There are several factors that will contribute significantly to fintech trends in the world between 2024 and 2030. First and foremost is the increasing penetration of mobile phones, smartphones, and the internet. This will be followed by falling internet costs and expanded network coverage.
Secondly, the growing young and dynamic population, which favors an increasing demand for financial services and their efficiency. The growth of the young population is a key driver of fintech trends, as a quarter of the world's population - 1.8 billion people - are now aged between 15 and 35. This is not only the largest generation of young people the world has ever seen, but also the most educated generation ever. In Africa alone, the number of young people is expected to double to more than 830 million by 2050 (UNCCD).
India has the largest youth and adolescent population ever. According to UNFPA projections, India will continue to have one of the youngest populations in the world until 2030 (UNFPA).
Proportion of selected age groups of world population and in regions in 2023
Thirdly, the increasing demand for financial services and their efficiency is leading to the rapid growth of fintech technology worldwide. The development of technology in finance includes cloud computing, artificial intelligence, big data, cryptography, smart contracts, blockchain and distributed ledger technology, machine learning, decentralized finance, RPA, API, cybersecurity and protection, and more.
Fourth, the COVID-19 accelerated fintech growth. It is contended that the industry is even better off in 2021, thriving on the backs of the pandemic-triggered acceleration in digitization and a financial system that was flooded with liquidity. Financing rose by 177 percent year-on-year to $92.3 billion, and the number of deals increased by 19 percent. In July 2023, listed fintechs had a market capitalization of $550 billion, a doubling compared to 2019. In addition, there were more than 272 fintech unicorns with a total valuation of $936 billion, a seven-fold increase from the 39 companies valued at $1 billion or more five years ago. (McKinsey).
So, what are the predictions for fintech trends between 2024 and 2030? Predicting specific fintech trends is difficult, as the market and technology in the financial sector are evolving rapidly. However, it is likely that some overarching trends and areas of innovation will shape the fintech landscape over the next decade. Here are my predictions:
1. Digital payment and wallet
Since 2000, payments fintechs have accounted for about 25% of cumulative equity funding ($120 billion) and the general forecast is that payments will continue to be the largest fintech segment in 2030 (BCG). As global internet penetration increases, the trend will move more and more towards digital payments, even if offline payments still dominate in some parts of the world (e.g. in Africa, where cash is king). I expect digital payments to grow strongly in both the B2B and B2C sectors. In some parts of the world, this phenomenon will be supported by a strong expansion of retail e-commerce. I also expect to see some technological leapfrogging, particularly in cashless payments in emerging markets such as Indonesia, India and Nigeria.
2. Lending
‘’ SMEs have been underserved by traditional financial-services providers, despite the fact they represent about 90 percent of businesses and more than 50 percent of employment worldwide. And in developing countries, the finance gap for micro, small, and medium-size enterprises (MSME) is estimated to be approximately $5 trillion, or 1.3 times the current level of MSME lending. Fintech firms have successfully addressed some of SMEs’ needs worldwide, especially in developing countries.’’ (McKinsey)
The lending business will continue to dominate in the next decade, as can be seen in Exhibit 12. This applies not only to SMEs and MSMEs, but also to consumer lending. Consumer credit, including mortgages, car loans and personal loans, supports consumer spending, which is a key driver of economic activity. As consumer behavior evolves, demand for various forms of consumer credit is expected to continue. Lending is a fundamental aspect of financial intermediation that serves as a catalyst for economic growth, consumption and investment, and is expected to remain a dominant force in the financial industry for the foreseeable future.
3. Embedded finance
The role of fintechs will be more prominent than ever in the area of embedded finance. The integration of financial services into non-financial products and platforms, allowing businesses to offer financial products seamlessly within their existing customer experiences. I predict that embedded finance will find promising new use cases in many industries such as logistics, transportation, healthcare, proptech, clean-tech and many others. The offering will reach a large scope from embedded lending, embedded insurance, buy-now-pay-later (BNPL) options in different platforms, financial management tools in super apps to an increase in cross-sell offers.
4. Digital bank and personal financial management
The digital bank or neo-bank is attractive to customers in general and the younger generation in particular as it offers simplicity and efficiency. It involves a high degree of process automation and web-based services and can include APIs that enable a cross-institutional set of services to offer user-friendly banking products and execute transactions. The continued shift towards digital banking offering more seamless and personalized digital experiences as well. This may include mobile banking apps, digital wallets, and AI-powered financial advice.
5. Generative AI in fintech
‘’ This new frontier in artificial intelligence has created a step change in the human-digital interface that is natural-language based. It not only provides high-level customer service, but also will aid incumbents by helping them leapfrog their own technical constraints. For instance, Stripe is already using GPT-4’s enterprise beta to carry out operational tasks such as streamlining UX, triaging customer issues, and combating fraud. In the future, generative AI will facilitate so-called digital financial concierges, which will complete tasks such as paying bills, sending remittances, checking budgets, disputing charges, and the like—in lieu of human interaction. Generative AI can also be used to simulate cyberattacks and generate decoy data that will help train models to protect FIs. This technology will enable the hyper-personalization of financial products and services, analyze vast swaths of data to identify patterns, and facilitate human decision-making. It will also bring significant efficiencies to customer-service and administrative centers in labor-intensive industries such as insurance and wealth management.’’ (BCG)
As with many other services, the key factor for success is customer satisfaction. Customer satisfaction means paying customers who keep the company's wheels turning. Generative AI is transforming the customer experience in the fintech industry by automating repetitive customer service tasks, providing personalized financial advice, and ensuring fast and accurate interactions with customers. With this type of offering, generative AI in the financial industry is expected to endure beyond 2030.
6. Insurtech and embedded insurance
Technology in insurance sector plays a key role in demystifying some of the complexity around underwriting through different tools, such as artificial intelligence, machine learning, smart data analytics, telematics, IoT, and chatbots. Insurtech improves the overall experience by developing technological innovations to reduce costs and increase the efficiency of the current insurance model. With this competitive advantage, there are more customers who can adopt insurance services.
Embedded insurance offers the bundling of insurance cover or protection for consumers within the purchasing experience of an existing product or service. The proliferation of embedded insurance services across all industries will increase the reach of insurtechs. An example of this is an insurance-based service that provides registered carriers of a logistics company with comprehensive insurance cover for trucks and goods in transit or protects them against accidental events, loss of goods or damage. There are also insurance companies that offer integrated insurance for fintechs, e-commerce busineses and everything in between.
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7. Open banking and API integration
Open banking and API integration will continue to be important in the fintech landscape due to their ability to foster innovation, enhance customer experience, and drive collaboration across the industry. Open banking initiatives enable banks and financial institutions to securely share customer data with third-party providers through standardized APIs, facilitating the development of innovative financial products and services. By leveraging API integration, fintech companies can seamlessly connect with banks and other financial institutions, enabling them to access a wealth of customer data and offer tailored solutions that meet specific needs. This interoperability enhances customer experience by providing access to a broader range of financial services and empowering individuals to manage their finances more effectively.
‘’ APIs could also be used to amass data from various unrelated sources such as social media, news, and personal devices to create highly accurate risk assessments for use in credit underwriting, fraud detection, credit scoring, insurance underwriting, and the like.’’ (BCG)
8. Decentralized Finance (DeFi)
While the adoption of DeFi is still a topic of debate due to its reliance on smart contracts and blockchain technology to provide financial services without intermediaries, discussions surrounding DeFi are expected to continue. It is challenging to predict the full extent of the expansion of decentralized finance platforms and applications by 2030. However, DeFi still holds significant promise as it continues to revolutionize the traditional financial sector by offering decentralized, peer-to-peer financial services built on blockchain technology. Several key trends are expected to shape the future of DeFi, including the expansion of use cases. DeFi is likely to expand beyond its current focus on lending, borrowing, and decentralized exchanges to encompass a broader range of financial services, including insurance, asset management, derivatives trading, and more.
There is also possibility that DeFi platforms will increasingly integrate with traditional financial systems, enabling interoperability between decentralized and centralized finance and facilitating the seamless transition of assets between the two ecosystems. Lastly, it is argued that DeFi has the potential to drive financial inclusion by providing access to financial services for underserved populations around the world. Efforts to make DeFi more accessible and user-friendly, particularly in developing regions, will contribute to greater financial inclusivity.
9. AI and machine learning in finance
The future trends of AI and machine learning in finance are poised to revolutionize the industry in several ways. Firstly, these technologies will increasingly be utilized for risk management and fraud detection, enabling financial institutions to identify and mitigate potential threats more effectively. Secondly, AI and machine learning will enhance customer experience through personalized services and tailored product recommendations, leading to greater customer satisfaction and loyalty.
Thirdly, automation of repetitive tasks such as data entry and processing will streamline operations, reduce costs, and improve efficiency. Additionally, AI-driven predictive analytics will enable more accurate forecasting and decision-making, empowering financial firms to stay ahead of market trends and capitalize on opportunities. Lastly, the integration of AI and machine learning with other emerging technologies like blockchain and IoT will further expand their applications, unlocking new possibilities for innovation and growth in the finance sector.
10. Sustainability and green finance
Sustainability and green finance are expected to continue growing as major trends, driven by increasing awareness of environmental issues and the imperative for businesses to adopt more sustainable practices. Some key trends in this area include: ESG integration, green bonds, green finance and sustainability, impact investing, corporate sustainability initiatives, and climate risk management.
11. Cybersecurity and privacy
Cybersecurity and privacy in fintech are critical areas of focus due to the increasing frequency and sophistication of cyber threats, as well as the growing regulatory scrutiny around data protection. Some key trends in cybersecurity and privacy within the fintech sector include: enhanced authentication methods (fintech companies are implementing more robust authentication methods, such as biometrics and multi-factor authentication, to strengthen account security and prevent unauthorized access), AI-powered threat detection, zero trust architecture, cloud security, privacy regulations compliance, third-party risk management, cybersecurity training and awareness, and incident response planning and regulation.
12. Regtech
Regtech, or regulatory technology, is an emerging field within fintech that focuses on leveraging technology to facilitate regulatory compliance and risk management processes. We will see continued regulatory developments and adaptations to accommodate technological innovations in finance, fostering a balance between innovation and consumer protection while addressing emerging risks such as data privacy, cybersecurity, and digital identity management. This trend has a solid foundation as the global cost of financial crime compliance is costly. In 2021, global spending on financial crime compliance for financial institutions amounts to $213.9 billion. Example includes JP Morgan that was obligated to pay $125 million for not following the right compliance controls.
Conclusion
The future of fintech appears to be dynamic and multifaceted, with several emerging trends poised to shape the industry over the next decade. From the continued dominance of payment, lending, embedded finance and digital banking to the transformative potential of AI, gen AI, and machine learning, fintech is on a trajectory of innovation and disruption. Additionally, sustainability, cybersecurity, regtech, and open banking are expected to play increasingly vital roles, reflecting broader societal and technological shifts. As the trends evolve, collaboration, adaptability, and a keen focus on customer needs will be paramount for fintech companies to thrive in this changing environment.
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