Global Fintech Investment Disparities Persist Despite Growth in Emerging Markets, WEF Report Reveals
The World Economic Forum’s September 2024 report, “Fuelling Innovation: Closing Fintech Funding Gaps,” has shed light on the stark contrasts in global fintech investment patterns, underscoring significant disparities between regions that are poised for substantial growth and those that continue to attract the lion’s share of venture capital (VC) funding.
Investment Discrepancies and Growth Projections
Sub-Saharan Africa (SSA), Latin America and the Caribbean (LAC), and the Middle East and North Africa (MENA) collectively garnered a mere 10% of global fintech funding from 2020 to 2023.
Yet, these regions are anticipated to contribute 15% of global fintech revenues by 2028, illustrating a significant mismatch between current investment levels and future growth potential.
Global Fintech Industry Expansion
Fintech has emerged as a formidable sector with over $350 billion in VC funding since 2015. By 2023, the industry’s global net revenue surpassed $150 billion and is forecast to reach $400 billion by 2028.
The sector saw an extraordinary surge in VC funding in 2021, nearly tripling to $92 billion from the previous year.
However, this momentum sharply reversed, with funding plummeting to $55 billion in 2022 and further declining to $30 billion in 2023—a 67% drop from its 2021 zenith.
Regional Outliers Defy Global Downturn
Despite the global retrenchment in fintech funding, LAC and MENA have emerged as outliers, demonstrating robust growth.
LAC recorded a compound annual growth rate (CAGR) of 37% over the past decade, despite suffering an 81% contraction since its peak in 2021.
Meanwhile, MENA’s fintech sector witnessed a 33% CAGR, with VC funding in the region tripling from $600 million to $1.9 billion between 2020 and 2023.
Diversification of Fintech Subsector Funding
The distribution of VC funding across fintech subsectors has diversified, with a broader range of areas attracting investment. Payments, which consistently capture 20-25% of annual fintech funding, remain dominant.
However, other subsectors, including capital markets, banking-as-a-service, and embedded finance, have seen their share of total fintech VC funding rise from 4% in 2015 to 13% in 2023.
Addressing Funding Gaps
The report highlights the need to bridge fintech funding gaps and outlines strategies to stimulate VC investment in undercapitalized regions.
It calls for a recalibration of investment flows to align with the growth potential of emerging markets in SSA, LAC, and MENA, which remain underfunded relative to their future revenue prospects.
The findings paint a picture of a rapidly evolving fintech landscape, where regions with high growth potential are increasingly vying for a larger slice of global investment, challenging traditional funding strongholds.
