Top Fintech Trends to Look Out For in 2024
Over recent years, the global fintech market has been rapidly expanding: around $50 billion in annual fintech startup investments and more than 500 projects emerging each year — and the field is only set to get bigger, with expectations of a $305 billion market value by 2025.
As for the impact of 2020, the fintech industry fared better than others. Some clear indications have emerged that will drive enormous development in the upcoming years. Firstly, as the requirements of banking services grow and change, fintech will become even more customer-focused. Secondly, connectivity and collaboration are expected to be primary drivers of the financial sector. In short, with progressive digitalization, it is a necessity for more banking services to offer their functionality online.
Conventional financial institutions like global banks and credit associations will become more geared toward working with fintech. We’re waiting for a global interconnected financial ecosystem to begin its long and promising development in 2024. Let’s take a look at the most impactful technological trends, and analyze where market shifts will lead this sector.
Top fintech trends to consider in 2024:
Digital-only banks
While digital banking is not a complete novelty in the fintech field, this area is visibly expanding. In today’s world, online access to banking operations is essential; however, due to security issues, scalability problems and other concerns, it remains a rather niche sector. The traditional system of current banking is still tied to visiting physical establishments with requirements to do operations manually, even if some aspects of the operation are available online. In contrast, digital-only banks imply exclusively digital functionality.
The promising growth of digital-only banking is largely driven by the habits of Millennials and Gen-Zers. According to research by Assurant, 86% of young people aged 18-34 would be glad to do all of their financial transactions and operations via a mobile application. However, digital banks are rarely used for primary bank accounts, but rather as a convenient tool offering functions that traditional banks don’t provide. Fintech banks often offer a wide range of extended functionality, for example, hybrid banking services and financial management apps. In this way, all financial operations can be tracked immediately with real-time notifications, allowing users to have access to simple card blocking and unblocking, budget splitting, spending reports, and additional bonuses like cashback for online payments. All of these services are in line with classic bank services and account support.
While digital-only banking is the way of the future, there are still challenges that need to be addressed in order to accelerate the growth of the sector and improve customer loyalty. Chief among them is security. Security issues pierce through every global industry that goes through digital transformation, and when it comes to financing, the concern triples. It’s no secret that digital banking requires intensified security measures, and it is a dilemma that online banks have limited possibilities to solve. Even with two-factor authentication, real-time notifications, and advanced app security, customers still have their money on their mobile devices. If anything happens to a phone or laptop, it almost automatically means a security window for intervention.
To enter the market and compete with traditional banks, digital banks will have to combat potential security issues, increase application scalability, and provide a seamless user experience.
Open banking
Open banking has been a huge buzzword in the fintech industry for some time. Although considered a massive trend with promising growth potential, many companies still don’t have any clue about what it is — anything ‘open’ and ‘free’ sounds rather frightening when it comes to money and sensitive financial information.
In short, open banking suggests that banks give third-party companies access to customer data solely upon the client’s request. Another crucial factor is that no information can be provided without the user’s permission.
Open banking can be described as a third-party provided platform that centralizes information from different bank accounts. Like digital banking, this idea is also nothing new for the financial industry: personal finance management apps (PFMs) and account aggregators were the pioneers of the data sharing concept. However, these applications required too much information (like user logins and passwords) to provide access to screen scraping. This was inconvenient and created significant security concerns.
Open banking tools never request bank account passwords. Through Open APIs, the platform is already enabled to access any piece of information required, whether it be particular transactions, payment history, or documents for taking a loan. Open banking acts as a mediator between traditional banks, their customers, and fintech, which ultimately ends up benefiting every party involved.
Firstly, it works to stabilize market supply and demand, for example: where there are banks that have a massive clientele but no technology and integration, and fintech startups that have robust innovation but no access to a wide customer base. It can also significantly improve competition in the market, stimulating banks to enhance their services. For customers, open banking means having all their accounts in one place, which enables better money management, along with the following benefits:
The ability to make payments from a single application using different bank accounts
Analytics and solutions for better financial management
Financial planning and forecasting
The ability to extract and present data for taking out a loan or receiving other financial services.
Open banking platforms like Santander and Monzo let users review any income, transaction, or mortgage loan (fintech lenders account for a huge 38% of the country’s loan sector) within all of their personal bank accounts, and provide advice on how to better invest and save money. Often, projects like Starling Bank offer an even greater number of services and allow for integration between banks. Open banking, which is estimated to reach a valuation of $43.15 billion by 2026, will become a global interconnected marketplace for financial services.
Payroll fintech
Unjustly overlooked for a long time, in 2024, payroll is going to get some recognition. Similar to how open banking APIs are allowing users to make their banking data available for fintech, new platforms are enabling fintech to access payroll, insurance, credit, and ERP information. In this way, payroll financial services can unlock new opportunities for employers, enterprises, lenders, and fintech companies.
One of the key areas of fintech development for payroll is on-demand wage and early direct deposit. This can provide businesses with more financial security and flexibility when paying their employees while also allowing for a seamless payroll experience between enterprises. Generally speaking, implementing fintech into a payroll system won’t affect workflow but would vastly expand the number and quality of services offered to users. In the scenario of payroll APIs, where the platform has access to user data (as in open banking), employees can potentially lend money, get their wages and tips on-demand and navigate other financial services. This makes the payroll experience a smooth and frictionless process for both employers and employees.
Another promising field in this sector is cryptocurrency payroll. This is the newest feature that allows companies to make payments in different forms of cryptocurrency.
AI and machine learning for better financial decisions
Artificial intelligence and machine learning have a lot to offer fintech startups across many categories. The market of AI-enabled fintech solutions is estimated at $42.8 bn in 2023 and is expected to reach USD 49.4 billion by 2028. The application of AI and ML in the financial sector can be very diverse and certainly provides plenty of opportunities. The following are some of the most important:
Personal finance
People have begun to rely more and more on technology in their daily lives. Algorithms and deep learning mechanisms already recommend and customize our newsfeeds, movies, music, and navigate us through the purchasing process, whether in search of a vacuum cleaner or investing in real estate. There couldn’t be a better area for optimization than that of money management. The truth is, most people are terrible at taking care of their personal finances and would be extremely happy to pass the burden of their budgeting to someone else.
As deep learning mechanisms are great at detecting and predicting patterns, these innovations seem to be a step in the right direction when it comes to improving one’s financial decisions, especially in regards to calculating monthly savings, making investments and detecting the lowest mortgage interest rates. In terms of automation, AI-enabled fintech allows users to automate their essential payments, including rent, utility bills, and other monthly/annual transactions.
Stock market and investments
The same applies to the bigger players. For the B2B segment, ML and AI mean going far beyond conventional models when it comes to funding, investing in, and assessing the stock market. The unlimited volumes of data available in the financial sector make it one of the most relevant fields for the use of machine learning, and the long history of stocks trading counts, too. Based on previous information, ML-backed fintech software can detect a hot stock way better than human brokers. This technology is set to bring the trading system to an entirely new level.
Compliance with regulations
As the financial sector and its institutions are tied to many different regulations, it is complicated for companies to keep up with rules that are constantly changing. Thankfully, AI and machine learning can help detect the slightest changes in regulation and send an update for immediate action. Apart from simply informing, AI-enabled fintech can detect violations in a user’s banking history and transactions, making it easier for banks and users to stay in compliance with rules and regulations.
PLATFORMS FOR FAAS (FINTECH-AS-A-SERVICE) INTEGRATION
There is a visible disbalance between traditional banks and fintech projects when it comes to integrative capacity. Banks and financial unions are often accused of not being open and predisposed to collaborate with the new players in the industry, but in many cases, they simply can’t. The problem is, while fintech startups have APIs and integration mechanisms, banks are just not equipped with the same.
As a result, there is an emerging sector in the fintech market: platforms that enable easy integration for banks should they want to partner with a fintech company. Not only does this partnership stimulate market dynamics, it lets traditional financial institutions take a more proactive role in this process. Some startups, like Moov and Synctera, already assist banks with smooth and reliable ways to cooperate with and offer services to financial technology businesses.
What is next for fintech?
Continuing to be extremely customer-oriented, fintech landscapes are changing according to customers’ demands. Apart from that, other critical factors are reshaping the fintech ecosystem and will drive its development in the upcoming years.
Financial inclusion: small businesses are in the spotlight
Small businesses will be the top focus for fintech in 2024. The small business market offers numerous opportunities for accounting, billing, digital banking, credit cards, and loans. In recent years, some shifts paved the way for small businesses to become the new object for fintech startups to conquer. For example, Amazon and Shopify have enabled their users to access financial services and utilize them to pay bills, make purchases, and transfer money. Amazon has now allowed financial institutions like Goldman Sachs to directly lend money to the platform’s merchants.
The rise of regtech and new regulations
The financial industry is highly regulated on a legislative level and fintech projects don’t exist beyond this system, either. The issue is that regulations are developing at a much slower pace than the financial technology sector in general. That’s why there is an emerging number of projects in the field of RegTech – regulation technology. Its aim is to speed up and enhance the process of legislative operations regarding the fintech sector and governmental regulations. In the US, the financial regulatory machine is still lagging, but some promising projects are already in place in an effort to change the current landscape: the US Federal Reserve is set to launch its own real-time payments service by 2024. It is anticipated to shake up small business banking and eliminate the need for fintech startups to build their infrastructure from scratch.
Collaboration and automation
2024 is expected to be the breakthrough year for cross-industry partnerships, and better integration with many parties in the financial field. Apart from the long-awaited boost in frictionless cooperation between traditional banks and fintech projects, with the new regulations, fintech can bring benefits to many other industries and verticals.
Additionally, there is a growing demand for automation in many fields, starting with personal financial planning and enterprise investments. Customers expect technology to guide them in their financial decisions and assist them in making key choices.
Final thoughts
Ultimately, an already booming fintech sector is expected to grow in 2024 and beyond. While there are still many complications and challenges to overcome, fintech projects are to become more secure, integrated, and better regulated, helping fintech services to be more convenient to use.
With the focus on customer demand, automation, and scalability, the fintech market is about to become more stimulated and diverse, offering many advanced solutions for individual and enterprise use. Cooperation and integration will be mutually beneficial for traditional financial institutions and fintech startups.
It may be challenging to develop a fintech startup considering the complex environment the industry is in. Convenient and multifunctional software is essential for any successful financial technology. Here at Erbis, we can help turn your next fintech project into a robust and scalable solution, with the help of a team of seasoned professionals.
