Main trends in the fintech industry for 2024
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Experts from deVere Group and McKinsey have identified the main directions for development of the financial technology market next year. Experts expect increased interest in cryptocurrencies and digital currencies of central banks, as well as increased use of artificial intelligence.
Strong virtual tandem
Last week, the international financial consulting company deVere Group released forecast main trends in the development of the financial technology market (fintech) in the coming 2024. According to company CEO Nigel Green, “2024 promises to be a very dynamic and innovative period for fintech. We believe this will be a landmark year for the entire sector.”
deVere Group ranked the growing popularity and importance of cryptocurrencies at the top of the list of the most significant industry trends.
Over the past year, Bitcoin has risen in price by 155%. “This trend is likely to continue as institutional investors continue to engage in Bitcoin or other similar assets, bringing not only capital, but also their influence and credibility to the market,” the forecast says.
With the increasing acceptance of cryptocurrencies by traditional financial companies and institutions, as well as the formation of regulatory regimes in many countries, cryptocurrencies are expected to become truly mainstream. “We predict that crypto will play an increasingly important role in the diversification of investment portfolios and cross-border transactions, changing the entire financial market landscape,” the report says.
The second trend is directly related to cryptocurrencies. This is the growing popularity of central bank digital currencies (Central Bank Digital Currencies, CBDC).
“In tandem with cryptocurrencies, the rise in popularity of CBDC will be another defining trend in 2024. Some central banks are already actively introducing or developing their digital currencies, thus hoping to modernize payment instruments and expand the capabilities of the financial system,” experts believe.
In mid-November, the Monetary Authority of Singapore (MAS) announced, that from next year it will begin the “live” issuance of digital currency, which will be used for interbank settlements. MAS, which serves as the country’s central bank, stressed that it will develop three types of digital money – central bank digital currency (CBDC), tokenized bank liabilities and regulated stablecoins. For tests, MAS will involve banks, fintech and Internet companies such as JP Morgan, HSBC, Amazon, Alipay, etc.
“As more central banks pilot and issue CBDCs, 2024 could mark a turning point in the evolution of digital currencies into the mainstream of the global financial system,” deVere Group said in a forecast.
Experts call another trend in line with the events of the past year the growing role of artificial intelligence (AI).
“Fintech companies are increasingly relying on AI to better understand their customers, streamline operations and make smarter decisions,” the report says. “AI’s predictive capabilities also play a significant role in managing risk and uncovering fraudulent schemes.”
Among other trends, deVere Group names the further development of mobile payment systems and strengthening of cybersecurity measures, including control over the storage and processing of biometric data.
“As the industry evolves, so do the threats from cybercrime. Over the next year, we expect companies to respond to the rise in such threats by strengthening their cybersecurity measures. Biometrics provide a new level of security, allowing you to improve the process of user identification and protection of confidential financial information. By introducing advanced technologies for processing biometric data, fintech companies will increase the level of customer trust and reduce the risks associated with data theft and cyber attacks,” the forecast says.
It’s time to grow up
A noticeable trend in 2024 will be the expansion of “global financial inclusion,” namely, the attraction of new segments of the population and business to its services. “Fintech plays a huge role in expanding the range of financial services for populations not covered by traditional banking services around the world,” say deVere Group experts.
A similar opinion about the qualitative change in fintech is shared by researchers from the consulting company McKinsey, who released their forecast immediate development of the industry. “After years of hyper-growth, fintechs are entering a new era of disruption where the focus will be on maintaining profitability and self-sufficiency,” McKinsey said in its forecast.
Researchers note that as of July of this year, the market capitalization of public fintech companies alone was $550 billion, double what it was in 2019. At mid-year, there were 272 fintech unicorns (startups with market capitalizations exceeding $1 billion) worldwide. Their total capitalization amounted to $936 billion, which is seven times more than in 2018.
However, such rapid growth cannot last forever. After a surge in 2020–2021, fintech funding volumes returned to average levels in 2022.
The worsening geopolitical situation and growing economic uncertainty also played a negative role. “The correction also affected venture capital investment in the fintech industry,” notes McKinsey. “The decline was about 40%, falling from $92 billion in 2021 to $55 billion in 2022.” These developments coincide with the trend of the fintech industry gradually transforming into a more mature and more stable market.
“Based on our interviews with market participants and our own research, we can say that the near development of the fintech industry will be determined by three main themes. First, fintechs will continue to benefit from the radical transformation of the banking industry, the rapid adoption of new technologies and electronic commerce around the world, especially in developing countries, the study authors note. Second, even taking into account short-term external pressure on fintechs there is enough space for the further development of their financial ecosystems. Thirdly, the recent market correction did not affect all fintech companies – a number of market participants from certain segments showed a higher level of resistance to negative factors than their peers.”
McKinsey expects fintech revenue to grow on average three times faster than traditional banking between 2023 and 2028.
“Looking to the near future, we can say that the fintech industry will continue to face challenges.
At the same time, it still has a number of promising and not yet fully realized areas. Investors have already begun to adapt to the new financial paradigm in the context of high interest rates and inflation, which have significantly adjusted their assessments of risks and earnings. The technological revolution continues to bear fruit, generating new business opportunities. If in traditional banking the average annual revenue growth until 2028 is expected to be around 6%, for fintechs it will be more than 15%,” McKinsey experts believe.
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