Given tough global economic challenges, we predict the continuing rise of open banking, SME and consumer lending and AI – as these services help deliver smarter and more accessible financial solutions.
Open banking is leading the way as it has significant potential to help businesses and consumers. One such case study is Abound, a UK-based fintech that netted a 640 million USD debt deal this year. As consumers continue to navigate the cost-of-living crisis, incorporating open banking into platforms could enable users to make better-informed decisions about budget management, and businesses to make more reliable financial plans.
Across SME and consumer lending, 17 of the 71 mega deals (100M+) that took place globally in 2023 were deals in the B2B and B2C lending space. Economic conditions have increased demand for sophisticated financial products and services that are fair, accessible and affordable. From bridge funding for underfunded startups to loans tailored for individuals with limited credit history, 2023 was the year of lending – and we expect this trend to continue in 2024.
We also predict emerging technologies like AI will continue to open new avenues for FinTechs and the range of services they provide - particularly in the personal finance space, where AI can tailor advice depending on user specifications and depth of financial understanding.
The World Economic Forum estimates that approximately $50tn is required in incremental investments by 2050 to transition the global economy to net zero emissions.
FinTechs have demonstrated how much of a powerful force they will and can be in enabling climate solutions to meet this goal; for example, as capital will need to be aligned to emissions targets, FinTechs can provide the tools for this by connecting carbon data with financial transactions.
FinTech has already done so much to improve how consumers manage their finances. Where some companies have improved financial literacy in children (like GoHenry), others offer competitive savings interest rates (Chip, Kroo Bank), and even address the mental health struggles that come with debt management (Inicio).
We expect digital banking will have a major role to play in improving personal finance and supporting customers of the future - from managing their finances more effectively and shopping around for better deals to spreading the cost of essential purchases and getting cheaper access to credit.
In addition to digital banking, we have seen the rise of Wealth Tech in 2023 as customer demand for accessible investment products grows. We saw Monzo launched their £1 minimum investment service in 2023, which lowers the barriers to entry for consumers to begin investing. We also saw US wealth tech platform VestWell net a 125 million USD venture deal this year. And UK grown Primary Bid signed a major partnership with Lloyds Bank in November.
We think FinTechs can be confident in the UK consumers' appetite to experiment with new tools and services as they emerge. We have seen consistent demand from consumers to try new approaches to managing their finances, and we encourage further innovation from the sector to continue to plug this demand.
FinTech is uniquely placed to take advantage of the digital tools and the rapidly advancing technological developments which have emerged in recent years.
Specifically the use of AI and Big Data has enormous potential. Large language models and data sorting have the potential to identify "data narratives'' that point to highly specific customer behaviors and make better predictions for when a customer with limited history may otherwise qualify for financing - or become at risk for delinquency. This helps businesses make smarter decisions that allow for financial equity.
For 2024, the most significant way they will influence the sector is to urge the industry and government to work together with regulators to ensure we have faster, more effective regulation of these new technologies and products.
From regulatory developments to adopting new technology to maintain the UK’s position as a FinTech hub, we can’t wait to see what 2024 has to bring. We’re especially looking forward to the Data Protection and Digital Information Bill becoming law, hopefully by spring 2024. This will provide a legal framework for the UK to become the leading ‘smart data’ economy. Smart data builds on the UK’s approach to open banking, which has unlocked new services that give citizens more control of their data and of their finances and would enable the UK to play a global leadership role in the development of open banking more broadly. Innovate Finance members TrueLayer and MoneyHub are two prominent players taking a leading voice.
We have also just revealed the annual global FinTech Investment Landscape report, which showed the UK remains second globally in total FinTech investment ($5.1bn), securing more capital in 2023 than the next 28 European countries combined. We believe the investment momentum of high-profile deals we saw in Q4 will continue well into 2024, as we anticipate a boost to the wider economic market.
Our Innovate Finance Global Summit (IFGS 2024) in April will be a celebration of the fintech ecosystem and of our 10th year anniversary. We can’t wait to welcome industry leaders, investors, international delegations, media, government and regulators to the Guildhall in central London on the 15th and 16th of April.
To find out more about our partners, Innovate Finance, visit their website, here.