The financial technology (fintech) industry has been a hotbed of innovation for the past decade, reshaping the way we manage and interact with our money. As we approach 2024, fintech continues to evolve at breakneck speed, with new trends and technologies transforming the financial landscape. In this blog, we'll explore the top 5 fintech trends moving into 2024 that are driving change and revolutionizing the industry. Let's dive in! ⤵️
Continued Adoption of Open Banking and API-Based Services
Open banking, which involves the use of APIs to enable secure sharing of financial data between institutions and third-party providers, has been on the rise in recent years with the global open banking landscape evolving rapidly. A recent report by Platformable sheds light on the key trends shaping the open banking and open finance sectors. One notable trend is the increasing adoption of open banking platforms and APIs, with 1,578 platforms offering 5,564 API products globally by the end of Q2 2022, up from just 423 open banking platforms in Q3 2020. Europe leads in both the number of platforms and APIs, but Asia-Pacific (APAC) has witnessed the most significant platform growth, especially in countries like Australia, Hong Kong, Indonesia, and the Philippines.
Furthermore, open banking regulations are advancing worldwide, with 80 countries having regulations in place and 75 in the implementation stages. Europe and the UK are making progress toward open finance frameworks, while Latin America, the Middle East, Africa, and APAC are also actively working on their regulatory frameworks. The diversification of API products is another key trend, with non-mandated APIs such as KYC and identity, credit services, and trading witnessing substantial growth. Banks are exploring new business models using APIs, including partnership programs, paid premium APIs, and banking-as-a-service offerings. Open banking is not only transforming the banking industry but also fostering fintech innovation. Over 2,800 API-enabled fintech products have emerged, targeting SMEs and individuals. This trend presents an opportunity to cater to specific customer segments, potentially addressing the needs of immigrant workers, expatriates, and freelancers. Moreover, open banking has the potential to improve financial inclusion, as seen in Brazil, where it is expected to bring millions into the formal credit market and inject billions into the economy.
Big Data
Big data is driving a significant transformation in the fintech industry. It enables financial service providers to make faster and more informed decisions by analyzing large volumes of data, leading to the creation of innovative financial tools and services. Open banking, which extends beyond traditional banking services into various sectors, is a key aspect of this transformation. Businesses of all sizes can benefit from open banking by sharing customer data with authorized third-party providers, gaining valuable insights into customer behavior. As payments become more personalized and data-driven, open banking plays a crucial role in delivering integrated and customized payment experiences. This trend is set to continue in the years ahead, with financial service providers increasingly relying on big data and open banking to stay competitive.
Growth of Digital-Only Banks and Neobanks
Neobanking is a digital banking phenomenon that has gained immense popularity in recent years. These banks operate without physical branches and offer traditional banking services, such as checking accounts and loans, through digital platforms like smartphones and computers. The rise of neobanking can be traced back to the aftermath of the 2008 financial crisis when trust in traditional banks declined. Neobanks emerged as a transparent and accessible alternative, attracting customers seeking a modern banking experience. Neobanks continue to grow in popularity, especially among millennials and Gen Z customers, with user penetration rates rising to 3.3% in 2023 and expected to hit 4.7% by 2027. Traditional banks are investing in digital transformation to compete with neobanks that offer key advantages including convenience, personalized recommendations based on AI and machine learning, lower fees, and faster and easier account opening. Customers can manage their finances from anywhere, receive tailored financial advice, and enjoy cost-effective services without the need for physical branches.
The neobanking market is poised for ongoing expansion in the years ahead. Key factors driving this growth include the increasing penetration of smartphones, a growing appetite for digital banking services, and the ongoing advancement of fintech infrastructure. We can also expect to see neobanks forging more partnerships with traditional financial institutions, a move expected to further boost the adoption of neobanking services.
Increased Use of Blockchain and Cryptocurrency
Blockchain technology is transforming the financial industry by offering faster, cheaper, and more secure financial solutions that enhance accessibility for individuals and businesses. It eliminates barriers, enforces security, removes intermediaries, and promotes transparency. Initially met with skepticism, blockchain is gaining acceptance and popularity, with fintech companies competing to develop robust blockchain platforms for various transactions. While traditional financial institutions may not disappear entirely due to reasons like fraud prevention and currency stability, blockchain enables cost reduction, resulting in more cost-effective services for everyone.
"We expect blockchain solutions to reduce annual losses from fraud by $7 billion to $9 billion." -McKinsey
Decentralized Finance (DeFi) for Financial Inclusion
The unbanked are individuals without accounts at any financial service provider, excluding informal financial sources like community savings groups and peer-to-peer microlending. In developing economies, up to 35% of economic activity occurs informally, equivalent to trillions of dollars. Decentralized finance (DeFi) is a peer-to-peer financial technology system that operates on a decentralized, open-source blockchain network, eliminating traditional gatekeepers like banks. It overcomes barriers such as the need for formal identification and financial assets. DeFi offers accounts, savings, loans, payments, and investments through technology and P2P, making it open, transparent, censorship-resistant, and globally accessible via smartphones and the internet. In under five years, DeFi has grown into a billion-dollar industry, with a market value surpassing $180 billion and a user base expanding from less than 100,000 to over 40 million since January 2020.
Advances in Artificial Intelligence and Machine Learning
Artificial Intelligence (AI) is transforming the banking industry by improving operations, customer experiences, and decision-making. Banks are using AI to analyze data, find patterns, and gain insights for personalized services and streamlined processes. AI in banking includes chatbots for customer service, fraud detection, risk assessment, and predictive analytics, automating tasks, reducing errors, and providing faster, more precise customer responses.
"77% of bankers believe that unlocking value from AI will be the differentiator between winning and losing banks." -Economist Impact
The future of AI in banking and finance holds great potential for growth in the industry. AI's rapid advancements and the abundance of data enable banks and financial institutions to leverage AI for business expansion, enhanced customer experiences, and risk reduction. Notably, AI can revolutionize customer experiences through chatbots and virtual assistants, offering personalized financial advice and support. These virtual assistants assist with various tasks like account inquiries, money transfers, and investment recommendations. Additionally, AI can analyze customer behavior and preferences to create tailored experiences that align with their individual needs. This emphasizes the importance of AI implementation for financial institutions to remain competitive in this evolving industry.
Digital Wallets and Payment Apps
The growth of digital wallets is unstoppable, accounting for just over half (52.5%) of ecommerce transaction value worldwide by 2025, versus 48.6% in 2021. The pandemic-driven e-commerce surge accelerated digital wallet adoption, even among older consumers. Now major banks are actively investing in sustainable providers for digital wallets globally. Digital wallets can be classified into two primary categories: those that are linked to credit/debit cards, such as popular platforms like Apple Pay and Google Pay, and those that hold various forms of currency, like PayPal. A crucial aspect of digital wallets is tokenization, which guarantees the security of user card and bank details. By sharing only an alias or token with merchants, digital wallets enable seamless physical and digital payment transactions. This ensures that users can enjoy the convenience, security, and speed of digital payments while minimizing the risk of fraud and errors.
Consumers can enjoy the benefits of simplicity, security, and speed when using digital wallets. With just their contact details like a phone number or email, users can make payments easily, reducing the risk of fraud and errors. Furthermore, digital wallets are becoming more social, offering features such as emojis, group messages, bill splitting, and streamlined hospitality payments. This social aspect varies depending on the region, culture, and technology ecosystem, resulting in a wide range of diverse digital wallet offerings.
Sources
https://www.statista.com/outlook/dmo/fintech/neobanking/worldwide
https://www.digipay.guru/blog/neobanking-future-trends-opportunities/
https://www.weforum.org/agenda/2022/09/decentralized-finance-a-leapfrog-technology-for-the-unbanked/
Fintech Solutions with TribalScale
These fintech trends collectively represent the ongoing evolution of financial services, driven by technological innovation and changing consumer preferences. As we navigate this dynamic landscape, staying informed and adaptable will be crucial for individuals and businesses alike. The future promises exciting opportunities and challenges, and embracing these trends will be essential for success in the financial world of tomorrow.
Looking for a development partner for your fintech solution? Get in touch with us. As digital product experts, we specialize in providing expert guidance and solutions tailored to your unique needs. Our team has helped organizations of all sizes navigate their fintech journey.
