The Transformational Future of Fintech

By Chris Burns, Head of Sales, Future Processing

The future of financial services lies in technology. Consumers increasingly seek choice and convenience in today’s rapidly evolving economic landscape. This trend holds true even for individuals who were previously underserved or lacked access to traditional money-related resources. Fintech has emerged as a critical player in democratising the sector and empowering consumers to take control of their investments.

This evolving technology sector seeks to improve and automate the delivery and use of financial services. Consultancy firm EY reported consumer adoption of fintech services across the globe to be 64% in 2020. The London Stock Exchange has highlighted the accelerated growth attributed to policymakers’ numerous proactive steps to support and develop the UK fintech sector, while McKinsey has pinpointed the pandemic as a key driver behind the consumer shift towards fintech.

Chris Burns
Head of Sales, Future Processing

By leveraging innovative technologies and digital platforms, fintech companies have successfully bridged the gap between traditional financial services and consumers, providing accessible and convenient solutions tailored to customers’ unique needs. Additionally, as access to these services keeps expanding, fintech has enormous potential to empower underserved demographics and promote greater inclusion.

Venture capital growth

There has been a notable shift in the perception of fintech companies among businesses and investors in recent years. With an increasing understanding of the significant role these innovative firms will play in shaping the future of finance, venture capital has experienced a marked impact.

Innovative Finance reports that the UK demonstrated its resilience as a top location for fintech investment in a complex global market by obtaining $12.5bn in fintech venture capitalist investment, of which $8.9bn was spent just in the first half of 2022. However, this was an 8% decrease in investment from 2021, when investments in UK fintech skyrocketed to $13.5bn. Perhaps unsurprisingly, the United States was considered the leading global fintech destination, according to Findexable’s fintech industry analysis, with the UK, Singapore, Lithuania and Switzerland also ranking highly.

According to KPMG, 2022 saw the UK remain at the forefront of European fintech innovation, despite a downturn in investment compared with last year, with the UK’s sector garnering more money than those in France, Germany, China, Brazil, and Canada.

This newfound recognition of the potential offered by fintech has translated into a surge in investment activity within the market. As more companies and investors recognise fintech’s immense value and disruptive potential, this trend is expected to continue to gain momentum. Industry experts anticipate a substantial uptick in fintech investment in the coming years, with Deloitte predicting the global market will be worth $188bn by 2024.

Embedded finance

Many experts predict that fintech, especially embedded finance, will become ubiquitous. Embedded finance directly integrates financial services and products into non-financial platforms and applications. Instead of users going to a separate FI or application to access the relevant services, embedded finance delivers them to the users within their existing digital experiences.

Embedded finance is expanding into various shopping experiences, including e-commerce, creating a significant opportunity for businesses and consumers. Companies stand to gain billions in expected revenue, while consumers will enjoy greater choice, convenience, and savings, such as zero-interest point-of-sale loans or brand rewards.

Connected payments, virtual card usage, and embedded financial services are expected to evolve into de facto standards, fostering stronger relationships between banks and businesses – and changing the landscape for corporate treasurers. Venture capital investment, which slowed down due to the macroeconomic climate, is predicted to come back strong, supporting the growth of fintech startups.

B2B buy now, pay later (BNPL) is also anticipated to experience significant growth in 2023, and digital banking is on the rise, with fintech offering an array of tools and services to better support banking customers. Furthermore, experts foresee CBDCs as the future of international payments, causing global geopolitical concerns and driving countries to explore alternatives to traditional SWIFT transfer networks. Again, this has huge potential to change the way treasury teams operate.

Fintech’s expansion and adoption of embedded finance are expected to revolutionise the financial industry, providing customers with enhanced services and experiences while opening up new revenue streams for businesses.

AI and ML

Another theme in the fintech – and indeed treasury – space is the rise of AI and ML. These technologies play a crucial role in the fight against cybercrime, assisting FIs in preventing sizeable revenue losses and alleviating consumer and corporate worries about banking and credit fraud in the increasingly digital environment. In a whitepaper, the University of Jakarta found that ML algorithms achieved up to 96% accuracy in reducing fraud for e-commerce businesses.

The primary method AI and ML use to combat fraud is anomaly detection. These technologies can analyse several historical transaction data to identify typical user and merchant behaviour. When a transaction significantly deviates from these patterns, the system flags it as an anomaly, alerting users to possible fraud.

Additionally, because these algorithms work in real-time, suspicious behaviour can be immediately identified, and fraudulent transactions can be stopped before they are completed. This capability is essential for protecting FIs and their clients’ short-term losses.

AI and ML use behavioural biometrics to identify users based on their distinct behaviours, such as keystroke dynamics, mouse movement patterns, or touchscreen interactions. This assists in identifying situations when someone other than the authorised account holder tries to access an account, strengthening security precautions.

AI and ML also increase accuracy, resulting in fewer false positives and an improved user experience, unlike conventional fraud detection systems that may produce many false positives. As ML models can continuously learn, they can adapt to changing fraud tactics and offer reliable protection against new fraudulent methods as they emerge.

The results achieved by implementing AI and ML in fraud prevention have been significant. FIs have noted decreased fraud losses, elevated customer security, and increased detection rates. These technologies enable FIs to react quickly to new fraud trends, protecting both their revenue and the financial security of their clients.

Treasurers would therefore do well to ask their banking partners about their latest cybersecurity precautions and the level of AI they are deploying, especially when re-evaluating cash management relationships.

Customer satisfaction at its core

In summary, the future of fintech – and its impact on the treasury function – looks bright as technology reshapes financial services. With millions turning to digital banking, fintech’s growth potential is set to skyrocket. Customer satisfaction is at the forefront, offering accessible and convenient financial solutions tailored to specific needs. At the same time, fintech innovation empowers customers, democratises financial services, and promotes inclusion.

With technology as its foundation, fintech is transforming finance for the future – and there are significant opportunities for corporate treasurers to explore – whether that be through direct relationships with fintech firms or by leveraging the joint expertise of bank and fintech partnerships.