Konstantin Tserazov: Global Breakthroughs in Fintech Reshaping the Financial Sector in 2024

As 2024 begins, the fintech sector remains dynamic and innovative. In 2023, 15 out of the nearly 100 global “unicorn” companies came from fintech, second only to AI startups. AI technology is likely to be integrated into fintech, just as distributed ledger technology (DLT), primarily manifesting as blockchain, has done.

The global fintech market, valued at $230.3 billion in 2023, is projected to grow at a compound annual growth rate (CAGR) of 12.1% to $469.8 billion by 2030. Factors fueling this growth include increased smartphone usage, rising demand for digital financial services, growing fintech trust and awareness, and favorable regulations.

Let’s delve into the key fintech movements for 2024.

DLT (Decentralization), AI, and Cryptocurrencies

The integration of distributed ledger technology (DLT), AI, and cryptocurrencies is becoming increasingly prevalent across financial services. This trio offers a substantial opportunity to overhaul capital markets, especially in the face of a growing complex and competitive landscape with persistent margin pressures. Financial institutions are now exploring the potential of DLT to transform their operations and enhance the user experience.

The combination of open-source AI models with cryptocurrency incentives is expanding the influence of AI-based communities, equipping them with financial capabilities to establish essential infrastructure for attracting new clients. Communities built on blockchain and leveraging cryptocurrencies as incentives are pivotal in the emerging financial sector, aligning with the aspirations and needs of Zoomers and Alpha generation AI users.

Traditional banks and neobanks, as well as other fintech sectors like insurance, PropTech, lending B2B SaaS, banking, wealth asset management, and payments, will find these AI-driven communities to be an ideal platform to sell their financial products, utilizing the synergy of DLT, AI, and cryptocurrencies.

The potential benefits of DLT extend from resolving infrastructural issues in traditional models to the creation of new investment products and servicing capabilities enabled by DLT features. The development of fintech along DLT principles is intertwined with the implementation of smart contracts, and it is anticipated that smart contracts will play a more significant role in the development of new financial infrastructure.

Smart contracts are coded digital agreements that contain predetermined contractual conditions. They offer a safe, unalterable, and streamlined approach for handling diverse financial transactions and arrangements. With their extensive usage possibilities, smart contracts can lessen the reliance on intermediaries and paperwork, thereby cutting down on time and costs.

Personalized AI Fintech Assistants

The future of investor wealth management is likely to feature AI-assisted personalized model portfolio allocation with DLT-based implementation. Tailor-made financial AI-assisted advice, delivered via chatbots and other AI forms, will become a standard, offering customized guidance that aligns with individual financial goals and circumstances.

Robo advisors are expected to gain more traction and cater to a wider investor base in 2024. These platforms leverage AI to offer cost-effective and efficient advice, optimize portfolios, minimize risks, and increase returns.

Autonomous AI assistants are a significant trend in the global fintech landscape, driving revenue for their owners and those who employ them. These AI systems, often referred to as autonomous agents, are capable of performing tasks and making decisions without human intervention, leveraging machine learning (ML) and natural language processing (NLP) to enhance efficiency and automation.

CBDCs and Cryptocurrencies

An emerging trend shows central banks progressively delving into digital currencies, signaling a considerable shift in traditional financial systems. More and more central banks are investigating the creation of Central Bank Digital Currencies (CBDCs), which could significantly affect the financial system. The People’s Bank of China (PBOC), for instance, is currently in the midst of multi-year trials for the digital yuan. Meanwhile, the Central Bank of Russia has expressed enthusiasm about launching a digital ruble by 2024, aiming to achieve various objectives.

Parallel to this, an increasing number of businesses are adopting cryptocurrencies for transactions and payments, provided they have favorable legislation in the countries they operate in. This move signifies a transition towards more flexible and varied financial practices. As a result, the distinctions between traditional financial models and innovative digital finance approaches are becoming increasingly blurred.

Widespread Tokenization

Private markets, worth over $10 trillion, are characterized by complex and manual systems that lack standardization and transparency, leading to inefficient distribution and operations. Tokenization, the conversion of valuable assets into digital tokens based on DLT, is expected to become more prevalent to address these inefficiencies in traditional financial infrastructure.

Tokenization involves transforming any asset of value, whether it’s a tangible asset like property and raw materials or an intangible one like intellectual property, exchange-traded funds (ETFs), and stocks, into a digital token that functions using DLT. These tokens can act as a supplementary layer for executing transactions, diminishing both the expenses and the duration typically associated with such processes, thereby enhancing the liquidity of these assets. Moreover, tokenization bolsters security and transparency since blockchain-tracked assets can be monitored continuously.

Digital tokens simplify the management and transaction process. Tokenization is poised to deliver real-world benefits as it unlocks novel applications. Through the use of smart contracts and ownership recorded on DLT, tokens can be allocated with immediate implementation.

The creation of uniform token standards is key to providing a uniform structure that allows issuers, investors, those involved in KYC/AML compliance, wallet services, exchanges, regulatory bodies, and developers to work together effortlessly.

Open Source Approach: Application Programming Interfaces (APIs) and Open Banking

Open Banking is a secure method for sharing financial data with multiple providers, promoting innovation by allowing businesses to offer personalized and convenient financial services. Open banking mitigates this issue by facilitating data transfer between banks and third-party financial providers through APIs.

Non-financial businesses can benefit from Open Banking by integrating APIs into their systems, which can help them manage their finances better, forecast cash flow, and process transactions more smoothly. It also facilitates faster and more secure payments, streamlining business operations.

Enhanced Cybersecurity Measures

Financial institutions are witnessing a transformative shift in their security landscape, driven by the convergence of artificial intelligence (AI), biometrics, and machine learning (ML). These technologies are rapidly becoming foundational pillars of a proactive approach to protecting market participants and preventing financial crimes.

Financial organizations, including both traditional banks and innovative fintech firms, are anticipated to increasingly integrate advanced technologies to fortify their compliance capabilities, elevate the precision of their reporting mechanisms, and navigate the intricate tapestry of international financial regulations. These cutting-edge technologies will likely encompass sophisticated biometric systems, robust multi-factor authentication methods, and state-of-the-art encryption protocols.

Biometric authentication, which relies on distinctive biological markers such as fingerprints and facial recognition, is gaining traction in the financial services industry as a means to fortify transaction security and deter fraud. These techniques not only provide an additional safeguard but also offer a measure of convenience for users, streamlining the authentication process while minimizing the risk of identity theft.

Utilization of Big Data

The 2024 fintech landscape will be characterized by a focus on the customization of financial products to meet individual needs with precision. By utilizing powerful tools such as big data analytics, financial institutions and startups will pioneer innovation by offering hyper-personalized financial products and services.

However, big data represents vast amounts of information, and how can it be analyzed quickly? This is where quantum computing comes into play. The capability to perform computations at speeds exponentially faster than ever before is a truly exciting prospect. A quantum leap is a new frontier in fintech for 2024.

Quantum computing holds the potential to transform the fintech industry by significantly increasing the speed of transactions, enhancing security, and improving risk analytics and predictive capabilities.

Fintech Ecosystem and User Experience

Fintechs are now competing at the ecosystem level. In 2024, we can expect to see more financial marketplaces, a plethora of new super apps, and numerous cross-industry partnerships.

One of the most promising ways to organize the fintech ecosystem will be through Decentralized Autonomous Organizations (DAOs), which will allow consumers of financial services to influence the development path of their preferred financial providers.

What will be the evolutionary path of fintech startups in their quest to develop the financial ecosystem? Of course, we will witness more of the beauty of superapps. However, another phase of the fintech evolution is that fintech will embrace a more holistic approach to finance, moving beyond mere money management to fostering overall financial wellness. Emerging platforms will prioritize educating users, providing essential insights into financial health, and offering a suite of tools aimed at cultivating long-term financial stability and resilience.

Gamification, Metaverse, AR, and VR

Gamification will be enhanced by integrating it into the fabric of metaverses, during the development of Artificial Reality (AR) and Virtual Reality (VR). These innovations are being utilized in fintech to engage users. Businesses can enhance customer involvement and loyalty by making financial activities more interactive and enjoyable. Businesses can employ gamification to encourage customer engagement and loyalty in the banking and investment sectors.

Another notable trend is the incremental rise of neobanking. These digital-only banks eliminate the need for physical branches by offering their financial services exclusively online, providing a streamlined approach to banking. They appeal to a clientele with their smooth mobile and online banking platforms, competitive pricing, and lower fees. Additionally, they offer agility and digital convenience for entrepreneurs and startups.

Rise of Embedded Finance

Fintech firms are set to broaden their horizons with new embedded financial offerings — moving beyond the evolution of payment gateways and digital wallets to achieve deeper integration of financial services within platforms that are traditionally not financial in nature. The advantages of embedded finance — which combines financial products with perks like loyalty programs to deliver added value to consumers — are expected to become even more significant in 2024.

Embedded finance weaves financial services into non-financial environments. This trend encompasses incorporating insurance, lending, and payment mechanisms within online marketplaces, the gig economy, and Software as a Service (SaaS) platforms, offering users streamlined and customized financial experiences.

The trend of companies expanding into financial services is exemplified by X (formerly known as Twitter), which is working on launching a payment system. This system would enable users to transfer funds, deposit earnings into verified bank accounts, and could even offer a high-yield money market account. By December 2023, X had obtained additional money transmitter licenses in three U.S. states, which is a significant step towards the launch of its money transfer services.

Internet of Things (IoT)

Credit and debit card transactions are increasingly utilizing contactless technologies such as radio frequency identification (RFID) to enable transactions without the need for physical cash. Innovative startups are exploring the potential of wearables, such as rings, bracelets, and smartwatches, that are integrated with the Internet of Things (IoT) capabilities to facilitate seamless and secure cashless payments.

The Internet of Things (IoT) plays a pivotal role in securing financial transactions by offering continuous network monitoring and supporting biometric authentication methods. IoT sensors and devices will be more in use to detect any unusual activity or potential security threats in real-time, enabling financial institutions and customers to be alerted accordingly.

The blending of contactless payment technologies, wearables, and the Internet of Things (IoT) is transforming the financial sector, providing safe, easy, and customized transactions.