Evolving Fintech Landscape in 2024 - Risk & Opportunities

In 2024, the fintech industry is likely to face transformative challenges that have spurred innovation and global connectivity. Fintech firms are proactively addressing pain points, embracing AI and ML in risk management and user experience, and actively working to make financial services more inclusive. The landscape anticipates the rise of embedded finance, the resurgence of Buy Now, Pay Later (BNPL) services, and the impact of Central Bank Digital Currencies (CBDCs). Open banking is set to mature, with growing consumer trust, regulatory developments, and a focus on payments. However, challenges like cybersecurity and the balance between convenience and security persist, driving fintechs to enhance customer experiences. Overall, agility, innovation, and strategic partnerships are essential for success in the dynamic fintech landscape of 2024.

Challenges mounting for Fintech domain in 2024

The year 2023 has proven to be a transformative period for the fintech industry, driven by challenges that acted as a catalyst for innovation, global market connectivity, and strategic resilience. The challenges faced in the past year have propelled the fintech industry into a new era of innovation. Fintech firms are not only addressing existing pain points but are also proactively identifying opportunities for strategic growth. The ability to adapt swiftly has become a hallmark of successful fintech organizations.

Fintech's enhanced position in the global market stems from its agility in adopting emerging trends and technologies. This newfound strength has allowed fintech firms to foster international collaborations, enabling seamless cross-border financial transactions and paving the way for more interconnected financial ecosystems.

Generative AI (GenAI) has transformed the way of doing business noteworthy. However, its implementation requires addressing biases, improving accuracy, and advancing Explainable AI (XAI) for transparent decision-making. This is especially critical in areas like cash flow underwriting, where the implications of AI decisions are significant. Artificial Intelligence (AI) and Machine Learning (ML) have experienced accelerated adoption in the financial sector. This is particularly evident in Risk & Compliance and User Experience domains, where precision and security are paramount. AI-driven solutions are becoming integral to decision-making processes.

Fintech is actively addressing credit disparities by expanding payment options, including the popular Buy Now, Pay Later (BNPL) model. This move aims to serve a broader customer segment and make financial services more accessible. The demand for swift, fraud-resistant instant payments is on the rise. Consumers and retailers alike are seeking secure and instant payment solutions, fostering trust in digital transactions. Innovations in open banking and cash flow underwriting are driving a shift towards more inclusive financial services. Fintech is actively working to make credit and financial products accessible to a wider demographic. Anticipating increased focus on credit-builder cards, tailored financial solutions for specific demographics, and enhanced financial education are crucial components of the fintech industry's commitment to financial wellness.

Customer are game-changing in the landscape of financial transactions leveraging innovations. Thus, emphasis on their choice and movement remains a core principle and of paramount importance for fintech firms. Understanding evolving needs and preferences is essential for sustaining growth and maintaining customer trust. Fostering a culture of agility and continuous learning through rapid experimentation and feedback loops is crucial. This approach enables fintech companies to thrive in the dynamic landscape, staying ahead of evolving trends.

Is future uncertain? Why predictions fail ?

Predicting the future, it is evident that AI, especially Generative AI, will continue to be a significant trend in fintech in 2024. The integration of AI across the payments value chain is expected to lead to advancements in fraud management, real-time transactions, customer experience, and regulatory compliance.

Consumers will increasingly embrace Generative AI for personalized, real-time financial updates. This adoption is expected to enhance financial literacy and overall well-being. Financial institutions must adapt to consumer preferences for seamless, AI-driven experiences and explore new credit options. Consumers' growing comfort with financial services provided by brands is reshaping the landscape. Credit cards are poised to become the new homepage for brand experiences, necessitating a focus on providing embedded credit card services directly to customers. While the future is uncertain, there remains the increasing trend of adopting new flexible Fintech products such as Buy Now, Pay Later (BNPL), which drive whopping resurgence. This has necessitated the Fintech firms to prepare themselves to cater with increased demand and work on making these services faster and more convenient, especially targeting younger generations.

?On the other hand, the role of Central Bank Digital Currencies (CBDCs) is expected to be significant, complementing cash and bolstering payments system resilience. Monitoring developments in regions like Asia, where CBDCs are gaining momentum, is crucial for financial institutions and businesses. Partnerships between banks and fintechs will be crucial in 2024. These collaborations allow institutions to integrate innovations rapidly without overwhelming internal resources. Both banks and fintech companies should actively seek and leverage partnerships to capture market share and stay at the forefront of innovation.

A surge in digital financial services is anticipated, pushing towards a more secure, convenient, inclusive, and innovative future. Fintech companies should prepare for increased demand and competition in the digital financial services space, focusing on security, convenience, and inclusivity. In nutshell, fintech landscape in 2024 is expected to be marked by continued AI integration, the rise of embedded finance, the resurgence of BNPL services, the impact of CBDCs, and the importance of strategic partnerships. Fintech companies and financial institutions need to stay agile and innovative to navigate this evolving landscape successfully.

Open Banking on the GO

Moving on to the realm of Open Banking in 2024, the landscape is poised for widespread adoption, regulatory developments, and advancements in technology. Open banking is entering a new phase of maturity, marked by growing adoption and diversification of services. The landscape is on the verge of becoming more mainstream, with consumers, businesses, and government bodies increasingly embracing its services.

In coming days, open banking is super connected and brings lots of new ideas, money, and tough competition. APIs make it fair for regular banks, fintech companies, and businesses. Following rules and protecting customers become very important because there are many regulations that multinational providers must deal with. The all new "embedded finance" is a big thing. It means breaking down barriers and using information in different ways to make people's money situations better. Banks focus on making it easy to open accounts and sign up customers, using digital cards, digital wallets, and extra security.

In Europe, they're ahead in open banking and have plans for new rules like PSD3 and PSR. All around the world, open banking is growing. In the U.S., they're making rules about personal data rights, and it should start in 2024. Sharing more data helps banks become a part of people's lives, even beyond money stuff.

Regulators and policymakers are recognizing the transformative power of open banking, especially in payments. The anticipated increase in open banking payments necessitates the creation of regulatory frameworks to ensure the security and privacy of customer data. Open banking payments contribute to financial inclusivity by enabling underserved populations to access the formal financial system. This aligns with the objectives of governments and regulatory bodies globally to enhance financial inclusion.

Consumer trust in open banking and API technologies is also growing, creating a positive outlook for 2024. Consumers are increasingly comfortable with sharing their data in exchange for valuable services and improved experiences. Furthermore, the proposed personal financial data rights rule in the US aims to move away from screen-scraping toward publishing open APIs, enhancing data security and portability. This shift represents an opportunity for smaller banks and credit unions to compete more effectively. Businesses are expected to demand more access to customer data as they adapt to economic challenges. Open banking is predicted to enter a new phase of maturity in early 2024, with a focus on consumer-focused applications. Open banking regulation in the US is anticipated to accelerate in the coming years. Banks are navigating the balance between consumer convenience and potential threats to direct customer relationships.

B2B adoption may continue at a slower pace, but deeper collaboration between financial institutions and third-party providers is expected, fostering innovation and competition. The expansion of open banking introduces new access points and players, leading to growing pains in cybersecurity. Comprehensive regulations are needed to address cybersecurity challenges and ensure the secure transition to open banking.

While Fintechs are likely to focus on lowering payment friction, improving user interfaces, and implementing real-time feedback systems, yet the competition will drive fintechs to enhance the overall customer experience and streamline payment processes. AI is expected to play a significant role in automating complex financial operations for fintech companies. AI will provide personalized services for customers and advance anomaly and pattern recognition, contributing to operational efficiencies. With the rapid aspiration of emerging technologies, open banking in 2024 is poised for widespread adoption, regulatory developments, and advancements in technology, particularly in the areas of cybersecurity, user experience, and the integration of AI. These changes are expected to bring about positive transformations in the financial landscape, benefitting consumers, businesses, and governments.

(Views expressed herein are personal.)