How Are Fintech Innovators Gaining a Competitive Edge in Developed Markets?
Get ready to dive into the pulse of developed markets in our latest Global Fintech Buzz episode, as we unveil the dynamic landscape. As fintech companies continue to reshape traditional financial services, the competition intensifies in developed economies where innovation, user experience, and strategic positioning play pivotal roles.
Boasting a substantial presence of over 3,850 service providers within developed markets, the fintech sector is vibrant and constantly evolving. Among these, the European Union emerges as the second-largest hub for fintech after the US, hosting a diverse ecosystem of over 1,000 fintech companies. The ability to gain a competitive edge is contingent upon strategic considerations from the supply-side perspective. The elements influencing the supply side of fintech operations encompass the development of a user-friendly interface, precise targeting strategies, harnessing network effects for customer retention, and optimising customer service options. Each facet contributes uniquely to the competitiveness of fintech companies.
Network effects are extensively researched and operationalised across various sectors within the technology industry. They stand as the foundational elements of product and process design and development. For fintech to effectively counter the advancements of traditional technology, and to emerge victorious in its market, it is imperative to wholeheartedly embrace and integrate the concept of network effects. No two regulatory bodies, consumer bases, or markets follow identical paths. Therefore, for a fintech company to thrive, it must embody flexibility and expertise. Success in this competitive environment requires an in-depth understanding of product intricacies and market environment. Fintechs must achieve a level of competency where they explore and comprehend the various use cases of their products. Transformative technologies and innovations influence consumer behaviour and open avenues for growth in e-commerce, mobile payments, blockchain technology, and digital currencies. These advancements pave the way for new players, many of whom deviate from conventional network payment frameworks.
Leveraging the extensive research and operationalisation of network effects in the technology industry, the fintech companies highlighted below have strategically integrated these foundational elements into their product and process design which is evident in the transaction and payment volume.
Source: Company’s financial statement
During the first three quarters of 2022, Visa led the market with a purchase volume of $2.09 trillion, marking a 21.4 percent increase from 2021. Mastercard followed with $967 billion (up 25 percent), then American Express at $793 billion (up 24.5 percent), and Discover at $154 billion (up 18.5 percent). In terms of market share, Visa’s share slightly decreased to 52.22 percent, while Mastercard nudged up to 24.13 percent. American Express gained a bit to reach 19.78 percent, and Discover experienced a decline to 3.87 percent. In the fiscal year 2022, Visa witnessed a total transaction volume of 14.1 trillion, marking a rise from the previous year’s 13.0 trillion. The payment volume for Visa reached 11.7 billion. On the other hand, Mastercard reported a transaction volume of 8.2 trillion and a payment volume of 6.6 billion. American Express recorded a transaction volume of 1.6 trillion and a payment volume of 1.5 billion.
The financial services and fintech industry usually maintains an average retention rate of 78%. Though achieving 100% retention is rare, it represents ideal customer loyalty. On the contrary, a 0% retention implies no customer loyalty. Industries define their specific average Customer Retention Rates (CRR), and generally, across sectors, this rate falls within the range of 70% to 80%. The number of cards could also shed light on the scale and reach of these companies as it reflects the customer base and hints at the effectiveness of strategies employed to attract and retain customers.
Source: Company’s financial statement
In 2022, both Visa and Mastercard experienced an increase in the number of cards issued compared to the previous year. Visa’s card count rose from 3,936m in 2021 to 4,160m in 2022, while Mastercard saw an increase from 2,579m to 2,713m in 2022. On the other hand, American Express, JCB, and Discover had comparatively lower figures, with 133 million, 153 million, and 80 million cards issued, respectively, in 2022. These variations are influenced by factors such as consumer preference and technological advancement which influence the market of payment card networks. Several companies in developed markets are excelling in innovation.
Source: Company’s financial statement
Uber, for instance, has broadened its offerings to encompass in-app payments, digital wallets, and co-branded credit cards, contributing to an increase in their average revenue per user. Fintech like Revolut, Wise, and Remitly are also capitalizing on innovation to reshape the financial landscape.
Buzz Summary
The network effect amplifies as firms prioritise sustainable and inclusive financial solutions, leveraging data analytics and artificial intelligence to enrich user experiences. Proactively addressing cybersecurity concerns becomes pivotal as it reinforces the network by upholding customer trust as the primary node.
In advanced economies, the evolution of the fintech sector demands that companies embrace collaboration, adaptability, and a keen awareness of the local market environment to navigate challenges and capitalise on emerging opportunities. Success in the fintech-developed market hinges on adeptly balancing innovation, a profound understanding of evolving user needs, and strategic capital allocation. To establish a resilient position in this competitive arena, the focus should be on crafting sophisticated solutions that are challenging to replicate, alongside the development of proprietary technology to enhance brand recognition.
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