Driven by digital innovation and changing consumer behavior, the financial technology industry saw strong growth in 2023. Fintech companies are significantly changing the financial services landscape. They introduce new cutting-edge technologies that feature customer-centric value propositions delivered via agile and versatile teams. Today, we want to highlight the top financial technology trends that could reshape the financial sector in 2024.
What we see now is the rapid growth of Fintech companies due to the strong development of not only the financial services sector in general but also rapid digitalization. Customers change their preferences in favor of simplified procedures for obtaining financial services and growing investor support. In turn, the development of the Fintech and insurance industries promotes deep-tech technology development and popularization. These technologies appear to be the core of Web3. They make it possible to move all transactions with significant financial assets online as well as increase their accessibility.
AI as the Foundation of the Financial Industry
According to Juniper Research, online banks and Fintech companies will spend around 85 billion by 2030 on using artificial intelligence. They believe AI-driven technologies will let them drill down into the customer experience.
It should be noted that Fintech companies have increasingly relied on artificial intelligence over the last few years. AI has grown into a new trend helping businesses better understand the customer journey, optimize operations, and make more accurate and informed decisions to grow online businesses.
Indeed, financial services are gradually becoming better thanks to advances in AI and data analytics. Fintech companies are using intelligent algorithms to analyze different spending patterns and adapt marketing strategies, risk profiles, and investment preferences.
AI and New Challenges in the Field of Digital Risk Management
While the effectiveness of digital technologies evolved over the years, we still see a clear trend towards the need to expand the range of solutions. This is triggered by new challenges and complexities of online risk management, the consolidation of fraud networks, and the proliferation of usage of AI approaches for online fraud.
In particular, social engineering methods are improving along with the development of new technologies. Some common approaches are vanishing into the past. Fraudsters are equipped with the latest digital tools letting them use deepfake and AI to steal money. For example, a Hong Kong-based company lost $25.6 million in a single video conference. A local employee from the finance department received a phishing message allegedly from the company's CFO. In his message, a fraudster asked to urgently conduct a major transaction. On a group call, the employee actually saw his boss, who confirmed the need to transfer the specified amount.
There is another significant problem with AI applications in reference to online fraud. Artificial intelligence gradually learned to bypass the existing protection means based on the analysis of users' photos and voices, which are general measures to protect cryptocurrencies.
For example, deepnet and darknet actively spread deepfake services that can generate driver's licenses, passports, and other types of IDS despite the country. Oppositely, service owners claim that such actions are not illegal, as they are not responsible for these particular forgeries. At the same time, using such services, fraudsters can defraud the KYC systems of many cryptocurrency exchanges, online wallets, and financial services.
All financial market participants have to face the truth and consider this negative aspect of AI development. It will let them grow the number of security solutions as well as increase their implementation and update speed.
A2A and Mobile Payments – A New Alternative to Brick-and-Mortar Services
In the field of E-commerce and digital wallets, the rise of Account 2 Account (A2A) payments is already replacing traditional cards. Experts expect the seamlessness of A2A payments to become an effective alternative to traditional E-commerce payment solutions.
Besides, mobile payments will grow significantly in 2024. Experts predict their critical transformation: mobile payments may go beyond one-off transactions with the shifting focus on offering more advanced banking services. It will eventually result in reduced dependence on traditional payment systems.
B2B BNPL will Fill the Gap for SME Financing
Buy Now Pay Later (BNPL) services for B2B transactions will become essential financing tools for SMEs. These solutions will address budget shortfalls by providing SMEs (Small and Medium Enterprises) with affordable and flexible financing options.
The rising popularity of Central Bank Digital Currencies
The growing popularity of central bank digital currencies is another trend that shapes the industry greatly. CBDCs are already moving from theoretical discussions to practical implementation in a large number of countries.
Some central banks started actively introducing or developing their digital currencies. They believe it will help them modernize payment instruments and empower the financial system. Specific use cases for CBDCs will emerge, contributing to their substantial advancement and bringing the industry into the phase of growth and further technological adoption.
Financial Accessibility to Boost the Development of Digital Banking
For many years, the Fintech industry has been trying to resolve crucial social problems for many years. At some point, it is the only alternative to traditional lending and one of the few instruments to ensure effective regulation by Central Banks for low-income segments of the population.
According to CreditSummit, about 65% of the world's microcredit consumers are concentrated in suburban areas with no or even ATMs. Less than 20% of borrowers (residents of developing countries) obtained a loan through traditional financial instruments.
The segment is very huge making it extremely attractive for all market players despite the country mainly because of low customer profitability. Unlike classical financial institutions with their significant operating costs, this segment creates favorable conditions for Digital Banks and Fintech companies’ development.
The new Secure Access Service Edge architecture
It is sufficient to observe that SASE is not just another trend. It is a mandatory element of the architecture and development of all global or large web resources and applications.
The Secure Access Service Edge (SASE) concept was developed by global research and analysis agency Gartner in 2018 in response to the growing use of mobile devices, cloud applications, and services. SASE is a secure access technology also known as a new network architecture that combines the functionality of network and security services.
We believe that the use of SASE methodology is one of the fundamental Fintech trends for the next 5-10 along with A2A payments and digital currencies.
The importance of this trend is driven by the ongoing need to reduce operational risk costs and demand for growing data compliance requirements for Digital Banks and Fintech companies.
What is Secure Access Service Edge (SASE)?
SASE introduces a large technological set for secure access to web resources and applications. It involves a software-defined network with a new architecture, secure web gateways, tools for secure access to resources and/or applications on this network, session verification tools, and global firewalls (one of the trends in cyber security) as core capabilities.
Implementing this type of solution can significantly reduce operational risks, improve the availability and responsiveness of applications/web resources, and increase manageability and compliance with localization and compliance requirements for handling all types of data.
The key elements and benefits of the SASE model are as follows:
- significantly higher security level and a wider range of tools to mitigate operational risks;
- significantly higher network speed with the lowest possible latency;
- significantly higher availability of applications and resources to end users;
- a broader set of available data and tools to mitigate operational risks;
- lower the overall cost of maintaining and managing the infrastructure by reducing its complexity and
- increasing management transparency (especially relevant for large companies with an international presence);
- increased privacy and data localization for web and mobile applications.
SASE is often associated with a standalone service to help companies if per-session risk validation is required (i.e., assuming there are no absolutely trusted sessions - zero trust approach) to provide real-time device authentication-based access, as well as in the context of security policies and regulatory compliance.
Implementation Scenarios: when the SASE model will suit organizations?
The SASE methodology is primarily useful for medium and large-sized companies that need reliable and continuous access to cloud resources and data. This kind of information is essential for businesses that cannot afford different kinds of issues and long downtimes.
Unfortunately, most of today's security solutions fail to deliver the required level of speed, performance, security, and access control that organizations and their users' needs. So, SASE is a qualitative rather than quantitative stage in the process of networking technologies’ development alongside business strategies that utilize these technologies.
The main difference between SASE and other technological approaches is the placement of network security management mechanisms within the perimeter of the cloud edge zone. In most traditional models, security management is centralized. As a result, SASE negates the need for services that call for individual configuration and management. Instead, SASE provides a standardized set of network and security services that enable a more robust and efficient network architecture.
The main goal of the majority of our research is to explore new risk-management tools and increase the level of trust.
At the moment, there are practically no full-cycle SASE solution providers that are represented globally in the market. There are no companies with sufficient expertise in all elements and understanding of the market architecture. At the same time, we can see a growing number of individual solutions with a focus on only a part of the required SASE functionality.
We believe that all global companies and service providers will need to adopt these technologies or their analogs in the next few years.