Do FinTechs Understand Addressable Markets?

Understanding Addressable Markets in FinTech: The Key to Profitable Growth

In the fast-paced market in which FinTech companies operate, where innovation drives competition and customer expectations evolve rapidly, understanding their real addressable market is not just a strategic advantage but a necessity for revenue acceleration and sustainable growth. As CEOs and Heads of Growth, especially in small to medium-sized FinTech companies, the quest to expand profitably and sustainably hinges on a deep comprehension of where opportunities lie and how to capitalise on them effectively.

Defining the Real Total Addressable Market

Before diving into strategies and success stories, it’s c

rucial to define what we mean by the addressable market. Put simply the Total Addressable Market (TAM) represents the total revenue opportunity available if a company achieved 100% market share within its target segment. This concept goes beyond traditional market sizing to encompass the realistic potential a company can capture with its current resources and strategy, which is represented in the subordinate categories of SAM (Serviceable Available Market: the segment of the TAM targeted by the company’s products and services which is within their geographical reach) and SOM (Serviceable Obtainable Market: the portion of SAM that you can capture factoring in all current restraints) (McKinsey & Company, 2023). Far from arriving at the destination of accurate market definition with these breakdowns, the real work of narrowing the field to a company’s real addressable market begins here.

The Challenge of Market Understanding

Despite the FinTech industry’s reputation for innovation, many companies struggle to accurately define and target their real addressable markets. Recent research by Accenture highlights that many FinTech companies overestimate their market size, often conflating total market size with the addressable market, leading to strategic missteps (Accenture, 2023). A survey conducted by Deloitte found that 45% of FinTech executives feel their organisations lack a clear understanding of their addressable markets, leading to misaligned strategies and missed growth opportunities (Deloitte, 2023). This gap in understanding not only hampers growth but also increases the risk of significant human and financial resource wastage and ineffective marketing campaigns which serve to confuse potential customers.

Case Studies in Market Clarity

Examining successful FinTech companies provides valuable insights into how a clear understanding of the addressable market can drive growth. Stripe, for instance, leveraged precise market segmentation and a deep understanding of payment processing needs to become a leader in its sector within a short span of time. By identifying underserved niches and adapting its services accordingly, Stripe not only expanded its market share but also set a benchmark for targeted growth strategies in FinTech (Stripe Case Study, 2022).

Similarly, Revolut’s approach to understanding the diverse financial needs of its global customer base, an otherwise large and unwieldy TAM on face value, allowed it to introduce highly tailored products and services to specific niches within its real addressable market, thereby enhancing customer retention and acquisition. This nuanced understanding of various segmented addressable markets within its TAM enabled Revolut to scale rapidly while maintaining profitability—a testament to the importance of market clarity for sustainable growth (Revolut Success Story, 2023).

Strategies for Enhancing Market Understanding

For CEOs and Heads of Growth looking to enhance their company’s understanding of addressable markets, several strategies prove effective:

Data-Driven Insights: Utilise advanced analytics and AI-driven tools to glean actionable insights from customer data. This approach not only enhances segmentation accuracy but also facilitates personalised marketing efforts (Harvard Business Review, 2023). Gartner’s 2023 insights reveal that FinTech companies who employ AI-driven market analysis tools see a 30% increase in market penetration efficiency. These technologies allow for real-time data analysis and predictive modelling, which provide deeper insights into market trends and consumer behaviour (Gartner, 2023).

Continuous Market Research: Invest in ongoing market research and customer feedback loops embedded into your company’s primary strategic engine through effective CX design, to stay abreast of evolving customer preferences, competitive landscapes, and regulatory changes (Forbes Insights, 2023).

Collaborative Cross-Functional Teams: Foster the highest levels of collaboration possible between marketing, sales, and product development teams to ensure rapid alignment on market needs and strategic priorities (Harvard Business Review, 2023).

What’s next?

Understanding and leveraging the addressable market is not a one-time effort but an ongoing strategic imperative. As leaders in the FinTech space, it’s essential to continuously refine your market insights and align your strategies accordingly. Investing in advanced analytics, committing to continuous and focused market research, and fostering cross-functional collaboration will position your company for not just rapid growth, but sustainable and profitable expansion.

While the FinTech sector continues to evolve at a rapid pace, the foundational principle of understanding real addressable markets remains timeless. Recent market data show that companies with a clear grasp of this not only grow profitably but also sustainably. As CEOs and Heads of Growth, prioritising market clarity through robust research and strategic alignment will undoubtedly pave the way for accelerated growth and competitive advantage in the dynamic landscape of FinTech.

Mosaic Capital & Advisory specialises in helping Fintech companies accelerate profitable revenue growth. The fundamental foundation of their Revenue Accelerator Program guides companies through the process of discovering and effectively targeting their real addressable market. To find out more email joel@mosaiccap.com.au

References:

Accenture. (2023). “Overestimating Market Size: A Common Pitfall for Fintechs.”

McKinsey. (2022). “Harnessing Big Data for Market Insight in Fintech.”

Deloitte. (2023). “Navigating Regulatory Frameworks in Fintech.”

TechCrunch. (2022). “Stripe’s Market Adaptation Strategy in Europe.”

Gartner. (2023). “AI and Market Analysis in Fintech.”

PwC. (2022). “Integrating ESG Factors for Sustainable Fintech Growth.”