The fintech sector, enduring a second straight year of economic downturn, has continued its innovation and growth trajectory from its initial breakout phase in the early 2010s.
2023 was no different, with a plethora of fintech elements such as digital wallets, embedded finance and more scaling of its efforts to transform the wider payments ecosystem, with traditional banks warming up to the idea of working alongside fintechs.
Daniel Cohen, CEO of PayU GPO, writes for Payment Expert on his assessment of the year that was 2023 and outlines his predictions for the next 12 months.
It’s been another remarkable year for the fintech sector. In the face of economic adversity, businesses have continued to demonstrate both resilience and innovation, driving ever greater experiences and efficiencies for businesses and consumers.
I would be remiss not to mention that there’s still plenty of challenges. High interest rates, inflation and rising investor scrutiny have dampened both funding and M&A activity across 2023. This in turn, has required businesses to button down their operations, creating efficiencies of scale and showing a clear path towards profitability.
Brands who rose to the challenge created opportunities for themselves to better engage their consumers and drive digital competences for themselves and their customers.
So how will those digital competences play a role in 2024? Read on for a few of my crystal ball readings!
Crypto won’t be mainstream just yet
Crypto’s buzzword-‘o’-metre rating continues to be high on the continued promise to distribute how we use and exchange funds globally. I do believe that where crypto will showcase its greatest value in 2024, is through its innate transparent and direct ledger technology, supporting money movement processes globally.
I am already seeing wider adoption with tier 1 banks (for internal movements mostly), but this will soon emerge from “pilot mode” to offer a better SWIFT replacement. SWIFT continues to offer cross-border payments that are slow and opaque in that you don’t really know where the money is at any given point. Crypto ledgers are the exact opposite and offer business transparent and practically instant money transfers.
Juniper Research estimates that by the end of 2024, more than half of the world’s population will use digital wallets – approximately four billion people.
Whether this figure is reached or not, digital wallets have proved invaluable in driving financial inclusion across emerging markets, helping unbanked populations store their money and earn interest.
In the regions that we operate this has been especially notable in Africa and Latin America, where “cash conversion” digital wallets have been gaining government support, helping foster greater financial inclusion.
In fact, traditional banks are increasing their investment into digital wallet infrastructure either via homegrown development or through partnerships with fintechs. They are increasingly viewing digital wallets as a service eating into their core financial ecosystem and understand the need to evolve. Go digital or die, right?!
There’s also a growing pool of evidence that digital wallets boost overall economic development. By establishing credit histories for previously unbanked consumers, I am seeing micro-lending initiatives, mortgages and other credit products helping to further engage individuals.
For these reasons, I expect to see both adoption and investment in digital wallets continue to rise in 2024 as governments and industry alike look to stimulate growth.
Partnerships vs acquisitions
Although 2023 saw a slowdown in deal activity, there were still a number of headline-grabbing mergers and acquisitions. FIS sold a majority stake in its Worldpay Merchant Solutions business in the biggest deal of the year.
My own business, PayU GPO, was acquired by Rapyd for over $600m, and Nasdaq continued to diversify itself beyond serving as an exchange operator with the acquisition of Adenza.
I don’t expect an array of partnerships and acquisitions to stop anytime soon as they are a critical facet for the evolution of the fintech sector. However, I believe these moves will continue to be challenging for banks. We will continue to see a longer evaluation process for banks choosing to acquire vs entering into a partnership to maintain their presence in the market.
Acquiring a fintech requires time to consider how you integrate different technologies and blend together an array of employees that have different working dynamics and culture. Banks will be most successful at acquiring if they are able to review and critique their own culture and capabilities and be willing to provide the space for those former fintech employees to work in a fast-paced environment and accelerate growth.
If they aren’t able to do this, they should continue down the partnership route, and look at how they can grow alongside fintechs. We’re seeing the fintech partnership route dominate in areas like LatAm and further down the line, may consolidate.
I believe there is still more to do to change that traditional bank mindset and culture to move faster in the financial services ecosystem. Acquisitions may be a route banks should consider more if they want to expand their vision, elevate their strategy or even expand operations geographically.
In short, while businesses continue to be beleaguered by inflation and high costs in 2024, I maintain my faith that the fintech industry is well-equipped to tackle pressing challenges, helping markets emerge stronger.
I hope that the sector continues to spearhead the development of innovative products and trials, providing their customers with ever greater solutions and experiences.