Hey everyone! Today we will dig into some of the most exciting FinTech trends.
The global Fintech market is expected to grow at an incredible Compound Annual Growth Rate (CAGR) of 19.8% over the next five years before reaching USD 332.5 billion in 2028, according to a recent report from MarketsandMarkets™. The growth will be driven by innovative technology recently gaining momentum, such as blockchain technology, artificial intelligence, open banking, and other underlying financial products.
The FinTech industry is evolving rapidly, and to stay ahead of the curve, you need to be aware of the latest trends. In this blog post, we will look at 15 FinTech trends shaping the financial industry in 2024.
I divide these hottest trends in fintech into a few categories:
- Payments (including BNPL and Crypto)
- Blockchain and DeFi
- Quantum Computing
- RPA and AI/ML
- Banking APIs (Digital-Only Banking, Open Banking, BaaS, and Super Apps)
- Sustainable and Green Finance
What are the Top FinTech Trends to Watch in 2024?
1.) Payment Innovation
How we pay for things has undergone a significant shift in the last few years, and this trend will only continue. Blockchain, digital-only currencies, mobile payments, and NFC (contactless) payments have been in the news for the last few years. are all on the rise.
In the future, biometric payments (using either a fingerprint, eye scan, or facial recognition) are starting to
If you need to accept payments for your business, check out the features that every payment processor should have.
One payment innovation gaining traction is “buy now, pay later” (BNPL). BNPL services are becoming more popular than ever before. These allow customers to defer payment on purchases for some time.
However, there is some criticism that this model can increase the risk of debt problems for certain customers. Also, some of the BNPL services are actually offering personal loans, not traditional BNPL services. These may affect your credit. Understand exactly what you are getting before agreeing to the payment.
3.) Crypto Payments
The recent collapse of the centralized crypto exchange FTX has left many wondering how it will affect payments. First, it’s important to note that in the case of centralized exchanges, like FTX, the company holds onto users’ private keys to their cryptocurrency wallets. These custodial wallets mean that when a centralized exchange falls abruptly, so do the funds users store in their wallets.
However, there is an alternative to these centralized exchanges: decentralized ones. Decentralized exchanges offer users the security of having control over their private keys and wallets, known as non-custodial wallets. As long as users store their assets in these wallets on a decentralized exchange, they can be sure that no centralized exchange collapse will impact payments.
As we’ve seen with the FTX collapse and other crypto issues, trust in cryptocurrencies is still yet to be fully restored. Until then, it’s unlikely that digital currency payments will become commonplace. But despite some of these emerging problems users can confidently make cryptocurrency payments without worrying about their funds being lost – although there are still a few steps needed before this technology reaches its full potential.
4.) Blockchain Beyond Cryptocurrency
This distributed ledger technology is being used more and more in financial applications. Financial companies are interested in blockchain ledgers because of their security and transparency. Transactions are secure, transparent, and immutable (meaning they can’t be changed). This reduces the risk of fraud and unauthorized access.
Anytime a financial company can increase security and transparency is good for their reputation, which can lead to more customers.
Blockchain tech includes tokenization, which includes non-fungible tokens (NFTs). Financial companies can use NFTs to get and retain customers by generating buzz for their services and products.
5.) Decentralized Finance
Decentralized finance (or DeFi) is a growing trend in fintech. DeFi is a system where financial products are available on a public decentralized blockchain network. This makes these products open to anyone to use. You don’t have to go through middlemen like banks or brokerages.
Some of the innovations in financial services are decentralized exchanges, yield farming, and liquidity mining.
I consider DeFi a top trend because it:
- Is financially inclusive: can include the unbanked populations because they don’t need a traditional bank account to use financial services.
- Is more flexible: offers flexible solutions that adapt to users’ needs faster than traditional finance.
- Costs less: can really reduce fees because the middle men are eliminated.
- Has more market efficiency: can increase market efficiency by providing more direct access to financial services and reducing the time for transactions.
6.) Quantum Computing in Finance
Quantum computing can give significant advances in computational capabilities. Using quantum computing, you can solve complex problems that are far beyond the reach of traditional computers. This could be a boon for the financial services.
Quantum computing can be used for:
- Risk analysis and management, like credit scoring: It can analyze vast and complex datasets to assess risk faster and more accurately.
- Portfolio optimization: Quantum algorithms can evaluate numerous potential combinations of assets to find the optimal portfolio mix, considering factors like returns, risk, and correlation.
- Fraud detection: Quantum computing can quickly analyze patterns in large-scale transaction data to identify anomalies that suggest fraudulent activity.
- Algorithmic trading: Quantum computers can process and analyze market data much faster than current computers. They could potentially execute high-frequency trades more efficiently, leading to higher profits.
- Option pricing: Quantum algorithms can more accurately price financial derivatives and options by rapidly calculating complex models, such as the Black-Scholes model. These modes work well especially under conditions of market volatility.
- Cryptography and security: Yes, quantum computing poses a challenge to current encryption methods. However, this computing also offers advanced cryptographic techniques, ensuring more secure financial transactions.
Initially, financial companies were using RPA (robotic process automation) to automate repetitive tasks in the financial industry. These software robots can free employees to focus on more critical tasks and replace simple manual tasks with rules-based bots.
The most common task is financial services marketing (email marketing). Also, RPA can be used for back-end data-heavy manual tasks (manual data entry, accounting reconciliations) and to streamline insurance claims processes.
Artificial intelligence and machine learning have become ubiquitous in our lives, with consumers using them in everything from writing to automating financial processes. You would have had to be living under a rock to not notice the explosion of generative AI (think ChatGPT) in 2023. However, in finance, AI and ML can be used for so many more things than just spitting out summarized and plagiarized text.
Think of artificial intelligence as enhanced RPA. This trend is only going to continue as these technologies become more sophisticated. Many financial institutions are already using AI/ML in chatbots. But one of the most powerful ways in finance is to use AI/ML to combat fraud and cybercrime threats. They can also be sued for personalize financial advice and risk assessment.
8.) Digital-Only Banking
More and more people are using digital-only banks. These neobanks and digital-only banks have no physical branches. They offer user-friendly services online or through mobile banking applications.
9.) FinTech (Open) APIs
The world of finance is undergoing a significant transformation, and FinTech APIs are playing a big role in that. Fintech APIs provide a new way for financial institutions to interact with each other and their customers. They are also making it possible for new players to enter the financial services industry.
Fintech APIs can facilitate payments, access customer data, and provide other financial services that are typically unavailable to those not in the banking industry. In addition, third-party developers often use them to create new applications and services. As a result, as the use of APIs grows, we will likely see a proliferation of new financial products and services.
The trend toward APIs is already significantly impacting the finance industry. Financial and banking institutions are starting to use them to offer new services and improve how they interact with their customers. Also, FinTech startups are using them to create entirely new businesses.
And as more people become aware of the potential of these open APIs, we are likely to see even more innovation in the finance sector.
10.) Open Banking
Open banking is a trend in which traditional banks allow third-party providers (TPPs) to access their bank client data and build applications on top of this data. In open banking models, non-bank businesses only access banking customers’ data and credentials for their products —NOT their account or other sensitive data.
Open banking can increase competition in the financial sector, leading to more innovation and better products and services for consumers. It can also help to reduce costs for banks and other financial institutions by making it easier for them to partner with non-bank companies.
Open banking can improve customer experience by giving customers more control over their data and other entities using it.
Ultimately, open banking has the potential to benefit both banks and consumers by increasing competition and innovation in the financial sector.
11.) Banking-as-a-Service (BaaS)
This trend refers to the provision of banking services by third-party providers. BaaS can include things like lending, payments, and financial planning. In BaaS, licensed banks integrate their digital financial services directly into the products of other non-bank businesses.
FinTech companies and other non-bank businesses can integrate complete banking services into their products using APIs and webhooks for communication.
Another term that has been trending is embedded finance. Think of this as the front-end portion of BaaS. Embedded financial services refer to integrating financial services into other applications and platforms. We already see this with in-app payments, peer-to-peer payments, and BNPL.
Although BaaS may appear to be the same as Open banking, they are slightly different.
- Open banking works by providing bank client data to TPPs
- BaaS works by integrating financial services directly into TPP products.
12.) FinTech Super App
In recent years, there has been a trend of developing so-called “super apps.” These are all-in-one mobile apps that provide users with a wide range of financial services, from banking and payments to investments and insurance.
The FinTech super app is seen as a one-stop shop for all of your financial needs, and they have the potential to disrupt the traditional banking sector. These apps combine several different services, so the user does not have to download multiple apps. These services include:
- digital wallets and payments
- social media
- food delivery
- online dating
- hotel booking.
The FinTech super app is a convenient and user-friendly way to access a range of services, and it is clear that they are here to stay. Super-apps are made possible with the power of open banking. These apps use AI/ML to make data-driven decisions and develop customer-focused products across the ecosystem.
There are already several well-established super apps in Asia, such as WeChat and AliPay in China, Grab in Malaysia and Singapore, GoJek in Indonesia, and Paytm in India. But the super apps have yet to gain the same popularity in western economies, possibly because of the complex industry regulations in the US and Europe.
However, PayPal has ventured into the super app space. Their super app offers financial tools, peer-to-peer fund transfers, educational material on crypto, and the ability to buy, hold, and sell crypto, with more functionality on the way.
Watch for super apps to make their presence felt in other markets worldwide.
13.) Regulatory Technology (RegTech)
In the FinTech industry, regulatory technology (RegTech) refers to using new technologies to help financial institutions meet regulatory requirements. RegTech can include everything from software that allows banks to track customer transactions to blockchain-based systems that monitor financial markets.
With the growing complexity of financial regulations, RegTech has become an essential tool for FinTech companies. Using RegTech, FinTech companies can help their clients meet compliance requirements while reducing costs and improving efficiency.
RegTech can also help financial institutions identify risks and prevent fraud. As the FinTech industry continues to grow, this will likely play an increasingly important role in assisting companies in complying with regulations.
In the modern world, FinTech plays a vital role in the global economy. Financial technology has revolutionized our business, from mobile banking and peer-to-peer transactions to investments and asset management.
However, as our reliance on digital platforms continues to grow, so does the need for better cybersecurity measures. Hackers and identity thieves are constantly looking for new ways to exploit vulnerabilities in digital systems, and even a minor data breach can have devastating consequences.
That’s why businesses in the financial sector need to invest in robust cybersecurity protocols. One protocol is zero-trust architecture. Zero-trust architecture refers to a security model in which there is no trust between parties, regardless of their network or physical location. This security model is vital in the financial world because it helps to prevent fraud and data breaches.
By working with experienced security professionals, financial institutions can ensure that their financial data is safe from hackers and that their customers can transact confidently. In today’s interconnected world, cyber security is more important than ever.
15.) Sustainable and Green Finance
While sustainable and green finance has experienced unprecedented growth in recent years, it’s important to acknowledge that ESG (Environmental, Social, and Governance) efforts have faced some setbacks this year. Different factors, including political and economic challenges and shifting regulatory landscapes, may have impacted the momentum of ESG initiatives.
However, despite these hurdles, sustainable and green finance continues to be a significant trend in the financial sector. Here are some reasons why:
- Long-Term Perspective: The trend towards sustainable and green finance is driven by a long-term perspective. Investors and companies are increasingly aware that sustainable practices are crucial for long-term success and risk management.
- Consumer Demand: There is a growing demand from consumers for sustainable products and services, and this extends to their investment choices as well.
- Global Environmental Goals: The urgency of global environmental goals, such as those outlined in the Paris Agreement, continues to drive interest and investment in sustainable finance.
- Technological Advancements: Advances in technology are enabling better measurement and tracking of ESG criteria. This makes sustainable investments more transparent and accountable.
What are the 4 categories of FinTech?
FinTech is a broad term that covers a wide range of financial technology applications and services. Here are four broad categories of FinTech:
1. Payment systems and services: This includes products and services that help consumers and businesses make and receive payments, such as mobile payment apps, online bill pay services, and peer-to-peer payment platforms.
2. Lending and borrowing: This category includes products and services that enable consumers and businesses to access credit, such as online lenders, peer-to-peer lending platforms, and alternative financing options.
3. Savings and investing: This category includes products and services that help consumers save money and invest for the future, such as online savings accounts, investment apps, and Robo-advisors.
4. Financial planning and management: This category includes products and services that help consumers manage their finances, such as budgeting apps, financial planning tools, and expense-tracking platforms.
What is the future of FinTech?
In recent years, the financial technology industry has undergone a dramatic transformation. Once dominated by large financial institutions, the industry is now being disrupted by startups harnessing the power of blockchain to create new and innovative payment systems.
Quantum computing is also on the horizon, which could drastically change financial services.
In addition, as the world becomes more connected, FinTech will become more accessible to people all over the globe. This accessibility means that more people will be able to take advantage of its many benefits.
As FinTech becomes more widespread, it will also become more refined and efficient. Ultimately, this will lead to even more innovation in the financial sector and better consumer outcomes.
There is no doubt that the future of FinTech is very bright indeed.
These are just some of the trends that we are seeing in the world of FinTech. It’s an exciting time to be involved in this industry, and we can’t wait to see what the next five years bring.