In 1955, mathematician Edward Thorp developed a simple, wearable electronic device to help beat the odds at the casino, and is credited with being the first to come up with the idea of a “wearable computer.” The use of technology to gain a strategic advantage has come a long way since then, with the rise of fintech changing the financial landscape completely. With estimates that around 73% of the world’s interactions with financial institutions (FIs) take place through digital channels, fintech’s role in the future of banking is expected to continue to grow exponentially. We look at six top fintech trends and discuss how community financial institutions (CFIs) could capitalize on them to meet their customers’ needs, retain their competitive edge, and drive efficiencies.
- Artificial Intelligence (AI) and Machine Learning (ML). From helping to automate tasks and predict the outcome of different lending strategies to improving customer service chatbots and cybersecurity applications and enabling targeted product offerings, the role of AI and ML in the finance sector continues to accelerate. AI revenue in the fintech market is predicted to reach $70.1B in 2033 up from $17B in 2024. While still in the early stages of adoption, CFIs may want to start identifying the strategic roles AI and ML solutions will play in their future.
- Payments. Real-time/faster payments and cross-border payments are expected to continue to experience rapid growth in the coming years. According to payments company Convera, real-time transactions are experiencing a 21.3% annual growth rate, while the wholesale cross-border payments market is predicted to reach $225T in 2030, growing by 54%. Innovative fintech solutions are supporting the adoption and facilitation of these payments at reduced costs and with improved security through the use of technology such as blockchain and digital wallets. CFIs looking to remain competitive and meet their customers’ demands for speed and cost-effectiveness should be considering the role of fintech in their payment strategies.
- Open Banking and APIs. By facilitating the secure sharing of data, open banking is giving customers greater control of and access to their data. Aside from encouraging greater collaboration between financial institutions and third-party providers, open banking can also promote transparency and support the development of innovative financial products. This would ultimately allow institutions to offer customers a broader range of services. Although still in its early stages in the US, global open banking payments are expected to reach $330B by 2027. Open banking can help your institution create targeted and relevant customer offers based on a deeper data set and therefore improve customer engagement by giving customers more of a say in how and with whom their data is shared. Institutions may want to start exploring how they can leverage open banking through fintech partnerships to develop new revenue streams, streamline operations, and continue to meet and exceed customer expectations.
- Embedded Finance. The seamless integration of financial products and services with non-financial products and services — such as ecommerce, social media, travel, and gig economy platforms — provides customers with a fast, accessible, efficient, and personalized user experience. Globally, revenue from embedded finance is predicted to grow from $92B in 2024 to $228B in 2028 — a 148% increase. By integrating their financial services into everyday platforms, CFIs can access advanced technologies cost effectively, expand their reach, gain data insights, enhance their customer engagement, and deepen their customer relationships.
- Cybersecurity. All these new technologies create many opportunities for everyone — including cybercriminals. Cybersecurity threats are becoming ever-more advanced and more difficult to detect and are costing the financial sector millions of dollars every year. According to Netwrix report, more than three out of four financial institutions detected some form of cyberattack in 2023. Fintech will continue to play a crucial role in overcoming cybersecurity risks through innovative practices and solutions including advanced encryption technology, biometric authentication, data analytics, AI and ML threat-detection, and continuous monitoring. To stay ahead of cybercriminals and prevent financial losses, your institution will need to continue to invest in advanced security measures and fraud prevention technologies.
- Regulatory Technology (Regtech). As the financial and technological environment develops and grows, so too does the regulatory burden for financial institutions. Thankfully, regtech (which uses advanced technologies such as cloud technology, data analytics, AI, and ML) can assist with regulatory requirements in many ways. For example, regtech can automate compliance tasks, identify and manage risk, and improve reporting accuracy. The global regtech market is expected to expand at a compound annual growth rate of 22.6% between 2023 and 2032. Research suggests that regtech could allow providers savings of over $460MM in onboarding alone in 2025. CFIs should consider how they can use regtech to streamline regulatory compliance, reduce operational costs, and stay abreast of evolving regulations.
Aside from the six mentioned here, many other fintech trends are shaping the finance space and supporting greater personalization, efficiencies, cost savings, security, and financial inclusion. These include the development of stablecoins and Central Bank Digital Currencies (CBDCs), the increasing appeal of digital-only neobanks, on-demand salary pay schemes, and green fintech. Looking much further ahead, emerging technologies such as quantum computing, blockchain, and decentralized finance (DeFi) are just a few other fintech trends that could radically change the supply and demand of financial services.CFIs need to stay abreast of these trends in order to navigate a fintech-fueled future and ensure they are positioned for success. Identifying the areas that best align with your overall strategy may help your institution determine appropriate partnerships to leverage new technologies and expand or enhance its services.
