Fintech
The top 3 Fintech megatrends of 2024 – Fintech Schweiz Digital Finance News
Of Fintechnews Switzerland
May 24, 2024
2023 represented a reset year in the venture capital (VC) ecosystem, as investments saw their first significant decline since 2017. In 2024, investors expect gradual growth in both the number and size of funding rounds compared to 2023, with huge opportunities for fintech. startups in the fields of generative artificial intelligence (gen AI), sustainable finance, business-to-business (B2B) solutions and tokenization, says a new report from American VC firm Plug and Play.
The “Fintech Megatrends 2024” report, released in March 2024, shares the top fintech trends to watch out for this year, drawing on market research and interviews with VCs and investors from Plug and Play, LBBW Venture Capital, BlackFin Tech, Elevator Ventures, Breega, Illuminate Financial, Auxxo, DB1, Fidelity International Strategic Ventures, HV Capital and Dawn Capital.
Sustainable finance
While significant efforts have been made to reduce greenhouse gases, global progress towards net-zero emissions is lagging, with CO2 emissions from energy and industry growing by 60% since 1992.
These challenges are providing opportunities for sustainable finance startups to tap into, with Plug and Play highlighting renewable energy, carbon capture and accounting technologies, circular economy solutions, and precision agriculture technologies as promising verticals .
The VC firm also sees significant opportunities in the voluntary carbon market (VCM). VCM, which allows entities to purchase carbon credits to offset greenhouse gas emissions, it was appreciated to $2 billion in 2021. By 2030, the market is expected to reach $40 billion, with industries such as banking, oil and gas, and airlines expected to remain major users of VCM. In this space, technological solutions that improve market transparency and efficiency through automated verification and predictive analytics are expected to gain momentum.
The company also expects greater demand for transparent, standardized and accurate ESG data, fueling the growth of startups in the sector. This will happen in the context of stricter regulations on ESG standards and requirements.
Integration of generative artificial intelligence and RPA
Gen AI, a type of AI technology capable of producing various forms of content, including text, images, audio, and synthetic data, emerged prominently in 2023, driven by the excitement following the introduction of OpenAI’s ChatGPT eventually of 2022.
Despite the ensuing frenzy, enterprise adoption of AI systems lagged behind expectations in 2023, with a survey of around 600 Coatue business leaders, suggesting that while 60% of businesses planned to adopt AI in 2023, less than 10% had succeeded in doing so.
This slow adoption is attributed to challenges such as the complexity of integrating AI with existing systems, lack of accuracy, and insufficient quality data. These obstacles present opportunities for fintech startups to help businesses embed AI into their systems more effectively.
Plug and Play also expects increased demand for robotic process automation (RPA) this year as banks look to cut costs and reduce their workforces. RPA involves the use of automated “bots” to handle repetitive, high-volume, low-complexity tasks typically performed by employees, improving efficiency, reducing overall costs, and enabling continuous error-free operation. Over the past decade, RPA has emerged as a leading technology in business-to-business (B2B) software technology. This growth is expected to continue, with Forrester waiting the market size will reach $22 billion in 2025.
B2B tech and fintech CFOs
CFO technology, a fintech subsector dedicated to assisting CFOs and finance teams in managing their financial operations more efficiently, is another trend to look forward to this year. The industry is expected to grow on the back of technological advances, evolving business needs and increasingly complex regulatory environments.
Finance teams face significant challenges in managing and analyzing data due to its heterogeneous nature and complex interconnections. The process involves collecting and cleansing data from various sources, such as enterprise resource planning (ERP) systems, human resource management systems, invoicing tools, customers and suppliers, a tedious and time-consuming process that distracts from more strategic activities. Additionally, normalizing and reconciling data between systems is time-consuming, and getting budget input from numerous stakeholders leads to inefficiencies and errors.
CFO technology will emerge to address these challenges by providing a comprehensive suite of tools designed to improve accuracy, efficiency, compliance and strategic decision making within the finance function. They will improve collaboration and enable finance teams to take a more proactive approach across the entire value chain. These tools will cover areas such as ERP, accounting, payroll, spend management and compliance, Plug and Play says.
Tokenization, alternative assets among the main Wealthtech trends
In the wealthtech segment, asset tokenization is expected to gain traction this year due to the technology’s potential to increase liquidity, simplify trading and open up new investment opportunities. This trend will be driven by increased adoption by banking incumbents such as JP Morgan and ABN AMRO, who are developing infrastructure to support the trend. Plutoneo, a blockchain consultancy based in Germany, projects that the European security token market will grow by 81% annually over the next five years and reach €918 billion by 2026.
The democratization of alternative assets is another important trend to watch out for in 2024 and beyond. These assets, which include private equity funds, luxury goods, art and real estate, offer diversification and new investment opportunities for both institutional and retail investors. Fintech companies are leading this trend by making private banking accessible to a broader audience.
Ultimately, indexing is set to become a hot trend in fintech in 2024, driven by the rapid growth and needs of the Exchange Traded Fund (ETF) market. Many asset managers lack the sophisticated in-house capabilities necessary for index development and benchmarking, a gap that creates opportunities for indexing-innovative fintech startups to provide the infrastructure needed to design and maintain these custom indexes. Their services will be particularly crucial for the growing segment of thematic ETFs, which require specialized and dynamic indexing solutions.
Next generation compliance tools
Finally, next-generation compliance tools are expected to gain prominence and experience significant growth this year onwards, as financial crimes and fraudulent transactions continue to pose threats to the financial system and global economies.
Plug and Play predicts a new wave of regtech startups will emerge. These startups will lead the “compliance 2.0 wave,” leveraging technologies such as artificial intelligence models to spot intricate fraudulent schemes. They will focus on integrating know-your-customer (KYC), know-your-business (KYB) and anti-money laundering (AML) functionality within a single platform. This integration will facilitate ongoing customer monitoring, streamline the onboarding process and ensure ongoing anti-fraud checks.
EY estimates that the annual cost of money laundering and associated crimes ranges from $1.4 trillion to $3.5 trillion.
featured image credit: edited by freepik
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