In this Blog, we will talk about FinTech Sector Overview for the year 2023-2025. By 2025, it is anticipated that the worldwide fintech market would be worth $305 billion. Numerous financial services and goods have already ingrained themselves into daily life. Consumers’ methods for accessing their bank accounts, making purchases, and applying for loans are all undergoing significant change. Financial organizations are likewise continually changing as they attempt to anticipate consumer wants, provide for their current clients, and stop fraud.
We are looking at trends that will influence the future as our world increasingly relies on digital-only solutions. Check out our list of the top 10 fintech industry trends to see what’s next in this expanding sector.
- Growing Interest in Embedded Finance from Investors and Consumers:
Financial services are included into non-financial websites and apps through embedded finance. Consumer needs and a need for convenience are what motivate this service.
An eCommerce site that offers buy now, pay later (BNPL) choices is a straightforward illustration. Consumers can access credit without leaving the platform they are on, saving them from having to travel to a bank and fill out hours of paperwork in order to get a loan. Embedded payments are another illustration. The information is already there, so customers don’t have to submit it each time they want to make a purchase.
By 2032, the embedded finance market, currently valued at $54.3 billion, is expected to surpass $248 billion. Investors are observing this trend. The amount of venture capital spent on embedded finance in 2021 was $4.25 billion. That was three times the amount invested in 2020.
Making payments with a digital wallet is the integrated finance solution that is currently most in demand. 42% of Americans, according to Insider Intelligence, have used a digital wallet. Consumers have used BNPL or sent money over social media in equal measure (23%).
Customers are likely to respond favorably to businesses who can seize this trend early. One-third of customers who use a brand’s embedded financial services spend more money with the brand, and 30% of them now favor that brand over its rivals more frequently, according to a report by Bond, a fintech software infrastructure business.
One fintech business, Maast (which stands for money-as-a-service), is making it easier for brands to provide banking services under their own branding. With this strategy, brands may manage loans, deposits, and payments on the platform. Synovus Bank, a subsidiary of Maast, recently acquired a 60% share in Qualpay to support its payment system. They claim that their technology can improve revenue per customer by 5 times.
1. Regtech Solutions Offer Accuracy And Efficiency:
Every day, financial organizations acquire vast volumes of data. To manually sort through the data would be far too difficult and complex. Additionally, businesses must have a full awareness of the voluminous laws and rules that they must follow.
Regtech (regulatory technology) enters the picture in this situation. Regtech solutions make use of cloud computing, machine learning, and big data analytics to identify hazards, prevent them, and adhere to laws. For the entire business, this kind of technology can result in increased effectiveness, more accuracy, and better insights. According to Juniper Research, the regtech sector would grow by 200% between 2022 and 2026.
Financial institutions that invest in regtech solutions want to see a positive impact on their bottom line from the cost savings. Greater than 5% of the revenue is spent on compliance by more than 30% of financial institutions. $213.9 billion was the total cost of financial institution compliance with financial crime in 2021.
According to a Thomson Reuters survey, 67% of G-SIFI organizations anticipated hiring more senior personnel solely to keep up with the volume of regulatory obligations. Businesses that don’t assure accurate reporting and compliance risk paying hefty fines. JP Morgan was fined $125 million in 2021 for violating the proper compliance standards.
We can see from the Australian banks ING and CommBank how regtech may significantly influence compliance efforts. These banks had previously been manually mapping their regulatory requirements, a procedure that required 1,800 hours of labor. However, the banks cut the process in half to 2.5 minutes when they teamed up with Ascent, an AI-powered regulatory knowledge platform.
2. Routine Tasks Are Replaced by Robotic Process Automation:
RPA is becoming increasingly popular among financial organizations as a way to cut expenses and improve the productivity of their personnel. The term “software robotics” is also used to describe RPA technology. It is helpful for automating time-consuming, repetitive processes that follow rules but don’t require human intelligence.
According to Grand View Research, the RPA market would expand at a CAGR of 38.2% between 2022 and 2030. The banking, financial services, and insurance industries, which together made up almost 30% of the market in 2021, are anticipated to contribute significantly to that rise. Gartner claims in their companies, 80% of finance leaders have already adopted RPA technologies or have plans to do so.
They use the technology to fight financial crime, evaluate invoices, handle customer complaints, provide insights into client behavior, and much more.
According to Gartner, CFOs who have promoted the adoption of hyperautomation technology and restructured operational procedures will be saving 30% on their company’s operational costs by 2024. One of the most reputable RPA software providers in the world is UiPath. One of the company’s finance and accounting clients automated 22 processes as an example of their work, saving 80k hours of manual labor.
RPA-as-a-Service is a service provided by one firm, Automation Anywhere. Credit union Patelco, based in San Francisco, recently automated some of its consumer lending, fraud protection, and contact center operations using this cloud-native technology. The RPA system was essential in boosting productivity at a time when Patelco’s member base was growing by 11% annually. By automating their fraud warnings, Patelco witnessed an 88% drop in processing time, a 62% increase in efficiency, and a $39k yearly savings.
3. Fintech businesses provide financial solutions and support environmental initiatives:
The fintech sector is taking advantage of the potential as businesses and consumers begin to place greater emphasis on environmentally sustainable practices.
Only 8% of fintech founders currently claim to be part of the “sustainable fintech” category. Investors are, however, pouring money into this industry. For a total yearly investment of more than $40 billion in more than 600 venture deals, VC investment in green fintech increased by 100% between 2020 and 2021.
Although there are green fintech startups and projects all around the world, Switzerland, Spain, Singapore, and Sweden have the biggest concentration of these businesses. A Swedish company called Trine provides finance loans to solar energy companies so they can provide green energy to people in underdeveloped nations. Similar to GoFundMe, the process is completed through peer-to-peer interactions. Investors receive a return of 3–11% interest. Currently, there are around 13,000 investors on the platform.
Additionally, green fintech businesses are succeeding in the consumer sector. Joro is one choice for customers who want to think carefully about the sustainability of their finances. The software leverages personal shopping information and proprietary emissions data to automatically calculate a user’s individual carbon footprint. The business even encourages customers to switch to more moral banks and purchase sustainable beer.
Recently, the business was named one of TIME’s 100 Most Influential Companies for 2022. One example of a significant financial industry company participating in a green project is Stripe. The global rollout of Stripe Climate, an add-on to its payment processing platform, was finished in 2021. Any company using the Stripe platform has the option to donate a portion of their earnings to programs that reduce carbon emissions.
According to reports, tens of thousands of firms have chosen to participate in the initiative. Early in 2022, the business invested $1 billion in the carbon-capture sector alongside other sizable firms including Alphabet and Meta. Additionally, they introduced Frontier, a cutting-edge market commitment that will enable $925 million in long-term carbon reduction by 2040.
In 2021, the BNPL market reached a record high of $120 billion. That represents an 85% CAGR from 2019 to 2021. Industry study indicates that expansion will continue. According to a survey by Research and Markets, the CAGR will be 32.5% through 2028.
Nearly 40% of Americans who haven’t used BNPL services yet believe they’re at least somewhat inclined to do so in the upcoming six months, while more than half of Americans have used a BNPL service. The Ascent, a personal finance tool from The Motley Fool, conducted a study to support this claim.
However, according to the same survey, 17% of consumers believe they are very likely and 18% say they are likely to be late on a BNPL payment in the coming year. Investors receive a return of 3–11% interest. Currently, there are around 13,000 investors on the platform.
The Consumer Financial Protection Bureau (CFPB) has launched a probe into rising debt, data collection, and BNPL regulation. 21 attorneys general started pushing the CFPB to implement “strong consumer protections” in the BNPL sector in March 2022.
Experian also just established a separate bureau to promote greater industry openness. Data on all point-of-sale lending will be gathered by the Buy Now Pay Later Bureau in collaboration with BNPL service providers. This covers the total amount of loans, the statuses, and the number of unpaid BNPL loans.
However, it doesn’t appear that the main BNPL companies are being deterred from increasing their products by the possibility of more regulation. One of the top BNPL providers, Affirm, went public in January 2021, and its stock price increased by 98%. Affirm Debit+ was also introduced by the business. Like a typical debit card, the card connects to a bank account, but customers have the choice to break up any purchases over $100 into many payments.
4. AI-Driven Cost Savings In the Banking Sector:
The use of AI in banking is expanding, from fraud detection to chatbots for client care.
According to Allied Market Research, it will be worth $64 billion by 2030, with a 32% CAGR between 2021 and 2030. According to OpenText, a provider of digital transformation solutions, 80% of financial institutions are aware of the advantages AI can have for their business.
More than 60% of respondents think AI will become widely used in business in the next two years. A little over 45% of respondents said they already use AI. According to research company Autonomous NEXT, artificial intelligence will cut operating expenses in the financial services sector by 22% by 2030.
The value of that is one trillion dollars. According to Insider Intelligence, there are three key ways that AI may help the banking sector: conversational banking and direct consumer interaction, fraud detection and risk management, and underwriting.
By 2025, middle-office automation alone could help North American banks save $70 billion. A Nevada-based business called Socure uses AI to combat identity fraud and digital identity theft in the banking sector.
Their AI solution reduces manual assessments of IDs by up to 90% while reducing false positives in fraud detection by 13x.At the end of 2020, the business had 283 customers. By the middle of 2022, it had 1,000. This assisted in raising their estimated value to $4.5 billion in 2021. Midway through 2022, management fired 69 people, although the CEO asserted that the company wants to “get cash flow and profitability correct.” Accenture claims that banks may use AI to boost the number of client interactions and transactions by 2–5 times in the front office.
AI’s speed and effectiveness benefits both customers and banks. For instance, banks can use AI to predict customer attrition, better understand customer wants and expectations, and forecast a client’s propensity to accept new offers from the business. More than 250 banks use the digital customer service platform Gila. They provide a single platform that enables client interaction between company personnel via chat, voice, video chat, SMS, phone, and social media.
Additionally, their AI technologies offer speech and text-based conversational self-service for customers and customer service representatives. They’ve already created a library of more than 800 conversational user intentions that may be incorporated into a bank’s customer service programs.The company completed a $45 million Series D in March 2022 and announced a $1 billion value.
5. Workers’ Interest in On-Demand Pay Is Growing:
Many customers pay for items using fintech solutions, but what about the companies making the payments? Payroll norms are also shifting as a result of fintech. On-demand pay, commonly referred to as earned wage access, is one trend. Fintech solutions give businesses the ability to set up cloud-based programs so that staff members may use an app to log in, check their payroll balances, and take cash whenever they want.
According to a survey of employed persons in the US and the UK, 35% of respondents experienced financial stress in the previous year as a result of being unable to cover a cost between paychecks.
According to the same poll, 20% of respondents said they would likely use an on-demand payment option if it were made available to them. The likelihood of doing so is extremely high in 5–10% of people. Almost 80% of workers claim that they would prefer to work for an employer who offers on-demand pay than one who does not. According to ADP, that is. Access to on-demand remuneration, according to employees, would strengthen their commitment to their firm.
In actuality, workers who have access to earned wages are more likely to stick with their firm. According to one business, their on-demand pay system reduces turnover by as much as 73%. For 80% of the Fortune 200 businesses that make use of this technology, DailyPay serves as the earned wage access provider.
The business manages more than $2 billion in revenue and claims that employing its service results in annual savings for employees of $1,250. One of TIME Magazine’s Best Inventions of 2021 was their solution. Despite all the excitement in on-demand pay, there is still debate surrounding this development. These fintech firms have been compared to payday lenders because many on-demand payroll solutions levy fees to the employees. For instance, DailyPay assesses a $2.99 fee to users who wish to recover their earned but unpaid money.
6. Cybercriminals Use New Techniques To Access Resources Like Cash And Information:
Data from the international cybersecurity company Trend Micro indicates that cyberthreats are increasing in the financial industry. The number of ransomware attacks against the financial sector increased by 1,318% between 2020 and 2021. According to UpGuard, the financial sector was the one most frequently targeted by phishing attempts in the first quarter of 2021. According to them, phishing assaults in the industry increased by 22% over 2020 in the first six months of 2021, while attacks on financial apps increased by 38%. Attacks and dangers related to cybersecurity are costing the sector millions of dollars.
According to a poll of IT specialists working in the banking sector, every data breach on a financial institution costs the company approximately $4.2 million. Cybercriminals who prey on the banking sector are continuously coming up with new strategies to circumvent security. Making use of “deep fake” techniques is one of the most effective strategies. This entails creating a person’s resemblance in both voice and image using AI and machine learning.
The first significant instance employing this tactic occurred in 2019, when thieves sought a transfer of $243,000 while impersonating an executive of an energy company using deep fake technologies. The caller pretended to be the CEO of the business while speaking with the false voice, insisting that the transfer needed to be made immediately and was urgent. The funds were transferred to Mexico after being put in a Hungarian bank account, and they were never recovered.
An identical crime was committed against a Hong Kong bank. An employee of a bank spoke to a man who he thought was from another company and with whom he had previously spoken on the phone. The employee transferred $35 million as a result of this elaborate hoax attack. A Trojan called Fakecalls is another cybercriminal strategy targeted at banks. This has been applied to bank customers in South Korea.
Fakecalls presents as a mobile application from a well-known bank. However, the Trojan can cut off the connection and launch a fake call screen once the user dials customer service. The phone call can then be controlled by hackers even though everything seems normal.
In many cases, the hackers will pick up the phone and claim to be a bank employee in order to acquire the caller’s private information. Infiltrating the AI and machine learning systems that banks use is one of the newest ways that cybercriminals today try to target institutions.
The vulnerabilities of AI and complex analytic systems are enormous and are frequently disregarded by the corporations using them, according to an AI specialist. Because machine learning is still a relatively young field of study, banks don’t currently have the security tools necessary to safeguard their systems. The race may already be in favor of the hackers.
7. Biometrics Use Increases Quickly:
Cyberattacks, according to Federal Reserve Chairman Jerome Powell, are the biggest threat to the world financial system in 2021. Fintech companies are implementing a wide range of new security measures in response to this audacious threat that hangs over the sector. IT executives are promoting passwordless authentication as one security strategy.
Almost 90% of security executives agree that this solution offers the highest level of security. According to a survey ordered by the provider of a platform for multi-factor authentication, HYPR, this is the case. Sending users a push notification with an authentication number is a fairly easy login method that does not utilize passwords. Biometrics is a more complex approach.
Since around 2015, this technology has allowed users to sign in using their fingerprint or face. Not far behind was Voiceprint, a biometric technology that uses a user’s voice as their password. To confirm a person’s identification during login, modern voiceprint technology may examine 1,000 micro-characteristics in their voice.
A voiceprint platform from Pindrop was recently installed by the First National Bank of Omaha. Within a year, the bank decreased unauthorized account takeovers by 50% and saved 2.5 million minutes in resolving customer care calls.
According to Pindrop, 8 of the top 10 banks and credit unions in the US as well as 11 of the biggest insurers in the nation use their platform. Although voiceprint businesses guarantee that they can recognize customers in as short as 0.5 seconds, many financial officials are worried that deep fake technologies may soon trump this level of security.
Other forms of authentication check for fraud throughout the user’s session in addition to the login. To ascertain whether fraud is taking place, behavioral biometrics examine a user’s physical and cognitive activities. These machine learning tools analyze keystrokes, mouse movements, and touchscreen usage.
Even from individuals it has never encountered before, the technology can distinguish between morally righteous and immoral actions. In one case, a top-five credit card issuer that used behavioral biometrics reported a 90% improvement in fraud detection and a 12x ROI by accepting more applications, cutting costs, and reducing fraud after using the technology.
8. Neobanks Seduce Young Customers:
According to FICO, many young US consumers prefer digital banks like PayPal and Chime over traditional banks for their primary source of checking accounts.
The report claims that since 2020, the proportion of young consumers preferring fintech alternatives to traditional banks has doubled. Only 25% of GenZ-ers choose a large bank as their main provider of checking. Neobanks or challenger banks are the names given to these digital-only banks, which are becoming more and more well-known.
According to data from July 2022, there are about 350 neobanks in operation. According to Bloomberg, there were 80 million neobank clients in Europe and North America in 2021. By 2026, it’s anticipated that it will reach 224 million. Additionally, 580% growth in neobanks’ revenue is predicted for those years.
By 2025, Insider Intelligence projects that 53.7 million Americans will have neobank accounts. Young customers are drawn to these banks because of the seamless digital experience they provide. They like the lack of burdensome infrastructure, social media integrations, and customer support powered by bots.
They can quickly create an account on the Neobank app and start utilizing their account using a digital wallet. Chime is the biggest neobank in the US, with more than 12 million customers and a 58.6% market share. The bank offers a number of features that appeal to millennials, including no account fees, no minimum monthly balance requirements, automated savings, and two-minute account opening.
Nevertheless, Chime has come under increased neobank oversight in the US. Because they believed Chime was incorrectly referring to itself as a bank, the California Department of Financial Protection and Innovation filed a lawsuit against the company in 2021. Chime is not authorized to provide banking.
The Bancorp Bank and Stride Bank offer banking services to the company. The case was won by regulators. Chime has to say that it is a fintech business that collaborates with a bank to offer services instead of using the word “bank” in any of its marketing materials.
In addition to increased regulation, some financial industry professionals caution that many neobanks’ business models might not hold up over term. Experts claim that they are overly dependent on interchange fees. Less than 5% of neobanks, according to strategy consultants Simon, Kucher & Partners, are breaking even.
This concludes our list of the top 10 fintechTrends, Statistics & Analysis. All types of financial services are frantically trying to adapt to this new, digital-first environment. Financial organizations that are willing to embrace technology to improve efficiency, prevent security blunders, and adjust to shifting consumer sentiments will likely prosper.