What to Expect for Fintech in 2024?
Neobanks are making banking more accessible and cost-effective for customers. They’re addressing issues such as credit accessibility, financial literacy and on-demand access to earned Fintech wages.
Another trend is embedded finance, which sees non-financial platforms like online shopping or ride-sharing services incorporate payment functionalities. This allows users to manage their finances without having to switch apps, providing a seamless and convenient experience.
1. The rise of AI
The sector is ripe for a rise in AI, as companies begin to realize its potential. However, implementing AI successfully requires a deep understanding of both technology and financial innovation, as well as the ability to create a user-centric experience. Those who can combine these elements will be able to build transformational fintech businesses in 2024.
One such trend that will continue to see growth is embedded finance, which enables non-financial companies, like online shopping platforms and ride-sharing services, to offer banking services within their existing apps. This allows customers to manage their finances without needing to switch between different apps and offers a more seamless, user-friendly experience.
Another area that will see increased adoption is BNPL, or Buy Now Pay Later. This financing option enables consumers to make purchases with no upfront cost, and has become a popular alternative to credit cards. In addition, BNPL can be used to provide targeted offers to customers based on their purchasing habits and demographics.
Lastly, we will also see increased investment in generative AI technologies, which are capable of automating processes and reducing human intervention by up to 50%. This could be the year when AI truly begins to change the way we work.
2. The need for collaboration
As the sector continues to face significant challenges, there is a growing need for collaboration across all parts of the industry. Whether it be with distribution partners, technology providers or even competitors, businesses will need to work together to survive the current economic climate. This trend will be especially true for fintechs in the payments, insurance, wealth management and real estate spaces.
Collaboration with banks will also be important in 2024. With their agility and creativity, fintechs offer a valuable partnership to banks. In turn, banks can provide access to their established infrastructure and vast customer base. In addition, collaborations between banks and fintechs can help to drive innovation in the industry.
In particular, Velasque expects to see a rise in embedded finance in the new year. This is a fintech trend that allows non-financial companies, such as ridesharing services or social media giants, to incorporate financial services into their existing platforms. This enables users to manage their finances conveniently without having to switch between different apps.
Additionally, Velasque believes that fintechs will increasingly rely on partnerships to reach consumers. This is particularly true for payment fintechs, which will need to partner with merchants to increase their user base and revenue potential. In addition, he says that banks will continue to seek partnerships with fintechs that can help them manage their third-party relationships and regulatory risk.
3. The rise of BNPL
In 2023, funding in fintechs cratered and investors were vocal about a brutal market shakeout that would leave only the strongest survivors. But as we head into 2024, this skepticism seems to have faded somewhat. For one, the era of rapid growth fueled by cheap capital has ended, but startups are getting smarter about rightsizing their teams and focussing on profitable verticals.
As a result, BNPL players should expect to grow in the new year. Afterpay’s Parikh explains that this is partly due to consumers seeking to shop for larger-ticket purchases. He predicts that BNPL will grow as the industry moves towards offering longer installment plans and two-sided e-commerce marketplaces.
In addition, he expects the number of banks offering BNPL to rise significantly as they look to diversify their revenue streams. This is particularly true as the Fed’s Durbin Amendment interchange fee caps continue to erode, which will limit their earnings from credit card transactions. Further, he says, he expects the SaaS model to continue gaining traction as it helps fintechs achieve returns for the considerable investments they’ve put into new products and experiences while providing scalability that allows them to adjust quickly to changing business requirements.
4. The rise of robo-advice
As robo-advice continues to gain popularity, we’ll see more investment digital platforms offering more personalized recommendations. This is a trend that is driven by the growing need for investors to find innovative ways to invest their money, as well as the rising number of consumers who are seeking more personalized financial advice.
We’ll also continue to see an increase in fintechs that focus on providing solutions for those struggling with financial stress. These solutions include platforms that offer on-demand access to earned wages, which can be helpful for those who are living paycheck to paycheck and are struggling to pay bills between paydays. In addition, we’ll continue to see an increase in fintechs offering lending digital platforms that allow consumers to get a quick and easy loan.
While some skepticism about fintechs has been justified, there are encouraging signs that the sector is turning the corner. For one, there have been several notable M&A transactions in the space this year, as large companies have rolled up their sleeves to purchase interesting fintechs. Additionally, we’re seeing an increasing number of fintechs achieving profitability, as they start to rationalise their burn rates and grow their customer bases.
5. The rise of blockchain
With consumer finances taking a beating from rising living costs and the cost of doing business, 2024 could see the sector shift towards new revenue models as a way to grow. Velasque expects this to include stablecoins, banking-as-a-service and fintechs partnering with small Durbin-exempt debit card issuing banks to reap the rewards of interchange erosion.
Blockchain is a key emerging technology in the sector that is expected to have a big impact on the future of financial services, providing more transparency and security for users. The ability to digitally sign and verify documents via blockchain can reduce the time and resources it takes for organisations to complete transactions, making it a powerful tool for the digital economy.
Another significant trend that is likely to gain momentum in 2024 is embedded finance, where non-financial companies, such as online shopping platforms or ride-sharing services, integrate financial services directly into their existing apps, offering a seamless and user-friendly experience. This trend is expected to accelerate as regulators start to lay the foundations for open banking, paving the way for banks and fintechs to work together. This is also a growing trend among millennials, who prefer to manage their finances through their favorite apps instead of having to switch between multiple services.
6. The rise of cryptocurrencies
The rise of cryptocurrencies in the sector is expected to continue this year, as more fintech companies start offering P2P lending and money transfers. These services are much more affordable than those offered by banks and other traditional money transfer organisations. Furthermore, they are gaining popularity in countries where the banking system is highly centralised and unreliable.
The use of cryptocurrencies has also helped reduce the cost of international money transfers. For example, transferring money abroad using the Ripple blockchain-based platform costs less than doing so with the services of banks and other traditional money transfer organisations. Stablecoins are another type of cryptocurrency that is gaining in popularity, as they offer a stable and transparent alternative to other digital currencies.
In addition, there is an increasing focus on customer experience (CX) in fintechs. This is because there is a clear link between customer loyalty and financial service companies’ business success. As a result, many companies are now adopting new approaches to CX that can help them boost customer loyalty and increase revenue. This includes leveraging data to personalise products and offering more tailored customer services. Furthermore, some fintechs are investing in voice and gesture-based user interfaces to provide a more accessible and intuitive way for people to interact with their money.
7. The rise of ICOs
In 2024, ICOs will be the go-to for fintech companies looking to raise funds and boost their product offerings. This is because ICOs offer a much more straightforward funding model than traditional venture capital, and they are often easier to manage.
The sector is also set to see more partnerships between banks and fintechs. For example, fintechs will help banks improve fraud detection by leveraging data-driven technologies such as behavioral biometrics. This will allow them to better understand their customer base and identify potential fraud patterns. This will help reduce overall costs and improve the customer experience.
Additionally, fintechs will continue to expand their offerings. This includes enabling consumers to transfer their DeFi assets seamlessly, creating user-friendly wallets and platforms that make it easier to use, providing custodial and non-custodial options for investors who want more control, and building bridges between DeFi and traditional finance.
Overall, despite a decline in fintech funding and some fintech froth, the industry remains vibrant. Those with strong fundamentals, a clear business model, and a realistic path to profitability will thrive. As such, 2024 should be an exciting year for fintechs, particularly those that focus on payments. This is because the sector continues to be one of the most exciting and fastest growing areas of the financial services industry.
