The Future of Financial Technology

The financial technology industry grew strongly in 2023, recovering quickly from significant challenges in 2022. It is in a state of dynamic evolution, particularly in SMBs.

Changing consumer behavior and digital innovation motivated the financial sector to adopt cutting-edge technologies with customer-centric value. These include artificial intelligence, machine learning, and blockchain, increasing efficiency and security. This article briefly overviews the top fintech trends to watch out for in 2024.

AI and ML  

Artificial intelligence (AI) has become critical to fintech, catalyzing a remarkable transformation. Online banks and fintech companies will spend around 85 billion by 2030 using generative AI. They believe AI-driven technologies will let them drill down into the customer experience.

It should be noted that Fintech companies have increasingly relied on artificial intelligence over the last few years. AI has become a new trend, helping businesses better understand the customer journey, optimize operations, and make more accurate and informed decisions to grow online businesses.

Indeed, financial services are gradually improving thanks to advances in AI and data analytics. Fintech companies use intelligent algorithms to analyze spending patterns and adapt marketing strategies, risk profiles, and investment preferences.

The fintech industry has evolved significantly due to the advancements in cutting-edge technology, including machine learning (ML), AI software development services, and custom software development. With the power of AI and ML at their disposal, fintech companies can seize new opportunities and drive innovation in an intensely competitive market.

These technologies have revolutionized various banking processes, from payments and investments to risk management. They have also improved fraud detection and customer experience.

For instance, sophisticated analysis tools can now analyze enormous volumes of transactional data, and algorithms can swiftly identify patterns that may indicate potential fraudulent activities and flag them. This shift toward fraud detection is a notable trend in fintech.

AI chatbots and virtual assistants also play a vital role by enhancing customer service and operational efficiency. These intelligent systems can effectively take over human customer service with round-the-clock support and instant responses to inquiries.

Buy Now, Pay Later

Buy Now Pay Later (BNPL) is a financing instrument that has gained immense global popularity. According to Grand View Research, the BNPL market may reach a CAGR of 26.1 percent from 2023 to 2030.

It has gained popularity with consumers because it enables the purchase of products and their payment in the long term without interest rates. The BNPL model particularly appeals to the millennials and Gen Xers, who demonstrate concern for their credit history.

BNPL also benefits business owners by increasing sales and decreasing abandoned carts in online stores. For instance, sales tend to surge when retailers integrate BNPL with eCommerce platforms.

Additionally, BNPL services for B2B transactions will become essential financing tools for SMEs. These solutions will address budget shortfalls by providing SMEs with affordable and flexible financing options.

Software-as-a-Service

The SaaS industry is expected to bring a transformative shift in the fintech sector by 2024. That is primarily driven by the growing convenience of cloud-based applications that eliminate installation hassles and costs, allowing businesses to focus on enhancing the customer journey.

The triumph of SaaS in fintech can be attributed to the robust implementation of security measures that provide companies peace of mind. SaaS’s inherent flexibility and scalability will help it meet the evolving needs of fintech users. According to projections, SaaS in fintech will witness an exponential growth rate of 18 percent in 2024, amounting to $623 billion.

Lending digital platforms have embraced SaaS as it provides scalability opportunities, ease of use, and maintenance. These have leveraged data accessibility and integration since SaaS solutions are accessible everywhere at any time.

A2A and Mobile Payments

One survey shows that the mobile commerce share of total e-commerce will reach 62 percent by 2027. Several factors contribute to this prediction. First, unique users are expected to surpass one billion in 2024. Digital wallets will account for over a third of all payments made globally, making it the most common method by 2024. The trend is driven by the convenience and security of mobile payments, making transactions quicker and safer.

In e-commerce and digital wallets, the rise of account-to-account (A2A) payments is already replacing traditional cards. Experts anticipate the seamlessness of A2A payments to become an effective alternative to conventional e-commerce payment solutions.

Besides, mobile payments will grow significantly in 2024. Experts predict their critical transformation: mobile payments may go beyond one-off transactions with the shifting focus on offering more advanced banking services. It will eventually result in reduced dependence on traditional payment systems.

Additionally, embedded finance, or integrating payment systems into platforms, is another factor that could increase the adoption of mobile payments. Lastly, the significant increase in search volume for earned waged access or on-demand pay further underscores the shift toward flexible, mobile-centric payments.

Biometrics Adoption

In 2021, the head of the Federal Reserve, Jerome Powell, stated that the biggest threat to the world’s financial system is cyberattacks. Because of the significant risk hanging over the industry, fintech companies rapidly adopted security measures.

One of these is favoring passwordless authentication over traditional passwords. One survey revealed that most (87 percent) security experts believe it is the best way to secure data.

Passwordless authentication can be implemented in various ways. For instance, you might get a notification on your phone that provides you with a distinct login code.

On the other hand, biometrics is a more advanced option that is becoming increasingly popular. The First National Bank of Omaha is an excellent example of a company that uses biometrics to authenticate its customers. They implemented a voiceprint system and had seen impressive results. In a year, they reduced the time spent on calls by 2.5 million minutes and reduced fraud cases by half.

Biometrics has more benefits than just logging in. Some systems use behavioral biometrics to detect fraud even after you’ve logged in. It’s like having a smart assistant that observes how you use your mouse, touch your screen, or type.

Open Banking API

Source: Juniper Research

API integrations for open banking are expected to revolutionize the fintech industry in 2024. That will lead to an increase of 645 percent in global API calls for open banking. The trend toward open banking APIs is driven by factors such as the potential for growth, transformation, and collaboration fostered by FinTech software development companies.

With open banking APIs, third-party developers can build applications and services in financial institutions. Users can consent to share their financial data, and banking institutions can distribute information via open APIs, enabling third parties to leverage this data and create personalized services with seamless user experiences.

For example, users can integrate their existing bank accounts with third-party apps to easily track their expenses and follow individual savings plans.

By embracing open collaboration between fintech and banks, users and companies can enjoy seamless data sharing, improving the efficiency and speed of financial services. Open banking lets people discover unique financial experiences by sharing data via standardized APIs. It allows for the creation of personalized financial services, thereby enhancing the customer experience.

RegTech

Every day, financial institutions receive massive amounts of data, making it impractical to sort manually. Furthermore, businesses must be well-versed in the vast array of laws and regulations. RegTech, or regulation technology, can help with these challenges.

For the benefit of the entire organization, this type of technology can provide increased accuracy, efficiency, and better insights. The expected growth of the RegTech sector is 200 percent between 2022 and 2026.

When investing in RegTech solutions, financial institutions expect to see a positive impact on their bottom line due to cost savings. Over 30 percent of financial institutions allocate more than 5 percent of their revenue toward compliance.

For instance, JP Morgan was made to pay $125 million in 2021 for disregarding the proper compliance controls. RegTech can significantly impact compliance efforts, as demonstrated by the Australian banks CommBank and ING.

These banks used to map their regulatory responsibilities by hand, which required 1,800 hours of labor from human resources. However, after the banks joined forces with Ascent, an AI-powered regulatory knowledge platform, the procedure took only 2.5 minutes.

Neobanks

Fintech has been trying to resolve crucial social problems for many years. About 24 percent of the world’s population remains unbanked as of 2021. However, two-thirds of the unbanked have mobile phones.

As a result, digitally native banks—neo banks—are rapidly gaining popularity among younger customers as an alternative to traditional banks. As of July 2022, there were approximately 350 neobanks in operation, offering a fresh and innovative approach to banking services.

Approximately 52 million people in the US will have a neobank account by 2027, changing how young consumers manage their finances. For example, anyone can open a high interest savings account online. Online banks and fintech companies provide customers with more efficient and secure ways to save money.

Despite low customer profitability, the huge segment makes it extremely attractive for all market players. The upside is overhead costs. Traditional financial institutions have significant operating costs. Neobanks have no such issue, creating favorable conditions for developing digital banks and fintech companies.

Payment trends are evolving. According to FICO, many young Americans are now choosing digital banks over traditional banks. The report highlights a remarkable shift, with young consumers embracing fintech alternatives over traditional banking institutions, doubling since 2020. A mere 25 percent of Gen Z individuals rely on large banks for their primary checking needs.

Blockchain

The blockchain and its attendant technologies have always been associated with cryptocurrencies. Experts predict that technology will now integrate more with the financial technology trends. For instance, banks can carry out transactions more quickly, cheaply, and securely by utilizing blockchain.

Peer-to-peer lending is another application. The expected growth is from USD 147.05 billion in 2022 to USD 1163.09 billion by 2030, a CAGR of 29.5 percent.

In 2024, more banks will likely switch to cloud-based banking, and blockchain will undoubtedly be involved. HSBC and Wells Fargo are already using blockchain technology to settle forex trades. Users can use blockchain currencies to make payments on Paypal, Mastercard, and JP Morgan networks.

Naturally, this has to do with cryptocurrencies, but it also demonstrates banks’ openness to adopting blockchain. Banks are not the only ones using blockchain; AXA also uses blockchain technology to protect its customers from flight delays.

Fintech Wellness Platforms

Fintech will adopt a more comprehensive perspective on finance in 2024, moving beyond simple money management to promote total financial well-being. Emerging platforms emphasize user education, providing crucial financial health insights and a toolkit to foster long-term resilience and financial stability.

These user-friendly platforms will serve as thorough guides, helping users better comprehend their financial environments and encouraging wise financial planning and decision-making. This pattern shows a change in the direction of equipping people with the information and tools they need to handle their financial situations more competently and confidently, opening the door to long-term financial security.

Digital Risk Management

While the effectiveness of digital technologies evolved over the years, we still see a clear trend toward the need to expand the range of solutions. New challenges and complexities of online risk management, the consolidation of fraud networks, and the proliferation of AI use for online fraud trigger this need.

Social engineering methods are improving along with the development of new technologies. Some common approaches are vanishing into the past. Fraudsters are equipped with the latest digital tools, allowing them to use deepfake and AI to steal money.

There is another significant problem with AI applications about online fraud. Artificial intelligence gradually learned to bypass the existing protection means by analyzing users’ photos and voices and general measures to protect cryptocurrencies.

For example, deepnet and darknet actively spread deepfake services that can generate driver’s licenses, passports, and other types of IDs despite the country. Oppositely, service owners claim that such actions are not illegal, as they are not responsible for these forgeries. At the same time, fraudsters can defraud the KYC systems of many cryptocurrency exchanges, online wallets, and financial services by using such services.

All financial market participants must face the truth and consider this negative aspect of AI development. It will allow them to grow the number of security solutions and increase their implementation and update speed.

Central Bank Digital Currencies

Central bank digital currencies are also shaping the financial sector significantly. CBDCs are already moving from theoretical discussions to practical implementation in many countries.

Some central banks started actively introducing or developing their digital currencies. They believe it will help them modernize payment instruments and empower the financial system. Specific use cases for CBDCs will emerge, contributing to their substantial advancement and bringing the industry into the phase of growth and further technological adoption.

Not So Stodgy

Many people have a deeply ingrained idea that bankers are very conventional. However, the fintech industry is at the forefront of technological transformation, and the adoption of innovative technologies like AI and ML, blockchain, SaaS, and mobile payments will continue to drive its growth in 2024.

Fintech can improve operational efficiency, reduce costs, and enhance customer experience. Companies that embrace these trends will be well-positioned to seize opportunities and drive innovation in an increasingly competitive market.

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