Fintech Trends in 2024, Creditas IPO, and more

Hi, product leaders and fintech enthusiasts = ). Today we are going to look at Fintech trends for 2024 and read about the key news and insights of Fintech in Latin America

Data.AI built an amazing report on State of Mobile 2024, across various industries. Mega interesting insights, but wanted to stop here and highlight how helpful it is to look at a ranking by MAUs, vs downloads (vanity metric).

In addition, seeing Nubank #5 WorldWide is inspiring, and hopefully, we can see more of those Latin America Logos over the next years at the top.

2024 Fintech Trends: Consolidation, AI, Fraud, & Blockchain

After talking about crypto trends for 2024 (if you haven't seen it, read last week's article here), now it's time to talk about what to expect for the fintech market this year, according to LightSpeed Ventures.

The Fintech industry is consolidating, with fewer full-featured products emerging as winners and many companies facing absorption, acquisition, or closure due to lack of funding.

The main theme in the market will be Artificial Intelligence (AI), which should drive the sector forward, making significant advancements in fraud reduction and automated accounting/CFO suite solutions.

Cross-border and real-time payment systems will continue to evolve.

In a recent report, the Lightspeed team highlighted some of the main themes that should attract attention this year in the fintech market, let's take a look ????

?? Consolidation

The Fintech industry, after a period of rapid expansion and diversification, is poised for consolidation. The market will witness a reduction in the number of players as smaller companies struggle to secure funding and compete with larger, more established firms.

This consolidation will impact both B2B and B2C segments, leading to a more efficient and scaled industry landscape.

The process of mergers and acquisitions will be challenging, but it will ultimately result in the emergence of stronger and more capable Fintech companies.

Existing incumbents will also benefit from acquiring new products and capabilities, enhancing their overall offerings.

Despite the difficulties, the Fintech industry is undergoing a necessary healing process that will make it stronger and more resilient in the long run.

???♂? Fraud and Compliance

In 2023, eCommerce fraud caused merchants to lose approximately $48 billion, and this problem is worsening with annual fraud costs rising by about 30%.

Traditional fraud detection systems struggle to keep up with emerging threats like synthetic identity fraud and account takeovers, compounded by the vast amount of data that needs to be processed and the rapid pace of change.

Fortunately, advancements in AI are revolutionizing the financial industry's ability to assess risk, recognize intricate fraud patterns, detect anomalies, and proactively investigate and respond to fraud.

This has led to a positive impact, with 23% of financial institutions reporting a decrease in fraud, compared to only 1% the previous year.

However, fraudsters are also leveraging AI to deceive consumers and businesses, emphasizing the importance of continuous innovation in anti-fraud measures.

The rise of real-time payments has made real-time fraud detection and prevention crucial, and regulatory bodies are taking notice, holding both sending and receiving institutions responsible for Authorized Push Payment (APP) fraud in the UK.

?? AI Accounting

In 2023, financial institutions made significant progress in automating accounting processes using AI, particularly in data processing and categorization, capital deployment and management, month-end bookkeeping, and other fiduciary responsibilities.

Despite the disruptive potential of AI in the accounting industry, the CFO stack has grown rapidly in recent years, with generative AI tools like ChatGPT demonstrating competence in replacing human CPAs.

This has led companies to question the high cost of human labor in bookkeeping and audit workflows.

While 2023 focused on showcasing the automation capabilities of accounting, 2024 will emphasize executing and streamlining workflows across the entire finance organization.

However, enterprises and mid-sized organizations must strike a balance between functionality and complexity, seeking products that consolidate and simplify daily tasks, ultimately enabling the Office of the CFO to adopt a more strategic role.

?? Cross-border payments

Despite the adoption of tech-enabled remittance products, cross-border payments will remain costly and slow for many in 2024, with an average cost of 6% to send $200 globally, exceeding the World Bank's 2030 target of 3%.

India surpassed Mexico as the largest remittance recipient in 2022, with $111 billion received, while the US-China corridor dominated trade finance, followed by Mexico-US and Canada-US corridors.

The innovation gap is particularly evident in trade finance for small and medium-sized businesses operating globally.

The aftermath of COVID-19 has brought about new patterns in trade, shipping, and e-commerce, necessitating innovative solutions.

Our team will monitor developments in crypto rails for global payments, the expansion of Real-Time Payments and Pix International, and solutions addressing foreign exchange management and banking access in different countries to address these global changes in demand.

???? US real-time payment systems are still a long ways off

Despite being announced ten years ago and the launch of real-time payments (RTP) seven years ago, the adoption of FedNow in the United States has been slow due to several reasons.

Unlike Brazil's Pix and India's Unified Payments Interface, the US lacks a holistic approach from financial firms, crucial government sponsorship, a newer financial system, and a majority underbanked consumer base.

The primary friction for adoption lies in the bank technology stack, as many banks are content with daily batch payments processing and would need to amend core components of their systems to support real-time payments.

While long-term optimism exists, short-term realism suggests it will take another five to ten years for RTP to gain meaningful traction in the US.

However, the growth of FedNow participants from 35 at launch to 400 at the start of 2024 shows promise.

?? Capital Markets and Climate

Governments will remain influential in financial services beyond traditional securities and banking regulations.

Climate change will prompt government participation in establishing novel capital markets fueled by securitized or transferable tax credits, leading to the emergence of a new financial market.

The insurance industry will also experience ongoing transformation due to climate change, resulting in increased risk for specialty markets.

Climate-focused startups at the intersection of climate, finance, and technology have witnessed remarkable growth, raising nearly $3 billion globally in the first half of 2022, surpassing the total funding secured in all of 2021. This trend is anticipated to accelerate into 2024.

?? Blockchain

Despite the fluctuating market conditions, blockchain technology has made significant progress in the past year, with nearly 1 billion cumulative on-chain transactions solidifying its validity as a value exchange method.

The emergence of Layer 2 blockchains like Polygon and Arbitrum, along with alternative Layer 1s like Solana, has facilitated faster transaction speeds and lower fees, paving the way for broader adoption.

Notably, Bitcoin experienced a strong resurgence in 2023, driven by traditional institutions entering the ETF market and the introduction of new features like Ordinals, enabling NFT creation directly on the Bitcoin blockchain.

As the hype surrounding cryptocurrencies stabilizes, blockchain technology is poised for increased adoption and utilization in real-world business and consumer scenarios, serving as a settlement layer for innovative payment alternatives and money movement solutions.

Furthermore, the maturation of DeFi infrastructure is expected to drive a second wave of on-ramps and off-ramps for fiat-to-crypto conversions, facilitated by the growing use of stablecoins.

Beyond its role in financial transactions, blockchain's potential as a distributed database and universal computing power will impact AI, physical infrastructure, and network nodes.

Consequently, cryptocurrencies are transitioning from a hype-driven concept to a transformative force in redefining money movement, while the evolution of distributed databases continues to shape the future of technology.

?? Mortgage Tech Stack

The anticipation of lower interest rates is driving innovation in mortgage and property technology, leading to advancements in consumer-facing products and improved technology for mortgage companies.

Despite the current high interest rates, which reached 8.45% in October 2023, there is pent-up demand for refinancing, particularly among high-income earners who are choosing to rent instead of buying.

As a result, homeowners and renters alike are expecting greater value from their monthly housing expenses.

Mortgage servicers, brokers, lenders, originators, and Fintech companies are expected to step up and meet this demand by providing innovative solutions and services.

?? Vertical SaaS-Fintech

To address customer acquisition challenges, SaaS companies are expanding their offerings within their existing customer base by adding Fintech products.

Vertical SaaS platforms, known for their sticky workflows and high usage times, are well-suited to seamlessly introduce financial functions.

Toast's success in expanding from a restaurant POS system to managing various aspects of restaurant operations demonstrates the effectiveness of bundling.

The future holds the expansion of marketplaces and vertical SaaS businesses to include payments, payroll, embedded lending, insurance, and more.

Artificial intelligence is expected to transform how embedded players serve these verticals by automating customer support tasks.

As a result, workflow moats will be strengthened with data moats, and financial functions will become an integral part of every organization.

???Insurtech in India

Despite the significant growth potential in health insurance in India, with only 15% of individuals covered by private insurance, it remains a challenging market due to its push-based nature and inherent friction.

However, recent health reforms initiated by the National Health Authority may drive a transformative change in stakeholder behaviors.

Opportunities exist for new companies to capitalize on this growth by digitizing hospital data, utilizing user-side data for improved product development and personalized pricing, and enhancing claims processing to expand provider segments and improve customer experience.

Favorable market conditions, including rising healthcare costs, increasing awareness in smaller cities, and a shift towards cashless claims, present an opportune moment for innovative companies to revolutionize healthcare expense management in India.

??Conclusion

Despite the possibility of consolidation in 2024, the long-term outlook for Fintech remains positive. Successful pandemic-era startups are poised for growth and seeking investments for their next phase.

While down rounds may occur, resilient survivors can showcase adaptability and position themselves for prospects.

As the Fintech landscape consolidates, winners will emerge with improved products and capabilities, driving efficiency and value creation in the financial services ecosystem.

???Top Fintech Bites and Insights

?? Credit fintech Creditas plans to conduct an initial public offering (IPO), which can take place on the US Stock Exchange and not in Brazil.

?? Brazilian fintechs PagBank, Inter and C6 are among the five banks with the most complaints, according to the Central Bank.

?? Nubank announces a new feature that allows customers to convert their credit card limit into cash in their account, with the option to pay in installments of up to 12 times.

?? Brazilian fintech BRLA Digital raised R$1 million in funds from 99 Capital, a venture capital fund owned by Dave Wang, former head of Softbank's cryptoactive area.

?? Brazilian financial institution Afinz, announced its first acquisition by purchasing 100% of the recurring payments platform Pagolivre.

?? Amazon to Offer “Buy Now, Pay Later” in Mexico via Fintech Kueski. Users without a credit card can make purchases of up to 12 bi-weekly installments. Congrats Fausto Ibarra and team! = )

?? Santander Mexico to launch digital bank “soon”, said Matias Nunez, bank’s head of digital and innovation.

?? Riverwood invests R$ 160 million in healthcare software startup Amigo Tech.

?? Salesforce laid off about 700 employees, or approximately 1% of its global workforce.

?? Argentina's Neobanco Ualá reached 400K users in its second year in Colombia.

?? Mexican fintech Bonanza, in collaboration with Pomelo, announces the launch of three virtual credit cards in the country.

???? Colombian Fintech FinZi is acquired by Girasol Payment Solutions.

?? From now on, transfers from Bancolombia to Nequi will be charged.

?? Colombian Fintech Wompi presents its new Mobile App to receive payments for merchants in Colombia.

?? Itaú Chile launched "itu", a digital checking account.

?? Tanner Banco Digital receives provisional authorization from Chile's Financial Market Commission.

?? Quipu, the Colombian revolving credit for business equipment startup, secured investment from the G2 Fintech Fund as part of its seed funding round. The total funding reaches US$ 3.5 million.

?? Mexican asset manager Forandra Capital announced the launch of Activist Fund 1, an opportunity for Mexican investors to engage in global financial activism.

?? Girasol Payment Solutions, the Curacao-based payment platform, announced the acquisition of? Finzi, the Colombian digital banking and learning platform for teens in Latam.

?? TraderPal, the US-based investment platform in Latam, announced the expansion of its financial services with the upcoming launch of its own credit and prepaid cards.

?? R2, the Mexican embedded lending platform, and TUU, the Chilean POS system payment platform, announced a partnership to introduce TUU Crédito, a credit solution for Chilean SMEs.

??? GFT Technologies SE announced the acquisition of 100% of the shares of Sophos Solutions, a core banking specialist based in Colombia.

??? BRQ Digital Solutions, a digital transformation company that serves large banks and insurance companies, announced Rodrigo Frizzi as its new CEO.

?? Fintech PayHop received funding from CV iDEXO, Totvs' Corporate Venture Capital fund.

Insights

Investment in digital banks falls to its lowest level since 2017

Last year, digital banks around the world raised a total of US$3.8 billion, a drop of 65% compared to 2022, the worst result since 2017.

Investment in these companies reached US$20.3 billion in 2021, and fell by almost half (US$10.9 billion) in the following year.

The data is from C-Innovation based on data from the Dealroom platform.

SuperApps Product Strategy to Keep Market Share

As I mentioned at the beginning, vertical integration will be a key theme in 2024. To defend and gain more market share, Financial Services Companies need to extend their product portfolio while strengthening their core.

That was all! ???

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Un Abrazo,

Edu