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Fintech | on the Brink of Further Disruption Fintech | On the brink of further disruption December 2020 | Deloitte Financial Advisory Netherlands Valuation & Modelling | Corporate Finance Table of contents Why does this report matter 1. Introduction 2 2. Fintech disruption 7 Board 3. Investment activity – global scene 12 It is important to establish a clear strategy to deal with Fintechs for companies active within the financial sector. This report provides key factors and considerations to consider when engaging in strategic partnerships or 4. European ecosystem 16 acquisitions. 5. Deloitte services 22 Fintechs Fintechs have changed how financial services are structured, delivered and consumed, but many have not successfully established themselves as dominant players yet. The next challenges in their growth path are investigated in this report. Structure of the report This is a five-part report. After providing an introduction on the total Fintech market, the second part provides perspective on the changes that Financial institutions Fintechs have brought to the financial services industry, including identified Cooperation between financial institutions and Fintechs encounters several opportunities, interaction with incumbents and what is the promise ahead. hurdles. This report provides ideas for enabling better, more efficient cooperation between incumbent Financial institutions and Fintech startups. The third part gives an overview of Fintech global investment activity, including breakdowns per deal type and regions, and an analysis of potential COVID-19 effects on the industry. The fourth part zooms in on the European Fintech ecosystem and continues with an overview of the evolution of the Fintech landscape, most Strategy & M&A important deals and deal activity of incumbents. Deal activity within the Fintech space is constantly evolving. By tracing investment activity from a global level to the European ecosystem, this report assesses the We conclude with an overview of specific M&A and valuation related geographies and segments that received the highest investments and potentially challenges in executing Fintech deals. offer the highest growth potential. 01 Introduction 01 Introduction © 2020 Deloitte The Netherlands Fintech | On the brink of further disruption 2 FINTECH | INTRODUCTION Fintech continues to transform the financial services industry From crisis to crisis 2nd wave of Fintech The term Fintech (Financial Technology) refers to computer programs and other Despite the COVID-19 pandemic, we appear to have entered a new phase in the modern technologies used by businesses that provide automated and improved evolution of the financial technology sector. financial services. • The thinking of many financial institutions has evolved, they're now seeking to Since the last global financial crisis, investments in Fintech have been growing. team more with emerging technology companies to gain access to new The expansion of the sector was largely a technological response to the markets and products, greater efficiencies, or just the "secret sauce" that shortcomings of the traditional financial services industry, which came under makes innovation go. extreme pressure during and after the crisis. • At the same time, many Fintechs themselves have sought to join with large Currently, the COVID-19 pandemic has initiated another recession. We have seen financial institutions to expand into new markets, extend their client network, that since the COVID-19 outbreak the financial sector, together with the energy gain industry and regulatory knowledge, and even simply cash out. and real estate sectors, has experienced the largest market capitalization loss, The rise of Fintech, changing consumer behavior, and advanced technologies are primarily due to concerns about increased credit losses. disrupting the insurance industry. On the other hand, accommodative measures by governments around the world • Insurtechs and technology startups continue to redefine customer experience (labor costs compensation, income support, financing facilities etc.) are likely to through innovations such as risk-free underwriting, on-the-spot purchasing, help borrowers meeting loan obligations amid an environment of rising defaults. activation, and claims processing. © 2020 Deloitte The Netherlands Fintech | On the brink of further disruption 3 FINTECH | INTRODUCTION Overview of Fintech services PERSONAL FINANCE PAYMENTS & BILLING LENDING INSURTECH MONEY TRANSFER & Tools to manage bills and track Payments processing, card Marketplace lending, Companies selling insurance REMITTANCES personal and/or credit accounts developer & subscription billing microlending & alternative digitally providing data analytics International money transfer and software tools underwriting platforms and software for (re)insurers tracking software BLOCKCHAIN CAPITAL MARKETS WEALTH MANAGEMENT MORTGAGE & REGTECH Companies leveraging blockchain Sales & trading, analysis, and Investment and wealth REAL ESTATE Audit, risk, and regulatory technologies for financial infrastructure tools for financial management platforms and compliance software Mortgage lending, digitization, services, crypto-exchanges and institutions analytics tools and financing platforms crypto-currencies © 2020 Deloitte The Netherlands Fintech | On the brink of further disruption 4 FINTECH | INTRODUCTION The APAC and Americas command the highest market share of the global Fintech market, with APAC being projected to be the fastest growing region Global Fintech market Global Fintech revenue to grow by 11.7% (‘19 – ’24) • Global Fintech revenues in 2018 were about €92 billion in 2018 and are Americas 188 expected to grow to more than €188 billion in 2024 (pre-COVID-19 forecast). EMEA 174 • The Fintech markets in the APAC and Americas regions are currently the largest, APAC CAGR* with both having around 40% of the global market share. The EMEA region is 11.7% significantly smaller, with around 20% of the total market share. The Fintech 159 63 market in the APAC region is projected to be the fastest growing. 143 • The digital payments market is the largest segment within the Fintech spectrum 61 and accounts for more than 80% of global Fintech revenues. 126 58 • Although COVID-19 causes uncertainty in the Fintech market, it creates 55 opportunities for the Fintech market as well. The adaptability and innovation of 108 29 Fintechs makes the sector well positioned to realize their growth path. 49 92 28 80 42 26 35 24 29 23 21 20 96 19 85 74 64 54 45 32 38 2017 2018 2019 2020 2021 2022 2023 2024 Global Fintech revenue (€bn). Note: actual figures up until 2018. These numbers are originally denominated in USD, and were converted to EUR by the Sept. 2020 EUR/USD FX rate of 1.18 Source: Mordor Intelligence, Deloitte analysis *Compounded annual growth rate © 2020 Deloitte The Netherlands Fintech | On the brink of further disruption 5 FINTECH | INTRODUCTION Fintech share prices have relatively outperformed the traditional financial services industry in the past two years, especially since COVID-19 The share prices between global Fintechs and traditional financial institutions have diverged since September 2018 • In the graph on the right, the 160 STOXX Global Fintech Index Index relative share price = 153 development of Fintechs and 150 MCSI WRLD Financials Index the traditional financial services 140 industry is shown. 130 • The STOXX Global Fintech Index includes Fintech companies like 120 Adyen, Visa and PayPal, whereas the MSCI WRLD Financials Index 110 mainly consists of traditional financial institutions. 100 Index = 96 • Since September 2018, the 90 STOXX Global Fintech Index has 80 risen by c. 50%, while the MSCI WRLD Financial Index fell by c. 70 4%. 60 • Fintech share prices recovered within four months after COVID- 50 19 impacted capital markets, Sep 2018 Nov 2018 Jan 2019 Mar 2019 May 2019 Jul 2019 Sep 2019 Nov 2019 Jan 2020 Mar 2020 May 2020 Jul 2020 Sep 2020 Nov 2020 while traditional financial Share price development in Global Fintech vs. traditional financials (September 2018 index of 100). Data is displayed for the period 3 September 2018 - 14 December 2020 services industry prices have not Source: Capital IQ yet fully recovered. © 2020 Deloitte The Netherlands Fintech | On the brink of further disruption 6 01 Introduction 02 Fintech disruption © 2020 Deloitte The Netherlands Fintech | On the brink of further disruption 7 FINTECH | FINTECH DISRUPTION Fintechs have changed how financial services are structured, delivered and consumed, but many have not successfully established themselves as dominant players yet Where Fintechs have succeeded Where Fintechs didn’t meet expectations ROADMAP CUSTOMER INERTIA Fintechs have seized the initiative – defining the Customer willingness to switch away from direction, shape and pace of innovation across incumbents has been overestimated. Customer almost every subsector of financial services – and have switching costs are high, and new innovations are often succeeded as both stand-alone businesses and crucial not sufficiently material to warrant the shift to a new parts of financial value chains. provider, especially as incumbents adapt. USER EXPERIENCE INFRASTRUCTURE Fintechs have reshaped customer expectations, Fintechs have struggled to create new infrastructure setting new and higher bars for user experience. and establish new financial services ecosystems, Through innovations like rapid loan adjudication such as alternative payment rails or alternative capital Fintechs have shown that the customer experience bar
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