5 fintech predictions for 2024: A light at the end of the tunnel

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5 fintech predictions for 2024: A light at the end of the tunnel


This content is contributed or sourced from third parties but has been subject to Finextra editorial review.

2024 feels a lot better than 2023. While there are still some significant macroeconomic and geopolitical headwinds, the dog days of 2023 are behind us and there is some light at the end of the tunnel.

While market activity generally still remains muted, most expect a pick up in activity particularly as we enter the second half of the year. The fintech market is subject to the same general trends, with some unique vectors impacting it. Fintech continues to face a funding crunch and marked reduction in values from the heydays of early 2022. The challenging funding market should lead to pruning of weaker actors and consolidation across the space in 2024.

The pace of technological change continues at a clip.  Disruptive technologies such as generative AI will have a transformative impact on fintech, along with other sectors, and has the potential to revolutionise how we interact with financial services.

For crypto we are seeing an environment that is vastly different from 2023. There has been some cleansing of bad actors from the system and an increase in regulation and institutional adoption that should create a more stable playing field as we go into the next Bitcoin halving.

On the regulatory end of the spectrum, we are seeing increased fragmentation globally, which is made more pronounced by the wave of national elections happening in the year, creating political paralysis in certain jurisdictions and a push for quick regulations to make political statements in others.

There is cause for considerable (though tempered) optimism in the year ahead. What do I think will happen in 2024 given the continuing challenges and potential sources of optimism? Dear reader, here are my top five predictions for the fintech market in 2024:

1. The financing market will remain challenging

Although there has been an improvement since the second half of 2022 when the market downturn began, financing for early stage fintech business will remain challenging in 2024. The higher interest rate environment and general economic pressures are making investors more cautious about deploying funds. While good businesses with compelling stories are continuing to get investor funding, many businesses are finding it difficult to raise further capital. Even for businesses that are able to raise, valuation multiples are significantly compressed across all stages of growth compared to a few years ago.

While some businesses were able to kick-the-can and tighten spending to avoid going back to the funding market in 2023, they won’t be able to do so indefinitely. As the year progresses, it is likely that the less well-performing businesses in this cohort will need to resort to down-rounds or highly structured rounds (punitive to the company without outwardly being a down-round) to obtain financing.

I would expect some loosening of the purse strings towards the second half of the year, particularly if geopolitical and macroeconomic risks abate, but that the year will continue to be a challenging one by recent standards.

2. More M&A particularly in the second half of the year

I made a similar prediction last year, though it did not come to pass. Part of the reason for that was a stubborn valuation gap between sellers and buyers, with sellers hanging on to hopes that valuations would return to the heady days of early 2022. With the passing of time, alternatives dwindle and sales, even at a heavy discount to sellers’ expectations, will become necessary.

2023 can be viewed as a grace period where all options short of selling at a lower than optimal valuation were explored. That grace period is coming to an end and sellers are gradually coming to the realisation that they may have no choice but to pursue an acquisition at a price that is palatable for the buying market and much less than their expectations.

Companies that do not manage to be sold outright may be forced into distress and an uptick in bankruptcies and distressed acquisitions can also be expected. Again, I had predicted this in 2023, but had underestimated the ability to defer this consequence. It looks even more likely in 2024 as cash runways, even with the most aggressive cost mitigation measures in place, run out of room and investors lose patience with continuing to fund lacklustre businesses.

3. AI will have a transformative impact on fintech

Generative AI is a disruptive technology that has the potential to revolutionise many industries including fintech. In the fintech space, one of generative AI’s main change drivers is its ability to speed the transition away from bricks and mortar banks by undercutting a key advantage of physical banking, such as in-person customer support. It is easy to conceive of AI assistants helping with account opening and onboarding processes that previously relied on clunky and painful automated systems or human operators.

Beyond customer service, another low hanging fruit for AI is to help with the automation of compliance and other back-office processes that are still very manual at many financial institutions. The efficiencies that can be generated by leveraging this technology is immense and we are still just scratching the surface of what it can do.

Using AI, building new fintech businesses will also be much easier and more fintech challengers can be expected to appear in the market as anyone with an idea will be able to readily deploy it using AI tools – for example, by speeding up development time and reducing the number of employees required to implement an idea.

4. Crypto and trad-fi will continue to converge

As we approach the next Bitcoin halving, expected in mid-April of 2024, there is optimism in the crypto market. At long last the U.S. SEC has allowed spot-bitcoin ETFs, which has brought about increased inflows of institutional investor money into the crypto ecosystem. Moreover, this begrudging acceptance of crypto by one of the world’s foremost regulators signals increased legitimisation of the asset class.

Outside of speculative crypto assets, the embedding of blockchain technologies and crypto into traditional financial services continues apace. Several world governments are continuing projects to develop Central Bank Digital Currencies (CBDCs), with the EU and UK having issued several consultative papers on the subject. Exploration and implementation of CBDC projects can be expected to continue in 2024.

The private sector will also accelerate its efforts to adopt crypto and blockchain technologies. Innovative uses of tokenisation, such as to tokenise bank deposits, securities or fund interests will continue to be explored. These projects have the potential for further disruption of financial services by offering the potential for instantaneous settlement, lower transaction costs and increased liquidity.

The use of blockchain technologies in a variety of financial services back-end systems can also be expected to continue, which is a trend that has been playing out over the last several years.

5. The global regulatory environment for crypto will see a mix of convergence with trad-fi and increased fragmentation

The general trend globally has been for crypto to be increasingly co-opted into mainstream financial services regulation or for parallel regulatory regimes to be created for crypto that are very similar to those in place for trad-fi. This trend can be expected to continue in 2024.

However, and perhaps paradoxically, global regulatory approaches in this space are also starting to diverge in a way that is not seen for traditional financial services. The world is splitting into camps of countries that aim to treat crypto as an innovative technology that needs to be effectively regulated versus countries that still view it with suspicion and have not decided on the appropriate regulatory path.

One notable divergence can be seen between the US and the EU. In the US ,Congress remains gridlocked in the lead up to the November presidential elections and rule making in the crypto space has largely been carried out by different federal agencies attempting to assert authority over the sector combined with court actions against various market actors.

This presents a stark contrast to the EU, where the Markets in Crypto Assets Regulation (MiCA) has been passed with most of its provisions effective from December 2024. MiCA presents a comprehensive package of legislative rulemaking for the crypto space (though not without some gaps).

These approaches contrast further with that taken by China where the government has prohibited many forms of activities related to crypto. It is unlikely that we will see a more harmonised global regulatory picture in the short term.


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This content is contributed or sourced from third parties but has been subject to Finextra editorial review.