Fintech trends. What is important to the CIO

The fintech industry has demonstrated impressive growth rates in recent years, transforming traditional financial services and creating new opportunities for consumers and businesses. Here's an overview of the key trends in this area, according to which fintech will soon evolve globally.

An optimistic future

The fintech industry began to grow rapidly during the pandemic, when the limitations of traditional financial instruments became evident and fresh, unconventional solutions were required. For example, McKinsey & Company, an international consulting firm, noted in its study ‘Fintech: A New Growth Paradigm’ that as of July 2023, the market capitalisation of publicly traded fintech companies was $550 billion - twice as much as in 2019. As of the same period, there were over 272 fintech unicorns with a total valuation of $936 billion. In comparison, 5 years ago, there were only 39 firms in the market with a valuation of $1 billion or more.

Compared to the beginning of the pandemic, the excitement over fintech has now died down somewhat. According to Innovate Finance, by the end of 2023, investment in the global financial sector will be approximately $51.2 billion. This is 48% less than in 2022, when the figure stood at $99 billion. Despite the fact that there is less investment in this area, experts agree that years of steady growth lie ahead for the industry. According to Mordor Intelligence's forecast, the size of the global fintech market will reach $397.24 billion by 2029 from $228.24 billion in 2024. During this period, the compound annual growth rate will be 11.72%. The largest market, according to the company, is currently North America, but experts consider Asia Pacific to be the fastest growing market. McKinsey & Company analysts assume that in the period from 2023 to 2028, revenues in the fintech industry will grow almost three times faster than in the traditional banking sector.

The Russian fintech market is also on the rise. Smart Ranking estimates that the total revenue of the 100 largest fintech companies in Russia for 2023 was RUB 223.8 billion, up 19.8% year-on-year. Thus, in Q4 2023 alone, the fintech market grew by 5.6% year-on-year.

Technological drivers

McKinsey & Company analysts note that the main factor that has allowed fintech companies to develop so vigorously in recent years is their ability to innovate quickly. ‘Because fintech companies are not as burdened by outdated systems and processes as traditional banks, they can more flexibly use new technologies to anticipate and meet customer needs,’ the experts emphasise.

Currently, the key technology that is influencing the development of fintech is artificial intelligence. Experts of the Russian FinTech Association in their study ‘30 Trends of 2024: The Most Important in Technology, Business and Fintech’ call AI ‘a basic technology, the impact of which will be as large as that of the steam engine, electricity and the Internet’. Artificial intelligence is helping to achieve new levels of quality and usability in products, as well as reducing time-to-market and improving labour productivity. According to the Association, by 2026, 30% of new business applications will use neural networks to create personalised, adaptive user interfaces: by comparison, these figures currently stand at less than 5%. In other words, if in previous years fintech companies were only looking at the possibilities of using AI in their products, then from 2024 the stage of their practical adaptation and expansion of the number of products with AI ‘under the bonnet’ has come.

Another trend that will result from the widespread use of AI is that more and more fintech companies will refine their products not only in response to customer requests, but also in accordance with the requirements of AI algorithms. After all, now you will have to ‘sell’ your product not only to people, but also to machines.

The international financial and consulting company deVere Group noted the growing popularity and importance of cryptocurrencies among the key factors influencing the development of the fintech industry. Now more and more traditional banks are looking at this instrument, and governments are gradually developing the practice of legislative regulation of this industry. In addition, more and more central banks are announcing plans to issue their own digital currency – Central Bank Digital Currencies (CBDC).

Reuters, citing the Atlantic Council research group, notes that, as of the beginning of 2024, the issue of CBDC creation is being worked on in more than 130 countries, which together account for 98 per cent of the world economy. Several countries have already implemented CBDC in their financial infrastructure: Nigeria, Jamaica, Bahamas. According to experts, China, India and the European Union are very close to the moment of a full-fledged launch of digital currency.

Russia also has a programme to launch a digital ruble, which will become the third form of money in the country in addition to cash and non-cash forms. By the end of 2024, the digital ruble will be tested in certain types of settlements, and from 2025 it is planned to launch it on a mass scale.

Tokenisation of assets, when real assets such as real estate, shares, artworks, rights to future income are transformed into digital tokens on blockchain, is another important trend in the fintech sector, which has been going on for several years and is not losing momentum.

New configuration

The fintech industry is not only affected by technological factors, it also has to adapt to the changing political environment. For example, the FinTech Association notes a global mega-trend that will soon determine the work of almost all economies in the world - it is deglobalisation. Certain elements of deglobalisation began to emerge in the pandemic, when many decades-old economic supply chains and international trade channels were disrupted. A series of armed conflicts around the world and sanctions wars have only intensified the trend towards the formation of several economic zones relatively independent of each other instead of a global world market.

The global financial infrastructure is also forced to adapt to this situation. More and more countries are thinking about the task of building their own technological sovereignty, including in the financial sphere. Russia, being under severe sanctions restrictions, is at the forefront of this process. For example, our country is actively developing an alternative to the international SWIFT system - the Financial Messaging System (FMS). Import substitution of international payment systems is also successfully underway: the use of Mir cards is expanding, and the capabilities of the Faster Payments System are growing (for example, thanks to the FPS, it is possible to make cross-border transfers, among other things).

Threats of the new world

Any new technology carries the risk that it will be used for criminal purposes. And in the financial sector, where the most sensitive area – finance – is concerned, these risks can manifest themselves to the full and become a serious problem for businesses and consumers.

For example, AI technology has opened a Pandora's Box in the form of the production of dipfakes that can mimic the identity of a real person, the development of new malware and ransomware. Computer crime research group – Computer Crime Research Centre (CCRC) warns that over the next two years, cybercriminals will use AI to develop new attack tools against both citizens and businesses. They predict that cybercrime damages will be around $12 trillion by 2025.

Given this fact, deVere Group analysts believe that fintech companies will increasingly invest in reliable security measures. Biometric authentication methods, such as fingerprints and facial recognition, in particular, will get a big boost for development. These will help prevent identity theft and cyberattacks.

Another risk for many current players in the fintech industry may be the interest in this area on the part of non-core companies, the NAFI think tank said. For example, marketplaces, traditional banks and IT companies are already developing their own fintech services. For example, 94% of banks in a survey for Aite-Novarica Group said they plan to invest more in modern payment technologies to support end-user demand over the next two to three years. Competition in the industry is intensifying, and incumbent fintech players need to take this into account in their development strategies.

In the coming years, fintech will develop under increasing regulatory scrutiny. While 10-15 years ago fintech was a ‘sandbox’ for testing the most advanced and innovative solutions, now the government is starting to introduce increasingly strict regulatory frameworks, for example, in the field of cryptocurrencies or AI. This could create excessive administrative barriers for startups and innovation.