Fintech Trends to Watch in the Second Half of 2024

Hot Fintech Trends to Watch in the Second Half of 2024

Posted: July 8, 2024 | Updated: July 8, 2024

Financial technology products and solutions are integral to daily life. The methods consumers use to access bank accounts, make purchases, and obtain loans are undergoing significant changes. The fintech sector has experienced rapid growth and challenging periods. However, emerging trends are shaping its future direction. For those interested in what lies ahead for this expanding industry, we have listed the key fintech trends to watch in the second half of 2024. These trends, derived from research and data from various fintech sources, aim to provide valuable insights for fintech developers and service providers.

Currently, approximately 90% of people in the US utilize fintech services. The global fintech market is projected to grow from $209.7 billion in 2024 to $644.6 billion by 2029.

Top 7 Fintech Trends to Watch in the Second Half of 2024

1. Embedded Finance on the Rise

Embedded finance involves incorporating financial services within non-financial websites and applications. A recent study predicts that the embedded finance market will grow significantly, expecting to generate around $320 billion in revenues by 2030, primarily driven by payments, lending, and insurance.

Embedded Finance on the Rise - Global neobanks market value projection infographic

Source: Mordor Intelligence

This approach allows financial services to be integrated directly into various non-financial platforms, facilitating the everyday use of financial features. It effectively eliminates the barriers between financial services and other sectors, providing users easy access to financial tools without needing separate banking or financial apps. For fintech companies, it increases customer access, enabling the use of digital wallets and other fintech payment methods during online transactions, including the use of online savings accounts.

Notable trends in fintech include offering interest-free loans at the point of online checkout, creating straightforward one-click payment applications, and launching branded checking accounts and debit cards tailored for primary users.

2. Growing Adoption of Open Banking

Recent data suggests the open banking market is set to expand significantly. Statista forecasts that by 2024, 63.8 million people will utilize open banking services. Open banking represents a significant transformation in financial services, primarily focusing on efficiently sharing and using financial data. This technology provides enhanced payment experiences through API-driven services, responding to the need for quicker, more secure, and customer-focused solutions.

Open banking allows for the regulated exchange of financial information. Account holders can approve the secure sharing of their financial data with alternative financial institutions. These third-party providers can access client financial information through accessible APIs. This setup benefits numerous fintech startups and companies involved in budgeting, expense tracking, financial planning, lending, and more.

Growing Adoption of Open Banking - Transaction value in the neobanking market infographics

Source: Statista

As more entities adopt open banking, regulatory bodies worldwide are updating their frameworks to support this shift, ensuring consumer protection and data security. The European Union’s PSD2 and the UK’s Open Banking Standard are leading examples of such regulations. These rules not only require the secure sharing of data but also demand customer consent, setting benchmarks for other regions.

Despite its potential, only 10% of open banking’s capabilities have been tapped into. The sector continues to hold considerable potential, with users gradually recognizing the benefits of open data. This exchange of information fosters academic research, software development, and the improvement of financial services.

3. NeoBank’s Appeal to GenZ

The shift toward home-based activities during the pandemic has also impacted the financial sector, leading to a rise in neo-banks. These digital-only banks mirror the services of traditional banks but operate without physical branches, instead relying entirely on digital platforms.

Neo-banks maintain the essential features of traditional banks but offer a smaller range of services, focusing on quality and reduced fees. Interest in neo-banks is increasing, with projections suggesting nearly 400 million users by the end of 2024, underscoring the growth of digital banking.

Gen Z, a key demographic for this global fintech trend, typically makes its first purchases earlier than prior generations. They prefer a fluid digital experience and are receptive to automated customer service. Disliking paperwork and valuing time efficiency, Gen Z finds the neo-bank model appealing for its ease in setting up accounts and integrating with digital wallets, banking systems, or eCommerce platforms.

Many traditional banks are rebranding or establishing neo-bank subsidiaries to keep up with this trend. As of January 2023, over 350 neo-banks were operational. Bloomberg predicts that by 2026, the number of neo-bank users will reach 224 million.

4. AI’s Growing Role in Banking and Financial Services

AI machine learning and large language models (LLMs) are poised to continue their transformative impact on banking and financial services into late 2024 and 2025. The focus will shift from enhancing internal efficiencies to deploying more customer-oriented services.

Financial service companies will increasingly use AI-driven chat agents, offering users real-time support and insights. Banks and financial institutions are set to use AI to tailor financial solutions and streamline loan application processes. AI and ML algorithms will evaluate data to determine creditworthiness, detect trends, and optimize loan conditions.

Additionally, AI will personalize user experiences in embedded payment solutions while boosting security with sophisticated fraud detection techniques. AI, combined with robotic process automation (RPA), will enable firms to refine internal operations, thereby increasing efficiency and allowing staff to concentrate on higher-value tasks.

However, deploying customer-facing AI applications involves greater challenges than internal applications, primarily due to increased regulatory oversight. As a result, fintechs will likely approach this area with caution.

5. Regtech Solutions Will Streamline Operations

Financial institutions handle vast quantities of data every day. This data is too intricate and extensive to sift through manually. Additionally, these companies must deeply understand the extensive array of laws and regulations they are required to follow.

This is the role of regtech, or regulatory technology.

Regtech solutions employ cloud computing, machine learning, and big data analytics to detect and mitigate risks, ensuring compliance with regulations.

Such technologies deliver increased operational efficiency, enhanced precision, and deeper insights across the organization. The regtech sector is projected to grow by 200% by 2026.

Financial institutions investing in regtech solutions anticipate significant cost savings, particularly as penalties for non-compliance can reach millions of dollars. For example, Bank of America once incurred a $42 million penalty from New York State for inadequate disclosures regarding the handling of client share orders.

Regtech Solutions Will Streamline Operations infographics

Source: Fortune

RegTech simplifies how organizations interact with regulatory bodies, allowing for uninterrupted data transmission, ongoing compliance monitoring (such as adherence to PCI compliance standards), and the tracking of financial crimes.

6. ESG Drives New Fintech Opportunities

The imminent climate-related disclosure requirement from the U.S. Securities and Exchange Commission marks a significant change in business regulations. Fintech companies must know their emissions and demonstrate efforts to reduce climate risk. Leaders must establish systems, possibly collaborating with their finance teams, to report ESG data publicly.

This requirement shift paves the way for the rise of new fintechs dedicated to ESG-oriented activities. These include tracking carbon and managing supply chains, financing alternative energy and climate projects, and managing property and energy.

Fintechs focusing on ESG stand to increase and draw significant investment to bolster these initiatives.

7. Robotic Process Automation to Streamline Routine Finance Tasks

Robotic Process Automation (RPA) is reshaping finance departments in numerous industries by automating routine and labor-intensive tasks, thus improving efficiency and accuracy. Several financial institutions have adopted RPA to streamline processes like data collection for customer due diligence and KYC, reducing the time required from minutes to mere seconds.

RPA is progressing from automating individual tasks to entire processes, significantly enhancing the precision of financial analysis and forecasts. This advancement aids finance functions such as invoice management and account reconciliation and extends to more complex activities like tax calculations and financial reporting.

user penetration of fintech to rise due to robotic process automation infographics

Source: Statista

Plus, combining RPA with cognitive automation technologies, such as machine learning and natural language processing, creates new opportunities for finance departments. These technologies enable more sophisticated applications like auditing expense reports and managing compliance more effectively.

Financial leaders increasingly acknowledge the benefits of RPA in driving cost reductions and operational efficiencies. The global RPA market size is projected to reach $50.50 billion by 2030.

Conclusion

As the fintech sector evolves, developers and service providers must stay informed on emerging trends. The second half of 2024 promises significant developments, including the rise of embedded finance, the expanding adoption of open banking, and the growing appeal of neo-banks among GenZ. AI continues to revolutionize banking and financial services, offering enhanced customer experiences and improved operational efficiencies. Regtech solutions are set to streamline regulatory compliance, reducing risks and costs.

Additionally, ESG initiatives are creating new fintech opportunities, while Robotic Process Automation (RPA) is transforming routine finance tasks. Embracing these trends will enable fintech companies to innovate, stay competitive, and meet the evolving needs of their customers.

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