investor interest in leveraging the untapped potential and opportunities provided by EMDEs”.

Support mechanisms

The executive summary also addresses the changes undertaken by fintechs, which mainly include securing their platforms and preventing fraud. However, other changes, such as reducing commissions and fees, have been largely discontinued. Furthermore, despite the current political agenda on the topic, only a small proportion of companies claim to have introduced sustainability products (environmental, social and corporate governance).

Lastly, the report addresses the various regulatory and economic support mechanisms, which is an area in which advanced economics have seen much better results than EMDEs.

These are the main talking points of this WEF report. However, the report itself is so large that we will return to it again in future posts.
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