Deep dive into 2024 fintech trends: Part 1

Current state of fintech

The fintech landscape is growing fast and changing how we handle money. In 2023, the global fintech market was valued at $294 billion, with projections indicating an increase to $340 billion in 2024. This upward trajectory is expected to continue, with the market reaching an impressive $1,152 billion by 2032 and demonstrating a compound annual growth rate (CAGR) of 16.5% between 2024 and 2032.

More people are using digital payments too. In 2022, 89% of people in the U.S. used some form of digital payment (up from 51% in 2021), and 62% used two or more types. Awareness of fintech services is high, with only 4% of consumers unaware of money transfers and payments.

Despite the overall growth trend, recent investment figures suggest a slight cooling in the fintech sector. In the first half of 2024, total capital invested in fintechs worldwide amounted to $15.9 billion, down from $19.5 billion in the latter half of 2023. This paints a picture of a dynamic and rapidly evolving industry that, while facing investment headwinds, continues to transform financial services and consumer behavior.

AI in finance

Artificial intelligence technology is changing how finance works, and the AI market is growing fast. In 2023, the market for AI in the financial industry was valued at $42.83 billion, and it expanded to $44.08 billion in 2024. This upward trend is expected to continue, with forecasts suggesting the market will surpass $50 billion by 2029, growing at a compound annual growth rate of 2.91%. This reflects the growing adoption of AI in various financial sectors. From corporate finance to personal finance, AI technology is reshaping how financial services are delivered and consumed.

Personalized financial advice

AI is making financial advice personalized and accessible. Today’s AI-powered systems can analyze each individual’s unique financial situation and goals to provide tailored recommendations. This trend is gaining traction, with 66.4% of Forbes survey respondents feeling very or somewhat comfortable with their financial transactions and interactions becoming more digital and AI-driven.

Robo-advisors — AI-driven platforms that manage investments automatically — are at the forefront of this trend. These systems use complex algorithms to create and adjust investment portfolios based on multiple factors such as age, income, risk tolerance, and financial aims. The growing acceptance of AI in finance is evident, as 59% of survey respondents trust services that use AI to invest their money, while only 14% express distrust in these services.

Credit scoring and risk assessment

AI is increasingly being used in credit scoring and risk assessment, bringing significant changes in how financial institutions evaluate creditworthiness and assess risk.

• Enhanced data analysis: AI can process vast amounts of data quickly, allowing lenders to consider a wider range of factors beyond traditional credit scores. This includes analyzing spending patterns, income stability, and even social media activity. For instance, Lenddo uses non-traditional social media and smartphone usage data to assess creditworthiness in emerging markets where many people lack traditional credit histories.
• Better accuracy: Machine learning models can identify subtle patterns and correlations that human analysts might miss, leading to more accurate risk assessments.
• Personalized offerings: AI can help tailor financial products to individual customers based on their unique risk profiles and needs. A prime example of this is U.S. Bank partnering with Personetics to offer AI-driven personalized insights and advice to customers, including credit-related recommendations.

Customer service chatbots

Companies in the financial sector are leveraging AI-powered chatbots to improve overall customer satisfaction and operational efficiency.

Chatbots can provide round-the-clock availability, ensuring customers can access support at any time, day or night. They deliver instant responses to common queries, significantly reducing wait times and enhancing customer satisfaction. On top of that, chatbots can handle a high volume of simultaneous interactions, making them particularly valuable during peak periods. By leveraging customer data, chatbots offer personalized interactions, tailoring responses and recommendations to each individual’s needs and preferences. Moreover, chatbots maintain consistent service quality across all interactions, unlike human agents who may vary in their knowledge and experience.

Bank of America’s AI-powered virtual assistant, Erica, exemplifies the growing importance and adoption of chatbots in finance. An October 2022 publication by Bank of America revealed impressive adoption rates for the bank’s AI chatbot. Since its launch, over 32 million customers have used Erica, and Bank of America states that more than 98% of clients get the answers they need.

Embedded finance

Embedded finance refers to the integration of financial services or tools within non-financial products, platforms, or services. This encompasses a wide range of financial functionalities that are incorporated into everyday products and services, from payments and lending to insurance and investment.

At their core, embedded finance solutions allow non-financial companies to offer financial services directly to their customers, creating a more integrated and frictionless user experience.

Embedded finance market overview

The embedded finance market is poised for significant growth in the coming years. Industry analysts estimate the market to be worth $115.8 billion in 2024 and project it to reach $251.5 billion by 2029, growing at a robust CAGR of 16.8% during the forecast period.

Embedded finance gained momentum in the fintech sector during 2019 and 2020 and saw a significant surge in venture capital investments to $4.25 billion in 2021, nearly tripling the amount from the previous year.

Looking at the future of the embedded finance market up to 2029, MarketsandMarkets predicts that B2C business models have the potential to register a high growth rate for various reasons. The availability of financial services on B2C platforms brings transactional convenience to consumers by letting them perform financial operations in familiar portals. Embedding payment, lending, and insurance services directly into these platforms makes such services more accessible and enhances engagement.

Applications and examples of embedded finance

Embedded finance is being applied across a wide range of industries, revolutionizing how financial services are delivered. Let’s look at key types and examples.

• Embedded payments refers to the integration of payment processing directly into a non-financial platform or app. A good example of this is Uber’s seamless payment system, which allows riders to pay for their trips without exiting the app.
• Embedded lending is when users of a non-financial platform are provided with an option to get a loan or credit service. For instance, Klarna allows shoppers to buy now, pay later directly at the point of sale on eCommerce websites.
• Embedded banking is when banking services are integrated into non-banking platforms or apps. That’s how Shopify Balance offers its merchants a business account, card, and financial products directly within the Shopify platform.
• Embedded insurance allows insurance to be offered to customers when purchasing a product or service. Insurance is often offered by a dealership when a customer purchases a car, for instance.
• Embedded investment allows non-financial platforms to offer investment opportunities. For example, Acorns users can automatically invest their spare change from everyday purchases into diversified portfolios.
• Embedded card balance is the ability to check card balances or manage cards within a third-party application.

Digital payments

Digital payments are now ordinary for many consumers, and the market is still evolving and growing.

In 2024, the total transaction value in the global digital payment market is projected to reach an impressive $11.53 trillion, with forecasts indicating an annual growth rate of 9.52% from 2024 to 2028. At this pace, the market is anticipated to achieve a total transaction value of $16.59 trillion by 2028.

Within this burgeoning market, digital commerce stands out as the largest segment, with projections suggesting it will account for $7.62 trillion in transaction value in 2024 alone.

Sustained growth

The COVID-19 pandemic served as a powerful catalyst for the digital payments industry, driving increased adoption across a wide array of categories. This increase in digital payment usage was initially sparked by necessity during lockdowns, but interestingly, these gains have been sustained and in some cases further accelerated despite the return to in-person commerce.

This trend reflects a fundamental shift in consumer behavior, with individuals displaying an increasing openness to new technologies. The continued advancement in convenience and user-friendly design of digital payment solutions has played a crucial role in maintaining and expanding this adoption trend, suggesting that the pandemic has had a lasting impact on payment preferences.

Consumer behavior and preferences

Insights from McKinsey’s 2023 Digital Payments Consumer Survey reveal fascinating trends in consumer behavior and preferences within the United States. For the first time in the survey’s eight-year history, more than 90% of consumers reported using some form of digital payment over the course of the year.

Online purchasing remains the most popular category of digital payments, with 73% of respondents reporting such transactions in the past year. However, the survey also highlights significant growth in the in-app and in-store digital payment categories.

This growth is particularly pronounced among younger consumers, with 18- to 24-year-olds showing a 32% adoption rate for in-store digital payments, double that of the 55-plus age group. This generational divide suggests a potential long-term shift towards digital payments as younger consumers age.

Personal finance management

As technology advances, fintech companies are creating new tools to help people better manage their finances. These tools use smart technology to simplify complex financial tasks and offer personalized advice on budgeting, saving, investing, and handling debt. This trend is particularly important because different generational cohorts have different levels of financial knowledge.

Financial literacy by generation

Financial literacy is generally low across all generations, but with notable differences.

Generation Z (ages 18–23) shows the lowest level of financial literacy, with 66% answering 50% or fewer questions correctly on financial literacy assessments.

In contrast, only 40% of Baby Boomers and the Silent Generation fall into this category.

Millennials (or Gen Y) often overestimate their financial knowledge, while Generation X faces significant financial challenges, with 28% reporting difficulties in making ends meet. Baby Boomers and the Silent Generation typically display higher financial literacy but struggle with adapting to new financial technologies.

Generation Z shows promise, with 40% participating in financial education programs. But they tend to prefer conservative investments like savings accounts.

Millennials score an average of 2.49 out of 5 in financial knowledge tests, not differing significantly from other generations.

Generation X reports the highest levels of financial stress, struggling with monthly expenses.

Baby Boomers exhibit greater confidence in their financial knowledge, though this doesn’t always align with actual financial literacy levels.

How the fintech industry helps consumers handle their money better

Fintechs have immensely changed how consumers manage their finances, providing a variety of tools and services that improve financial literacy, accessibility, and overall financial health. Let’s take a look at key ways fintechs help consumers.

Enhanced accessibility

First of all, we must talk about accessibility. Fintech platforms break down traditional barriers to financial services, allowing previously underserved or excluded individuals to access banking, investment opportunities, and credit. This democratization of financial services is particularly impactful in regions where traditional banking infrastructure is lacking or too expensive.

AI-powered financial planning

Advanced fintech solutions use artificial intelligence to provide personalized financial planning advice. These tools can analyze an individual’s financial situation, goals, and risk tolerance to offer tailored recommendations. As an example, leading robo-advisor platform Betterment uses AI and ML algorithms to provide personalized investment management and financial planning services tailored to individual users’ financial situations, goals, and risk tolerances.

Digital banking and payment solutions

Fintech has changed banking and payments, making them easier for everyone. Young people like the smooth digital options, while older adults find that fintech tools simplify financial tasks. Mobile banking apps, peer-to-peer payment systems, and digital wallets have made day-to-day financial management more convenient and accessible across all age groups.

Robo-advisors and democratization of investing

Robo-advisors have democratized investing by providing low-cost, algorithm-driven portfolio management. This technology is particularly beneficial for Gen Z and Millennials, who may be intimidated by traditional investing but are comfortable with digital solutions.

Financial education

Many fintech platforms include educational resources that help consumers improve their financial literacy. These include tutorials on budgeting, saving, and investing, which are crucial for building a solid financial foundation.

Automated budgeting

Fintech apps offer automated budgeting and expense tracking features that help consumers gain a clear picture of their spending habits. These tools categorize expenses, provide visual representations of spending patterns, and offer insights into areas where users can potentially save money.

A win-win situation

By prioritizing consumer needs and offering innovative, personalized solutions, fintech companies boost their business while creating a more inclusive financial ecosystem. This approach benefits both fintechs and consumers:

• Increased engagement — tailored services foster customer loyalty
• Better data use — analytics inform product development and marketing
• Competitive edge — user-friendly experiences set fintechs apart from traditional banks

This strategy drives fintech growth and improves consumers’ financial health, creating a win-win situation in the financial services landscape.

Buy now, pay later (BNPL)

Buy now, pay later (BNPL) is a type of short-term financing that allows consumers to make purchases and pay for them at a later date, usually in installments. BNPL is available at checkout in physical stores or online retailers. If you qualify, you’re typically approved instantly, often without a hard credit check. You might pay a small portion of the total cost up front. The remaining balance is then split into several equal payments, usually spread over a few weeks or months.

BNPL market growth

The BNPL industry is witnessing explosive growth on a global scale. By 2024, Lafferty Group predicts the worldwide BNPL market will balloon to $532.9 billion, expanding at a breakneck pace with a 56% compound annual growth rate from 2021. In the United States alone, BNPL lending is on track to surpass $100 billion by 2024, a significant jump from $74 billion in 2022. And the momentum shows no signs of slowing.

Research and Markets projects that by 2030, the global BNPL market could reach $1,209.9 billion. This represents a CAGR of 21.5% between 2024 and 2030, highlighting the sustained appeal and adoption of BNPL services. These figures paint a picture of a financial sector undergoing rapid transformation, as consumers increasingly embrace flexible payment options for their purchases.

Consumer attitudes towards BNPL

Overall, consumers have a positive attitude toward buy now, pay later services, with high satisfaction rates and growing use, especially among younger generations. However, there are risks and concerns to be aware of.

The popularity of BNPL is undeniable, with a striking 78% of users reporting high satisfaction with BNPL services. Enthusiasm is particularly pronounced among younger generations, with nearly half of Gen Z and Millennial consumers having embraced BNPL in the past year.

The appeal of BNPL seems to lie in its perceived flexibility and financial management benefits. 63% of users cite improved cash flow management as a key reason for choosing BNPL.

So what’s driving BNPL growth? It boils down to three key factors: awareness, accessibility, and affordability. Consumers are drawn to BNPL for various reasons, including the ability to obtain products they couldn’t otherwise afford, ease of use compared to traditional borrowing, and the appealing repayment structure. Many users appreciate the straightforward process and the option to delay full payment.

When considering BNPL options, consumers prioritize different factors. The monthly repayment amount tops the list, with 32% considering it the most crucial aspect. Other important considerations include the total repayment amount, the term length, and the borrowed sum, with interest rates surprisingly low on the priority list.

47% of people with children are heavy BNPL users. Over a quarter of these parents are opting for BNPL instead of traditional credit options. This suggests that BNPL is filling a crucial financial need for families juggling expenses.

Gen Z and Millennial consumers are also enthusiastic about BNPL. These younger generations are adopting BNPL at the highest rates, showcasing its broad appeal to those still in the early stages of building their financial lives. It seems BNPL’s flexibility and accessibility resonate strongly with consumers who are just beginning to flex their spending power.

However, it’s not all smooth sailing in the BNPL world. More than half of users have at least one outstanding BNPL purchase, with 6 in 10 BNPL users juggling multiple unpaid balances. This raises concerns about potential overextension and financial stress. Additionally, there’s evidence that some consumers may not fully understand the BNPL products they’re signing up for, which could lead to missed payments and financial difficulties.

In essence, BNPL has struck a chord with consumers, offering a blend of convenience and financial flexibility that resonates particularly well with younger shoppers. Yet, as with any financial tool, it comes with responsibilities and potential risks that users must navigate carefully.

Key players in the BNPL market

The BNPL landscape is dominated by a mix of established fintech companies and innovative startups. Klarna leads the pack as the largest BNPL provider by transaction volume, facilitating around $40 billion in gross merchandise volume (GMV) globally and partnering with over 200,000 retailers.

Afterpay, known for its “pay in 4” model, is widely used for smaller purchases and has a strong presence in North America with a GMV of $29 billion. Affirm, based in San Francisco, offers point-of-sale installment loans with a focus on transparency and no hidden fees, boasting partnerships with over 292,000 merchants and a GMV of approximately $24 billion.

Other significant players include Zip (formerly QuadPay), which partners with major brands like Apple and Amazon, and Sezzle, which focuses on interest-free installment plans primarily in the U.S. market. Additionally, established payment companies like PayPal have integrated BNPL options into their existing services, further expanding the market.

Emerging regional players such as Sunbit in the U.S., Scalapay in Europe, Hoolah in Southeast Asia, and Paidy in Japan are also making their mark, catering to specific market needs and contributing to the global growth of BNPL services.

Continue the deep dive

We’ve seen how AI is changing financial services, how finance is being built into all kinds of apps, and how digital payments are taking over. We’ve also looked at new tools for managing personal money and the rise of buy now, pay later options.

But we’re only halfway through our tour of fintech’s future.

In Part 2, we’ll explore even more exciting changes. We’ll look at how people are lending money to each other directly and how new online banks are shaking things up. We’ll also dive into the current state of DeFi and examine how consumers feel about trusting this technology. On top of that, we’ll explain the blockchain beyond cryptocurrencies and look at how regulators are trying to keep up with all these changes.

The future of money is being shaped right now, and there’s certainly more to come. Join us for Part 2 to see what’s next in fintech for 2024 and beyond.