FinTech Trends Heading in to 2024

Χρημ/κά - Fintech - Χρηματοδοτήσεις,⠀

Χρηματοοικ.-Ασφαλιστικά-Τραπεζικά,⠀

(Some Trends – Some Warnings)

Heading into 2024, the rapidly evolving FinTech landscape is being propelled by AI, ML, and blockchain technologies. Influenced by consumer demands and regulatory shifts, this dynamic sector is crucial to the global economy. FinTech’s growth is impressive, with its value projected to jump from $127.65 billion in 2022 to $332.3 billion by 2027. This surge is mainly due to the rise in online payments, embedded finance, and growing financial services in emerging markets.

The sector has attracted massive investments, peaking at $210 billion in 2021. However, the 2022-2023 period saw changes with a downturn in blockchain interest following the cryptocurrency crash, leading big tech firms like Google and Meta to reduce their FinTech initiatives and a notable decrease in venture funding.

Despite these setbacks, FinTech is brimming with potential, driven by continuous innovation. Key trends shaping the industry’s future in 2024 reflect ongoing market shifts and accompanying concerns. Just a few of those trends are outlined here, with, in some cases, reminders of concerns that always exist as the market changes.

Embedded finance

Embedded finance, merging financial services with non-financial offerings, is transforming the business world as we approach 2024. This broad ecosystem includes banking, credit, investment, payment processing and insurance, integral to FinTech’s growth. A prime example is the Buy Now Pay Later (BNPL) service, popular among younger consumers for enhancing affordability and credit access. Despite risks like debt accumulation and credit score impacts from missed payments, BNPL’s global transaction value is projected to increase from $120 billion in 2021 to $576 billion by 2026, signifying its importance in consumer payments.

Embedded finance is also emerging in non-conventional areas, like banking services in e-commerce or ride-hailing apps, and companies like Tesla offering insurance with car purchases, demonstrating its innovative customer engagement potential.

As 2024 nears, the convenience and accessibility of embedded finance bring complex challenges, especially around data privacy and security. Yet, with its disruptive capabilities and expected revenue growth by 2025, embedded finance remains a key trend in FinTech.

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Alternative Financing

Heading into 2024, alternative financing is becoming a key trend in FinTech, bridging the global trade finance gap. While 79% of bank leaders in a 2021 survey claimed consistent capital support for trade, traditional banks struggle to fulfill the varied funding needs of modern businesses, especially e-commerce and startups. This shortfall has boosted growth in alternative finance, mainly provided by non-bank institutions.

Alternative financing includes innovative models like Revenue-Based Financing (RBF) and invoice factoring. RBF offers flexible repayments tied to monthly revenue, while invoice factoring gives immediate cash by selling unpaid invoices at a discount.

Once a niche area, alternative financing is now popular among young and online businesses, often deemed high-risk by traditional banks. With a market value of $6.62 billion and an expected Compound Annual Growth Rate (CAGR) of 6.3% from 2022 to 2028, this sector is crucial for financial inclusion. Fintech firms are increasingly leveraging alternative finance to support the growing business ecosystem.

Blockchain Technology

Blockchain technology continues as a key trend in FinTech, despite a challenging 2022 and 2023 for cryptocurrencies. Beyond market fluctuations, blockchain’s potential significantly impacts cross-border payment efficiency and security, addressing issues like long processing times and high costs.

More than half of consumers now view cryptocurrency, backed by blockchain, as a viable international fund transfer option, demonstrating its potential in revolutionizing financial transactions. Banks are adopting blockchain for more streamlined and secure cross-border payments.

Stablecoins, cryptocurrencies backed by assets like gold or fiat currencies, are emerging. They combine blockchain’s decentralisation and transparency with stability, potentially reducing the volatility common in cryptocurrencies and aiding decentralised financial systems’ development. With over 80 million blockchain wallet users and a market value of $11.5 billion in 2021, blockchain’s future in FinTech is promising, despite regulatory and complexity challenges.

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Open banking

Open banking, a key FinTech trend, is revolutionising the management of financial data by consumers and businesses. It allows secure sharing of financial information with third-party providers through open banking APIs, spurring innovative financial products and services development, like robo-advisors for personalised investment advice.

This shift grants consumers greater control over their financial data, leading to customised digital payment solutions. Yet, it requires significant technology investment and stringent security, along with addressing data privacy issues.

As part of Banking as a Service (BaaS), open banking is essential in FinTech for enabling smooth customer acquisition, efficient data exchange, advanced analytics, user authentication and communication. While platforms like Facebook and Instagram showcase open APIs in retail, open banking promises a broader, more user-centric financial ecosystem.

AI and ML

As we approach 2024, Artificial Intelligence (AI) and Machine Learning (ML) remain vital in driving FinTech trends. FinTech firms are leveraging these technologies to improve the efficiency and precision of services like fraud detection, risk assessment, and offering personalised advice through AI-powered chatbots, which also assist in customer support.

AI and ML’s integration in FinTech has led to cost reductions, increased efficiency and more customized solutions. Yet, these developments pose challenges such as data privacy, security, and ensuring algorithmic fairness.

Since the COVID-19 pandemic and the resulting e-commerce boom, AI and ML’s role in fraud prevention has intensified. ML models proficiently analyse various factors for early fraud detection, thereby easing the investigative burden. For example, financial data aggregator Plaid uses AI and ML for real-time fraud detection, analysing transactions to minimise fraud-related losses.

Alternative lending

Heading into 2024, Peer-to-Peer (P2P) lending, a key FinTech trend, connects borrowers, often overlooked by traditional banks, with investors via online platforms. It gained significant momentum in 2022 and 2023, especially in South-East Asia, aiding post-pandemic recovery and development.

Alternative lending includes direct lending, providing bank-like loans without a bank; venture debt, a non-equity funding option for businesses; structured equity products like bond issuance; and debt financing, covering non-bank cash flow lending and home equity loans.

As alternative lending continues to grow, lending startups are vital in diversifying loan management services, bridging the gap between borrowers and investors, and broadening access to financing, meeting diverse financial needs.

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Moving to 2024

As we progress into 2024, the landscape of FinTech is poised for continued evolution, with existing trends like AI, blockchain and personalised services expected to maintain their influence. AI’s role in bolstering efficiency and security, alongside blockchain’s contribution to transparency, will persist in shaping the sector. However, FinTech is not impervious to disruption. Emerging technologies such as quantum computing and decentralised finance (DeFi) present potential challenges, with quantum computing threatening existing encryption methods and DeFi poised to revolutionise financial service delivery and regulation.

The regulatory environment will continue to be a critical factor in this trajectory, balancing innovation with consumer protection. Regulatory shifts could either facilitate or impede the progression of FinTech. Yet, the key to enduring success in FinTech lies in its inherent capacity for innovation and adaptability, ensuring a leading position in the dynamic digital financial services landscape.

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