Fintech Ups & Downs Got You Worried? Watch Out for These Trends in 2024

After a tumultuous year, the fintech industry is expected to witness some respite in 2024. Segments that are expected to attract investment include lending, wealthtech, and insurtech. Fintech companies are also expected to purchase small banks and NBFCs during the year.

The year 2023 brought with it a fair share of challenges for the fintech industry, including the Reserve Bank of India’s (RBI) regulatory crackdown and cost rationalization, among others. Barring a few, the bulk of fintech startups in India are still in the red.

The Global View

This not-so-pretty scenario is not restricted to the subcontinent. Speaking of the situation on a larger scale, a report by S&P Global Market Intelligence 451 Research says that in 2023, fintechs have witnessed a return to business fundamentals and rightsizing throughout the industry. Between Q3 2022 and Q3 2023, fintechs raised $46 billion in venture capital worldwide, in sharp contrast to the $119 billion raised between Q2 2022 and Q2 2021.

However, this situation is expected to change for the better in 2024. The report goes on to say that fintechs have learned a lot about discipline and attention during the last 18 months, which will help them prosper in the years to come. Furthermore, there are still plenty of chances for disruption and strong tailwinds for the industry, ranging from the replacement of cash and financial inclusion to bank modernization and digital commerce. So, battle-hardened fintechs will have a new outlook on what will be required to drive long-term sustainable development in 2024.

Domestic Dynamics

For fintechs in India, closing the gap in financial inclusion has always been important. It has given the underprivileged population access to financial services by utilizing technological techniques to determine the creditworthiness of borrowers swiftly and with ease. This is expected to foray into the welltech industry in 2024, with an emphasis on fusing financial prosperity with well-being.

Fall in Funding

According to the report, there will be disparities in global fintech funding in 2024. Owing to an assortment of challenges, including rising interest rates, slower growth rates in technology spending, and more regulatory pressure, venture capitalists are investing less in fintech. For instance, fintech companies raised $29 billion in the first nine months of 2023 compared to $54 billion the year before. The third quarter witnessed stabilization of the deal count, indicating that the current fundraising cycle might be nearing its end. The report forecast that fintech funding in 2024 would either remain largely steady or experience a modest decline, with a possibility of a rebound in the second half, barring any unfavourable macroeconomic developments.

Any funding – be it on a global scale or only in India – is expected to go to platforms that have been trending towards profitability. Platform plays and super applications are expected to take precedence because they can generate more revenue.

Some Consequences

Owing to the regulatory overhang, the idea of purchasing verticals in the fintech space is now preferred to the idea of developing them. This is largely because huge sums of money have been spent on development, and these have had to be abandoned owing to regulatory changes. Purchasing smaller players has twin advantages – they would bring in personnel and import technology that is more adaptable to changes in the law.

UPI Fable

Being the most essential part of the fintech stack, UPI cannot be disabled by super apps. Rather, they would create new verticals and products that will be bolstered by the influx of users that UPI brings with it. Upgrades and new features were added last year, and more of this is expected with the Centre’s drive to make it a global phenomenon.

AI/ML: Here, There, Everywhere

The fintech industry is undergoing a dramatic transition owing to the use of Artificial Intelligence (AI) and Machine Learning (ML), and automation strategy considerations are necessary for these companies to reach profitability.

While generative AI has enormous potential to revolutionize the financial services sector, the report highlights the fact that fraudsters are using this technology as a weapon against the sector. Starting 2023, fraudsters were able to unleash big language models (LLMs) for use cases like generating harmful code and sending extremely targeted phishing emails thanks to services like FraudGPT and WormGPT that went up for sale on the dark web.

Fintechs to Support Real-Time Payments

Instant payment systems backed by central banks are spreading across the globe, and changing the landscape by bringing in new, contemporary payment methods. Leading the way are India, Brazil, and Southeast Asia, partly because of regulatory initiatives encouraging bank involvement and technology advancements.

Globalization Kick

Because of the pandemic-induced acceleration of e-commerce, fintechs have been more focused on implementing the idea of “borderless commerce.” This focuses on making cross-border payments (business-to-business and consumer) more efficient, making currency translations easier, and providing infrastructure to facilitate the acceptance of payments locally. The report says that in 2024, this trend will pick up steam as more fintech companies shift their attention back to growing internationally. There will be more chances for partnerships between fintechs and incumbents, including banks, to facilitate market entry, given the licensing, compliance, and resource constraints that directly entering a local market demand.

Digital Currencies

Another trend the report speaks of is that of central bank digital currencies, or CBDCs, having evolved from primarily theoretical ideas to become an integral component of the monetary systems of various nations in a matter of years. The central banks of more than 100 countries are either investigating CBDCs or conducting trial programmes for them.

The Bottomline

The fintech sector – both in India and overseas – is expanding and changing swiftly.

In India, a multitude of variables, such as the growing middle class, increasing acceptance of digital technology, and favourable regulations going forward, are expected to propel the sector’s expansion in the years to come. To ensure that the industry realizes its full potential, a few significant obstacles need to be overcome. These include insufficient financial literacy, lack of competent talent, market saturation, cybersecurity threats, and regulatory uncertainty.

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Written by: AArtie Rau