The word "fintech" has dominated tech stocks in recent years. From crowdfunding to customer growth, product launches to scandals, the new game changers are everywhere in consumer banking, credit, payments, investing and cryptocurrencies.
You have good reason to think we have reached the pinnacle of fintech.
But the areas where most fintechs focus today represent only a small fraction of the $23 trillion global financial services market. Products like Cash App, Robinhood, and Chime operate in markets that are intuitive to the average consumer, but consumers are only seeing the tip of the iceberg.
The next wave of fintechs will focus on increasing lesser-known and less "sexy" markets that are critical to the global economy, and one of the biggest markets poised to experience disruption is agricultural finance. 2022 has seen a quiet but steady rise in fintech products made for mass farming, and it's just getting started.
Why offset agriculture in the first place? In the technology sector, for two main reasons: the size of the market and the limitations of existing service providers.
Looking at the United States alone, while agriculture contributed $134.7 billion to GDP in 2020, industries that depend on agriculture — food manufacturing, food service, textiles — contribute more than $1 trillion annually. economy, which contributes more than 5% to the annual GDP. For many developing countries, the share of agriculture in the total economy is much higher, in some countries as high as 25%.
However, financial services are not as competitive as one would expect in a sector as large as agriculture. Looking back at the US market, which is one of the best in terms of farm finance, farm debt has risen steadily over the past year, farm loan interest rates have risen sharply, and farm loans have continued to grow, while the number of Agricultural banks targeting banks remained down.
Enter fintech.
In a world where demand for food will grow 70% by 2050, requiring an annual investment of $80 billion, slow incumbents create huge opportunities for new entrants.
While “agricultural finance” refers to a broad and diverse set of activities – equipment lending, supply chain finance, commodity trading, agribusiness banking – emerging fintech companies focus on a variety of sub-sectors;
Agricultural loans. England's Oxbury Bank double-funded £650m in farm loans to British farmers last year. Tarfin in Turkey and Agro.Club in Eastern Europe provide supply chain finance to medium-sized farmers, who usually have to turn to agricultural suppliers for loans at exorbitant interest rates. Companies like Crowde in Indonesia and Campo Capital in Brazil have built a network of agricultural loan partners. Players like Traive, AgroLend, Terra
Agricultural payments. Agriculture tends to lag behind in adopting new payment methods, as transactional products such as checks still account for 90% of the industry. Bushel recently launched an integrated payment gateway, digital wallet and payment functionality that connects shoppers to 40% of US grain suppliers.
Product prices and commercial data. Deep markets in grain, livestock and other commodities are critical to a well-functioning agricultural supply chain, and accurate price data is the lifeblood of this sector. This market allows buyers to protect themselves from rising food prices and large agribusinesses to protect themselves from price fluctuations in the supply chain. FarmLead specializes in digitally connecting grain trading networks and integrating trade data into other digital tools for grain growers and buyers.
Insurance: Agriculture is the most balanced sector in terms of climate change-related risks from droughts, floods and natural disasters. Insurance is essential to prevent the collapse of a fragile agricultural system, but traditional insurance companies are struggling to cover agricultural insurance. This is where platforms like World Cover, which offers satellite climate insurance to small farmers in countries like Ghana, Uganda and Kenya, or GramCover, which focuses on access to insurance for farmers in India, come into play.
Market . While ecommerce platforms like Shopify have opened up global retail marketplaces to independent sellers, most farmers markets still operate as centralized offline exchanges. In Kenya, startups such as Twiga Foods, FarmShine, ShambaPride and M-Farm have set up platforms to directly connect farmers with buyers and publish easily accessible pricing information.
Banking. The biggest earners for fintech companies are acquiring new customers, such as loans or insurance, and cross-selling banking products tailored to their specific needs. DeHaat provides financial services to farmers in India in the fields of credit, procurement, advisory and sales. New Zealand data provides financial planning tools for farmers. FarmDrive creates a credit score for Kenyan farmers. Seso provides recruiting, workforce, and asset management tools to streamline payroll in US agriculture.
Over the next decade, we will see the development of parallel markets for fintech products across all categories: banking, loans, savings, payments, investments, HR, payroll and trading, with a particular focus on agriculture.
While agriculture may not be the most obvious market for fintech, it is certainly one of the largest and most productive, and I expect many of these companies to thrive and dominate the next wave of fintech.