Over the past decade, FinTech has evolved from a niche sector into a major driver of innovation within the global economy.
This transformation has been accelerated by technological advancements, changing consumer behaviours, and the continuous push for efficiency and accessibility in financial services. Despite the sector’s rapid growth, it faces challenges such as increased regulation and fluctuating investment levels.
Aleksei Glukhov and Evgeny Mishchenko, co-founders of the British FinTech company Payrow, present an exploration of the key trends shaping the industry, along with forecasts for its future development.
Key Trends Shaping the FinTech Industry
In recent years, the FinTech sector has seen several pivotal trends solidify their presence, fundamentally altering the way financial services are delivered and consumed.
— Open Banking and BaaS (Banking as a Service)
Open Banking has been a significant driver of innovation, enabling secure data sharing between banks, FinTech firms, and third-party service providers. This trend has fostered greater competition, improved customer choice, and spurred the development of new financial products.
Many organisations were hesitant to embrace APIs, mainly due to uncertainty about their value. However, this viewpoint has undergone a significant transformation. A global survey conducted by McKinsey reveals that 88% of participants now see APIs as increasingly crucial, with 81% considering them a strategic priority. Major banks are currently investing approximately 14% of their IT budgets in APIs, recognising their flexibility, efficiency, speed, and security in delivering banking products and services to customers.
Banking as a Service (BaaS) allows non-banking companies to offer financial products directly to customers, leveraging existing banking infrastructure. This has enabled e-commerce platforms, ride-hailing apps, and even retail giants to integrate financial services into their offerings, creating new revenue streams and enhancing customer loyalty.
— Embedded Finance
Embedded finance refers to the seamless integration of financial services into non-financial platforms. This trend is particularly evident in sectors like retail, healthcare, and travel, where companies offer financial products such as credit, insurance, and payment services as part of their core offerings.
The rise of embedded finance is driven by the convergence of several key trends: the proliferation of digital platforms, the increasing demand for personalised and frictionless financial solutions, and the growing appetite for innovative FinTech offerings.
As more businesses adopt embedded solutions, the line between traditional finance and FinTech continues to blur. For example, ride-sharing platforms now offer instant payment options, while e-commerce sites provide real-time credit at checkout. This not only enhances the customer experience but also opens up new opportunities for growth in various industries.
— Internet of Things (IoT) in FinTech
The Internet of Things (IoT) is playing an increasingly important role in FinTech by enabling devices to collect and exchange data in real-time. This connectivity facilitates automated financial transactions, enhances fraud detection, and improves credit scoring models.
IoT’s potential extends beyond basic financial transactions. For example, smart devices can monitor spending habits, provide personalised financial advice, and even execute transactions automatically. This level of automation not only improves efficiency but also increases security by reducing the likelihood of human error.
— Artificial Intelligence (AI) and Machine Learning (ML)
AI and ML continue to drive innovation in FinTech, with applications ranging from risk assessment and fraud detection to customer service and investment management. AI-powered systems can analyse vast amounts of data to identify patterns and make predictions, enabling more accurate and personalised financial services.
NVIDIA’s fourth annual State of AI in Financial Services Report provides an in-depth look at the current landscape and emerging trends for 2024. The report reveals that an impressive 91% of financial service firms are either investigating AI or have already incorporated it into their operations. These companies are leveraging AI to foster innovation, optimise processes, and improve customer experiences.
AI is already automating processes, improving data analysis, and informing investment decisions within financial services. It strengthens risk management by detecting suspicious activities, personalising marketing campaigns, streamlining document processing, and accelerating tasks like loan applications. Additionally, AI improves fraud detection, enhances credit evaluations, and drives product innovation by analysing market trends and identifying opportunities for new financial products.
— Neobanking
Neobanks, or FinTech services, have emerged as formidable competitors to traditional banks, offering a wide range of financial services without the overhead of physical branches. These banks are particularly popular among younger consumers who value convenience, lower fees, and innovative digital features.
Neobanks offer features such as real-time payments, budgeting tools, and personalised financial advice, all accessible through user-friendly mobile apps. Their success lies in their ability to quickly adapt to new technologies and changing consumer demands, positioning them as key players in the future of banking.
According to the “Neobanking Global Market Report 2024”, the neobanking market is poised for exponential growth, expected to reach $836.11 billion by 2028, with a compound annual growth rate (CAGR) of 47.5%. This impressive expansion is anticipated to be fuelled by several key factors, including the integration of open banking platforms, strategic partnerships with FinTech and tech giants, the use of AI and machine learning for personalised finance, the incorporation of virtual and contactless features, and a strong focus on customer-centricity within the industry.
FinTech 2024 – Adaptation and Innovation in an Evolving World
Despite the considerable uncertainties of recent years, the global FinTech market has demonstrated impressive resilience and flexibility. Revenues are projected to increase nearly three times faster than those of traditional banks from 2024 to 2028, driven by digital transformation, wider adoption, and expansion into emerging markets such as Asia, Africa, and Latin America. These regions, with large unbanked populations, present significant opportunities, though they come with regulatory and cultural challenges.
Regulation will intensify as FinTech disrupts traditional systems, requiring firms to invest in compliance and risk management. AI and blockchain will be central to future innovations, enhancing efficiencies, personalising services, and revolutionising financial transactions. The competitive environment, characterised by traditional banks, tech giants, and FinTech startups, will continue to drive innovation. Success in FinTech will depend on agility, technological investment, and a focus on customer experience.