Fintech has been driving change in financial services for more than a decade, attracting multi-billion-dollar investments along the way. Recent quarters have seen a slowdown in the rate of deal closures, but fintech innovation remains a very powerful economic driver across the global economy.

Finding the right concentration

Source: Pulse of Fintech, KPMG’s semi-annual analysis of global fintech financing

Despite some easing in the pace at which fintech investments are being made, there is no shortage of investor optimism in this space and there is every reason to expect that fintech will continue to help shape the evolution of the financial services sector over the of the current decade and beyond.

In particular, there is now enormous interest in the potential integration of AI and particularly generative AI technologies into financial service offerings at all levels. Meanwhile, the transition to “open banking” and data sharing in the interest of dramatically improving consumer experiences continues to underpin technology-driven evolutions of payment systems, savings apps and lending solutions alternatives.

Continuous impacts

The pace and way in which fintech solutions are integrated into financial services differs across regions and regulatory environments, with consumer demands, security concerns and data protection considerations influencing how they take shape specific markets. But with fintech’s ability to improve everything from payment processing speed to fraud detection standards, and reduce costs while strengthening customer experiences, the scope for impactful innovation in this sector remains wider than ever.

Challenges to overcome

While fintech innovators are generally busy finding ways to offer solutions to problems, the industry as a whole has been hit by some unavoidable headwinds of late. In fact KPMG, in itslet’s look at the fintech landscape looking ahead to 2024, he describes the sector as facing “a storm of global challenges”. These problems have generally been caused by macroeconomic factors such as stubbornly high inflation rates, in many parts of the world, coupled with unnecessary increases in financing costs.

All eyes on artificial intelligence

Source: Artificial Intelligence in Banking: Artificial Intelligence Will Be an Incremental Game Changer by S&P Global

Looking ahead, as inflation generally continues to decline throughout 2024, the environment for investors is expected to improve, with AI-driven technology representing a clear and bright step in the landscape. Indeed, artificial intelligence looks set to make a big contributionthe next wave of fintech developments. Certainly from an investment perspective, the financial services industry is supporting AI in a big wayJuniper research predicting that generative AI investments among banks will be worth $85 billion globally by 2030, up from $6 billion expected to be in those areas in 2024.

For now, the focus of AI investments in financial services is often on easy wins through efficiency gains, but with technology evolving so rapidly, more impactful innovations and changes for entire business models are also very in sight. As Vice President of IDC’s Global Research Group Rick Villars explains: “In 2024, the shift to AI will enter a critical phase everywhere as companies make major new investments with the goal of dramatically reducing the time and costs associated with customer and employee productivity use cases. From there, the focus will shift to investments that increase revenue and business results.”

Enhance inclusion

More broadly, the emergence of fintech at the heart of the global financial services landscape has been one of the most impactful economic, social and technological evolutions of recent decades. Fintech-driven solutions are now taken for granted and are an integral part of how myriad banking-related activities are undertaken on a daily basis around the world.

Coupled with the onset of the Covid-19 pandemic and the dramatic increase in mobile phone use globally over the past decade, fintech innovation is strengthening financial inclusion around the world, particularly in developing countries. development where many millions of people remain without banking services. According to the World Bank, those same forces and technological advances have helped open access to banking services across all demographics in societies around the world.

Emphasis on value creation

The explosion of fintech startups early in the industry’s evolution has helped transform the landscape of the financial services industry and given rise to what experts at McKinsey & Company describe as“hypergrowth”. More recently, the F-Prime fintech index reported, the sector saw the value of the collective market capitalization of publicly traded fintech companies double to $550 billion between 2019 and July 2023. Over the same period, the number of fintech unicorns worth more than $1 billion has exploded from 39 to 272, McKinsey analysis suggests.

Looking ahead, market expectations are that the focus for innovation among fintech companies will focus more on sustainable value creation rather than experimentation or risk-taking. However, there is little doubt among analysts that fintech companies and investors will continue to play an important role in shaping the financial services landscape, with the adoption of digital banking expected to continue to grow rapidly, e-commerce services -expanding commerce and artificial intelligence driving all kinds of progress.

Notably, even as technology-driven companies focus more on sustainable value creation rather than immediate-impact innovation, McKinsey experts estimate that fintech revenues will grow at a rate nearly three times faster than the traditional banking between 2023 and 2028.

Source: Fintech: A New Growth Paradigm by McKinsey & Company

Competition vs collaboration

The history of fintech has often been one of startups responding to consumer demands that more traditional banks have not been able to meet on their own. This dynamic has fueled cycles of innovation and led to dramatic shifts in the financial services landscape, with traditional banks ultimately forced to respond to protect their market share and keep their customers happy where they can.

By 2024, fintech companies will become a key part of the competitive parameters within which all financial services activities take place, with large banks often working alongside startups to update their offering, particularly regardingpayment processand other times compete against them and try to maximize your advantages.

But whether their efforts are geared towards partnering with established players in the banking industry or against them, there remains enormous scope and potential for fintech companies to continue to make waves across the industry and fundamentally influence how people they bank all over the world.

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