This year has been tricky for fintechs — the fallout of the economic downturn has been particularly challenging — but exciting new developments around AI and blockchain have shown promise.
With such innovation also comes scrutiny and new regulations to navigate. Kirk Donohoe, chief product officer at Mangopay, says he anticipates a heightened level of regulatory oversight for fintech in 2024, noting how such companies will need to take heed of changes concerning data privacy, cybersecurity and financial services — due to AI security threats and new DeFi (decentralised finance) regulations.
But that isn’t Donohoe’s only fintech prediction for 2024. We asked him — and Maryam Velasque, partner, financial services and private equity at X-PM — for the hottest trends they see making waves in 2024.
1/ A wider range of AI applications
Donohoe says over half of fintech companies are now using AI to deliver new products and services as key differentiators.
“With models making it easier and cheaper to integrate AI capabilities within digital products, we will see more banks and fintech companies double down on AI initiatives in hopes to release products that will bring incremental revenue.”
Donohoe believes there will be a wider range of AI applications in 2024, including creditworthiness assessment, robo-advisory services, algorithmic trading and risk evaluation and management. This trend, he says, will not only set digital products apart but also enhance the overall fintech experiences for end-users, making it an important feature influencing customer-buying decisions.
2/ More sustainable payments
Fintech and banks are responding to the need for more sustainable financial solutions — in part, perhaps, due to the European Commission’s Corporate Sustainability Reporting Directive now requiring banks and insurance companies to disclose more information about how they operate and deal with environmental change.
One way that fintech and banks are making finance more sustainable is by reducing their own environmental impact. Some banks, for example, are committing to becoming carbon neutral and reducing their waste. Another method is by promoting digital payment solutions, a trend that’s expected to evolve in 2024.
“Digital payments are more eco-friendly than traditional payment methods, such as cash and credit cards,” says Donohoe. “For example, digital payments do not require the production of physical cards or the use of paper receipts.”
Velasque agrees, noting that she expects to see an uptick in digital payment platforms.
“With the global shift towards cashless transactions, platforms that facilitate smooth, quick and secure digital payments are in high demand,” she says. “These services, including peer-to-peer transfer apps, mobile wallets and services for merchants to accept online payments, are going to grow.”
3/ Increased adoption of stablecoins
A stablecoin is a type of cryptocurrency. Its value is linked to a “stable” currency or a commodity, like gold, to help stabilise its price. Companies like CheapAir, ExpressVPN, Twitch and Travala.com accept stablecoins as a method of payment — and Donohoe thinks adoption will continue.
“Stablecoins have traditionally served as trading capital and settlement tools for traders,” says Donohoe. “However, in recent years, we've witnessed an increasing acceptance of stablecoins in the business sector through innovative fintech companies offering simpler and faster ways to convert into fiat currencies.
“This is leading to faster adoption, with companies like Western Union and MoneyGram now offering stablecoins for cross-border transfers.”
4/ A shift of revenue models to SaaS
Donohoe believes that with interchange erosion reducing the amount in fees fintech companies are able to earn, the shift towards new revenue models like SaaS from traditional software distribution will gain momentum in the fintech sector next year.
“The SaaS model helps fintech achieve returns for the considerable investment they’ve put into new products and experiences, as well as provide predictability of revenue while improving accessibility for customers,” he says. “Additionally, the scalability of SaaS solutions allows businesses to flexibly accommodate their growth.”
5/ Mergers and acquisitions
Velasque expects to see more consolidation and M&A activities in 2024 — and fewer early-stage startups.
“Established fintech firms and traditional financial institutions will look to merge or acquire others to expand market reach and service offerings,” she says. “This consolidation phase, while reducing the number of new startups, signifies a move towards a more stable fintech ecosystem.”
Donohoe agrees, noting how the global investment focus shifting towards solving climate change and other emerging technologies actually bottoms out fintech startup valuations, hindering their ability to grow.
“We’ve seen almost double the number of M&As in the beginning of 2023 and we expect more in 2024, as the cost to acquire becomes cheaper than the cost to build.”
6/ More regulation as the Brexit grace period ends
There is expected to be an increased focus on regulatory compliance as a whole in 2024 as the grace period for FCA EU licences requirements comes to an end.
Companies operating in the UK under a Temporary Permissions Regime (TPR) will need to be fully authorised by the FCA to continue operating in the UK.
“Fintechs have been grappling with regulatory hurdles primarily due to compliance issues,” says Velasque. “The pathway to 2024 might necessitate a stronger adherence to — or adaptation of — the new regulatory frameworks to navigate these hurdles successfully.”
7/ Increased regulation around DeFi
Decentralised finance, or DeFi, integrates cryptocurrency and blockchain technology to manage financial transactions without banks, exchanges or brokerages.
Donohoe says the UK government is supportive of the development of DeFi, and the FCA has recognised its potential benefits — such as increased financial inclusion and innovation. However, the scale of its adoption has prompted regulators to look into possible security threats it may pose.
“Recently, the FCA has limited remit over crypto, and its current focus is on ensuring that crypto firms that operate in the UK comply with anti-money laundering and counter-terrorism legislation,” says Donohoe. “Meanwhile, many jurisdictions around the world are still in the infancy of developing their approach to regulating crypto assets and crypto asset services.”
How to stay ahead
Donohoe recommends that fintechs collaborate with regulators when attempting to keep up and ahead of changing rules.
His top tips are:
- Adopting a customer-centric approach: If this is a top priority for fintech companies, he says, adhering to regulatory requirements would come naturally
- Scenario planning: Develop contingency plans for regulatory changes to ensure that your business can adapt quickly to new requirements without major disruptions
- RegTech solutions: Explore regulatory technology solutions that can automate and streamline compliance processes
- Regulatory sandbox: If available, consider participating in regulatory sandboxes that allow you to test and innovate within a controlled environment
- Adaptive technology: Invest in technology that can easily adapt to changing regulatory requirements, making it easier to implement updates and changes as needed
