In 2023, startups faced challenges in fundraising amid macroeconomic uncertainty. Capital became expensive due to interest rate hikes, and investors became cautious due to market downturn expectations. Valuations consequently declined, leading to flat or down rounds. The aftermath included a historically low number of IPOs. Early and mid-stage funding saw a resurgence in 2023, surpassing 2020 levels.
While early and mid-stage companies experienced a boost in funding, the late-stage sector encountered a funding squeeze. The preference for business models also shifted from rapid hyperscaling to prioritizing fundamental and sustainable unit economics. 2024 will be a pivotal year for fintech, while navigating the investment ecosystem will remain a challenge.
Below, we touch upon some of the key megatrends we see coming in fintech in 2024.
Fintech Trend #1: Sustainable finance
The world is currently not on track to achieve the Paris Agreement's goal of limiting global warming to below 2°C. Progress towards net-zero emissions has been slow, with a 60% increase in CO₂ emissions from energy and industry since 1992. Despite some momentum, achieving net zero by the end of the century is doubtful based on current trends.
Key considerations for incumbents include:
Embracing renewable energy sources
Utilizing carbon capture and accounting technologies
Implementing circular economy practices
Adopting precision agriculture
The Voluntary Carbon Market (VCM) is a segment where entities voluntarily buy carbon credits to offset their greenhouse gas emissions. Valued at $2 billion in 2021, it's projected to reach $40 billion by 2030.
Fintech Trend #2: Generative AI and RPA
Generative AI, exemplified by Open AI's ChatGPT, gained prominence in 2023 for producing various content types. Challenges associated with gen AI include slow adoption, alignment with industry practices, multimodal approach, and verticalization in fintech.
Robotic Process Automation (RPA) has become prominent in B2B software tech, with the market size predicted to reach $22 billion in 2025. RPA is expected to be a significant trend in fintech as banks aim to reduce costs and streamline operations through increased automation.
The next generation of financial tools aims to automate workflows, enhance collaboration, and empower teams for a more proactive approach across the value chain. The FinTech tech stack in 2024 will include programming languages, frameworks, databases, and applications connected through APIs.
Asset tokenization is gaining traction, boosting liquidity and investment opportunities. Private banking democratization is making personalized wealth management services more accessible. Early crypto custody leaders are addressing trust issues, and digital wallet technologies present significant opportunities for customer engagement.
Fintech Trend #5: Next generation KYB/KYC and AML
Evolution of AML solutions has introduced new technologies utilizing generative AI, modular architecture, and real-time decisions. Looking ahead to 2024, advanced generative AI models are expected to positively impact KYC/KYB/AML frameworks. Compliance 2.0 startups integrate KYC, KYB, and AML capabilities, emphasizing continuous customer monitoring, streamlined onboarding, and ongoing anti-fraud controls.
Conclusion
The trends shed light on the opportunities and challenges awaiting the fintech landscape in 2024. Startups and incumbents must adeptly respond to disruption across several megatrends. Unlock deeper insights into these transformative trends and uncover the trailblazing startups propelling financial institutions into a new era of change in our Fintech Megatrends Report. Stay ahead in the dynamic world of financial technology!