Within the past few years, the fintech industry has grown exponentially. As investors continue to pump money into fintech, some observers have begun to ask overarching questions about the soundness of the industry as a whole and why it's growing so rapidly – and whether that growth can be sustained.
According to Entrepreneur Middle East contributor Ihab A. Khalil, the number of fintech startups has skyrocketed from around 1,000 in 2005 to over 8,000 in 2016. While this accelerating expansion has brought tremendous opportunities, it also creates the prospect of a "fintech bubble" – a phrase coined to mirror the likes of the Dotcom bubble and Bitcoin bubble.
Fintech valuations are at an all-time high, with PricewaterhouseCoopers predicting that cumulative global investment in fintech could exceed $150 billion in the next three to five years. This means big risk for big banks – a lot of their business could be lost to fintechs in the next several years, if the bubble continues to grow.
So when will this bubble burst? The explosive growth has made it clear that banks need to find productive ways to respond to the advent of fintech, which may end up being its downfall. Around 83 percent of banking executives believe that at least part of their business could be in jeopardy of being lost to fintech companies, which is simply an unsustainable amount of lost revenue.
Banks are also getting smart to the idea of fintech by acquiring some of these smaller startup companies and bringing them into the fold of big banking. By acquiring fintechs, banks strengthen their own services and become more popular in investor circles. This bubble may not be able to survive continued acquisitions and changing regulatory and political environments. However, only time will tell.
Take a look at our infographic for more information about the inevitable fintech bubble.