Imagine you go in a time machine and somehow end up in 1922. Can you imagine what life people would have been living a century ago? The lack of technological development comes straight into mind when we think about the past.
If you plan to go back a century, don’t expect smartphones, the internet, laptops, mobile apps, and all the other things that make our life easy today. Imagine how it would feel if all these facilities were taken away from us.
If all the technology is taken away from us today, the things we do in a single minute would be done in hours. Hence, our productivity would decrease. There is no doubt that technology has changed our lives for good.
Every industry has experienced innovation due to technological changes. Similarly, the financial industry has also innovated with time to facilitate our operations. The financial industry shook hands with technology to form a “Fintech Industry.”
You must be thinking, what is that? Well, the fintech industry is the same as the financial industry. The word fintech is made by joining two words, financial and technology. The fintech industry takes the use of technology to carry out financial operations into account, which is why it is called the fintech industry.
Looking at the significance of the fintech industry in the global economic system and our lives, today we have decided to conduct a Fintech Industry Analysis. In this analysis, we will analyze the current situation of the fintech industry with the help of different tools and techniques.
Before we proceed to the industry analysis, you need to know the background of the fintech industry. The financial industry was already present and providing banking, investment, insurance, credit, and other financial services to its consumers.
However, as technological growth took place, the financial industry evolved and started using technology to facilitate its operations. Using the internet helped the financial industry evolve into the “Fintech Industry.” New financial products and services came into existence under the fintech industry, such as online banking, cryptocurrency, etc.
If we look at today’s fintech industry, it can be categorized into four segments. The four major components of the fintech industry are Artificial Intelligence, Blockchain, Cloud computing, and Big data. These four pillars carry the fintech industry and help it offer different financial products and services.
The fintech industry is growing every day at a good pace. In 2021, it was worth $112.5 billion. However, in the upcoming years, the industry is expected to grow more than twice its current size to almost $332.5 billion at 19%.
Due to such high industry growth, the labor demand in the fintech industry is relatively high. Currently, more than 300,000 people work in the fintech industry. However, as the industry grows, the fintech industry offers jobs to almost 40,000 people quarterly.
Now that we have provided insight into the fintech industry and its current operations let’s proceed further and conduct the fintech industry analysis. However, before doing that, let me give you a brief understanding of what industry analysis is.
Industry analysis is a technique businesses use to assess the condition of any industry to predict the industry’s situation in the upcoming days since this tool helps highlight the competition, environment, and life cycle of an industry.
Since now, you have been aware of the industry analysis, let’s move ahead and start with our fintech industry analysis.
Determining the life cycle of an industry is an integral part of industry analysis. An industry life cycle has five stages. The first stage of the life cycle is the start-up stage, followed by the growth, shakeout, maturity, and decline stages. So let’s proceed and see what stage is fintech industry.
This is the first stage of the industry life cycle, and every industry has to go through this stage. In this stage, the firms in the industry launch their products and try to draw the attention of their customers toward their products.
The fintech industry went through the startup stage at the start of this millennium. That’s when people became more aware of the internet, and firms like Zopa launched their financial products and services.
Besides that, companies such as BlackRock developed methods to access the stock market through mobile and the web.
The start-up stage is then followed by the growth stage. In this stage, the industry’s size starts to grow since people are drawn toward the products launched, and more firms join the industry.
The fintech industry experienced growth from 2011 to 2016. In this era, people started availing the products and services offered by the fintech industry, due to which the growth in the fintech industry in the UK in this period was recorded at 21%.
After the growth stage comes the shakeout stage. In this stage, the industry starts to get saturated, due to which big companies push the smaller companies out.
The signs of shakeout are pretty visible in the fintech industry currently, as the number of fintech companies in the world has reached up to 26,000. In addition, the current mergers and acquisitions validate that currently, the industry is going through the shakeout stage.
An industry reaches the maturity stage right after it leaves behind the shakeout stage. In this stage of the industry life cycle, the industry reaches its maximum size, and its growth gets stagnant.
The fintech industry is far behind the maturity stage. The fintech industry is growing at a high rate, and it is expected to grow at around 20% by 2030, which means the industry is far from reaching its maturity stage.
The decline stage is the last stage of the life cycle. In this stage, the industry’s market share starts to decline, and companies begin to leave. The fintech industry is not going to enter into the decline stage in the near future.
The industry is currently growing, and as more technological developments are taking place, more innovation is taking place in the industry, due to which more customers are being attracted to it.
To carry out the industry analysis, it is essential to analyze the level of competition in any industry. Porter’s five forces model highlights the competition in an industry. This tool helps companies to assess the level of competition in any industry.
Let’s look at the level of competition present in the fintech industry with the help of this tool.
This section of Porter’s Five Forces Model will analyze the competition from rival companies that a newbie would face in the fintech industry. It will also tell what quality of products current firms offer their customers in the fintech industry.
The fintech industry is experiencing high competition currently. Around 26,000 firms are competing in the fintech industry, which makes the industry highly competitive. Besides that, as the world is experiencing technological growth, the quality of each firm’s products is increasing daily.
Supplier power is the measure to represent the power suppliers have to manipulate the prices. In the case of the fintech industry, suppliers have less power because the number of suppliers is too high.
Buyer power represents buyers’ power to set the prices that suit them. Any industry with a high number of suppliers also has high buyer power because many substitutes are available for the buyers.
Similarly, there is high buyer power in the fintech industry because there are too many suppliers.
This factor of Porter’s Five Forces Model sheds light on the threat of substitution that exists in the industry. Any industry with a high number of participants has a high threat of substitution.
Firms considering joining the fintech industry must have something unique to offer, or they will be substituted since the threat of substitution is quite high in this industry.
This last section of the model highlights how easy it is for new firms to join the industry. This question can be answered by looking at the barriers to entry in any industry. If there are high barriers to entry, the threats of new entries are automatically mitigated.
If we talk about the fintech industry, there are low barriers to entry since this industry is comparatively a new phenomenon in the market. Moreover, the fintech industry is not yet regulated, so it is easy for firms to join the industry, and the threat of new entry is quite high.
After analyzing the competitiveness and the industry life cycle of the fintech industry, let’s analyze what factors impact firms’ operations in the fintech industry.
Pestle analysis is a technique used by business analysts to identify the external factors that impact the operations of any organization. It analyses the political, economic, social, technological, legal, and environmental factors that affect the operations of any organization.
In this PESTLE analysis, we will see how the abovementioned factors impact firms in the fintech industry.
● Political Factors
Political stability helps the firms in the Fintech industry to expand their operation from one country to the other. This helps in the growth of the companies as well as the fintech industry.
● Economic Factors
The global economy impacts the operations of companies in the fintech industry. This is because the products and services offered by the fintech firms are not necessary. Hence, if a global recession occurs, the demand for the products and services of fintech companies will fall. As a result, they will observe economic loss.
● Social Factors
In many third-world countries, people aren’t educated about the products and services offered by fintech companies. Hence, the demand for fintech will be little in such countries.
● Technological Factors
As technological growth occurs, the fintech industry offers more innovative products and services. Hence, the customer base of the fintech companies is increasing daily.
● Legal Factors
As time passes, laws are being made to regulate the fintech industry. This will increase the check and balances in the industry, and companies will have to be more careful with customer data and other customers’ personal information.
● Environmental Factors
The fintech industry encourages electricity usage since all its operations are carried out online. This is causing the electricity demand to increase. Hence, the generation of more electricity is causing environmental deterioration.
After discussing the external factors affecting fintech companies, let’s discuss the internal and external factors impacting the operations of the fintech industry through SWOT analysis.
The fintech companies reduce costs and increase efficiency by providing opportunities for customers to sit at home and consume financial services and products offered by fintech companies.
Since fintech relies on online operations, consumers’ data is stored on different online platforms. However, this gives birth to the risk of a data breach. In case of a data breach, heavy fines are imposed on fintech firms.
The fintech firms can minimize the risk of data breaches by introducing a foolproof system. This will increase the trust of customers in fintech firms. As a result, their customer base will increase.
The world is anticipating a global recession. If a recession occurs, the demand for fintech products and services will fall. This will impact the operations of fintech firms adversely since their revenue will fall.
The fintech industry is one of the growing industries currently. In this article, we discussed the significance of the fintech industry. Moreover, we also discussed how this industry came into being and its current situation.
After discussing that, we briefly discussed what Industry analysis is and why it is essential to conduct the fintech industry analysis. We then proceeded with the fintech industry analysis and highlighted that the fintech industry is currently at the shakeout stage.
Then we looked at the level of competition in the fintech industry with the help of Porter’s Five Forces Model. After that, we carried out the environmental analysis of the fintech industry with the help of SWOT and PESTLE analysis. We hope that reading this article will provide insight into the fintech industry and educate you on how to conduct an industry analysis.