Fintech a Massive Market Opportunity For Startups

When it comes to funding startups, fintech reigns supreme.

In 2015, according to Accenture, global fintech investment reached $22.3 billion (U.S.) — up 75 per cent from $12.7 billion the year before. The rush to develop the alternative, online platforms offering financial services is moving more quickly than many other areas of tech innovation.

Where the Money Was Going

The same Accenture study showed how quickly the growth was spreading. In the first quarter of 2016 alone, global fintech investment reached $5.3 billion, a 67 per cent increase over the same period a year earlier. Asia-Pacific was growing fastest: fintech investment there more than quadrupled in 2015 to $4.3 billion, led by China and India. North America was still the biggest market, with $14.8 billion invested in 2015.

Banks themselves were relatively small players in that venture investing. Accenture found they invested $5 billion of the $22.3 billion in 2015, compared with an estimated $50 billion to $70 billion a year that banks spend on their own internal fintech work.

Banks and brokerages occupy a central position in every economy. In Europe in 2014, the total assets of the banking sector were €26.8 trillion. In the U.S. in 2015: $15.75 trillion.

Who wouldn’t want a piece of that?

Tech startups have started quietly joining the financial sector with the aim of providing a new world of solutions, including payment and loan services, currency and investment platforms, and wealth management tools. These have been the domain of banks and governments for centuries.

Partner or Disrupt

Not every fintech startup set out to replace the banks. Accenture’s research split fintech ventures into “collaborative” ones that work with financial institutions and those that compete with them. In North America, the share of funding going to collaborative ventures rose from 40 per cent in 2010 to 60 per cent in 2015. In Europe, the opposite happened: funding for “disruptors” rose from 62 per cent of the total to 86 per cent.

For founders, that’s a real strategic choice. Selling to banks can mean long sales cycles, but it puts a startup’s product in front of customers the banks already have. Competing with them means owning the customer relationship, and dealing with financial regulation directly.

A Generation Changing Hands

One factor increasing pressure on financial services — and creating big opportunities for startups — is a large wealth transfer happening between the generations.

“There is a $40 trillion intergenerational wealth transfer that is in progress, from a generation that has traditionally relied on an in-person advisor relationship to a generation that expects much more of a technology-augmented experience,” top Vanare executives Richard Cancro and Alexey Sokolin said in a recent Financial Technology Partners report.

This transfer combined with the millennial generation’s expectation of a more technology-augmented experience — which traditional banking providers have been slow to provide — is creating a moneyed user base keen to embrace new approaches to banking.

While regulations remain a hurdle, particularly in the wake of the 2008-09 global recession, fintech startups are expected to jump through every hurdle required to cater to the coveted millennial demographic, which is expected to make up two-thirds of the global workforce by 2030.

Robo-Advisors: A Test Case

Digital wealth management, the area Cancro and Sokolin were describing, shows how that bet played out. Robo-advisors, which use algorithms to build and manage investment portfolios online, were still young in 2016: Betterment launched in 2010 and Wealthfront in 2011.

By November 2023, Wealthfront said it oversaw more than $50 billion for more than 700,000 clients, mostly U.S.-based professionals, and that it was profitable. Not every big name stayed in the market, though. In 2024, Goldman Sachs struck a deal with Betterment to exit its robo-investing business.

Fintech After the Boom

Fintech’s popularity with investors also made it one of the sectors hit hardest when funding tightened. When CB Insights studied 431 venture-backed startups that shut down since 2023, fintech was the second-largest category, with 57 companies or 13% of the total. Those failures skewed early-stage, with median equity funding of just $4 million, and 60% were based outside the U.S., including in emerging markets across Africa, India and Southeast Asia.

The opportunity this article described in 2016 was real, but it didn’t make every company a winner. The startups that lasted tended to combine a clear customer need with a business that could work without constant new funding.

For July, we are exploring the vast market opportunity that is fintech.

Our stories will feature insights from key sector figures such as BMO InvestorLine President Julie Barker-Merz, and Adam Nanjee, head of the fintech division at MaRS.

Watch for our interviews as well as explainers and exclusive entrepreneur profiles, as we explore one of the hottest topics in tech today.