We all now witness tremendous changes in the fintech industry, which offers more digital services. Initially, this involved basic digital banking services and electronic payments. Now, we have mobile banking, blockchain, and the rise of digital currencies, which have shaped fintech development.Traditional banking systems have gradually integrated digital solutions, making financial services more accessible and user-friendly. So, let’s delve into trends in the fintech industry that may shape your startup idea and lead you to a successful outcome in the market.

• Digital payments, for example, gained popularity as consumers choose mobile payment solutions for everyday transactions.
• Digital investment platforms offer options for those who seek low-cost, user-friendly investment options.
• Digital capital raising has emerged as a preferred method for startups and SMEs to raise funding efficiently. This option is particularly a significant benefit of fintech for startups.
• Digital assets like cryptocurrencies and NFTs have created new opportunities for investors and traders.
• Neobanks are changing the traditional banking industry with innovative, customer-centric solutions covering the needs of today’s consumers.

Fintech Market Beneficial Tendencies For Startups

Several factors drive the growth in the fintech market. Firstly, smartphones and internet digital solutions led to the entire change of fintech services. Then, the shift to remote work caused a shift towards digital payments and investments with contactless transactions. Furthermore, modern technology, such as AI and blockchain, has opened a new era for fintech innovation and many other industries.
The fintech markets offer startups opportunities as well as challenges. Whether entering the market is beneficial depends on various factors, including the startup’s niche, target audience, and overall business strategy.

Fintech Startups Growing Market

The global fintech market continues to expand and rapidly change traditional financial institutions, driven by increasing smartphone penetration, changing consumer behavior, preferring online activity, and the rise of new technologies. This growth translates into a large potential customer base for innovative fintech solutions.

Number of Fintechs from 2018 till 2024

Source: Statista

Technological Advancements in Software Development

New technologies have changed for good traditional financial services, creating different options for startups, banks, and other financial businesses to develop unique solutions and gain a competitive edge in the market.

Evolving RegTech

Financial institutions process vast amounts of data daily and it’s impossible to handle manually. Furthermore, these companies must navigate an unprecedented scope of laws and regulations.
In fact, Regtech solutions are in great demand. They use cloud technology, machine learning, and big data analytics to identify and mitigate risks and ensure compliance with regulations. According to Juniper Research, the Regtech industry is projected to grow by 124% by 2028. Financial institutions investing in Regtech solutions report to achieve significant cost savings.

Increased Investments In the Financial Sector

Investment in fintechs remains high, convincing investors of the sector’s potential. With a compelling value proposition, startups can raise funding by offering brilliant ideas that meet customers’ needs. We share some common ways to raise funding:
Venture capital: VCs provide capital to financial companies or startups with high potential. They typically invest in startups and often take a hands-on approach to help them scale. It’s evident that VCs are interested in startups that have the potential to generate a significant return on investment.
Private Equity: PE firms typically focus on startups with rapid growth that expand through acquisitions or other strategies. They often provide funding and strategic and operational support to startups that don’t participate in public trade.
Angel Investors: Ordinary people who invest money into early-stage companies. They typically provide seed funding and often take an active role in mentoring and guiding the startup.
Crowdfunding: Method of raising money from many people, usually through an online platform. This approach allows startups to gather small amounts of capital from a specific audience.
Government Grants are funds awarded to companies working on innovative projects that prove their potential to grow. These grants are usually competitive and can cover various expenses, including research and development, marketing, and employee training.
Initial Public Offering (IPO): In an IPO, company shares are sold to the public for the first time. Companies with considerable growth choose IPO and want to raise substantial capital to finance further growth.
Strategic Partnerships involve finding partners with strengths and offering various forms of partnerships, such as joint ventures, licensing, and marketing alliances. They can provide funding, resources, and market access that benefit all parties.

Top 10 Fintech Industry Trends For Startups To Follow

Understanding current trends ensures your startup idea remains relevant in the market. As trends reflect consumer preferences and technological advancements, helping you align your product or service with market expectations.
Startups that leverage current trends and demonstrate growth potential are more appealing to investors and raise funding more efficiently. A trend-aligned startup idea is more attractive to investors, increasing the chances of securing funding.

Neobanking

There is a tendency to proliferation of neobanking market due to digital banking solutions such as mobile banking and online account opening. In addition, neobanks are entering new areas, such as SME lending and investment services, and partnering with traditional financial institutions to offer white-label banking services. Traditional banks also understand the advantages of online services: convenience for users, cost savings, and automatization of many services. The trend of neobanks partnering with traditional banks and financial institutions is likely to drive the adoption of neobank services. Neobanks have lower costs and flexibility than traditional banks, making them appealing as a fintech startup idea.
The largest neobanks in Europe in 2024:
Revolut – 1.7 billion U.S. dollars in funding.
N26 – 1.7 billion U.S. dollars in funding.
Wise – 1.7 billion U.S. dollars in funding.
Monzo – 1.1 billion U.S. dollars in funding.
Starling Bank – 1.1 billion U.S. dollars in funding.

Source: Advapay

Generative AI and ML

The fintech market has undergone significant transformation, driven by artificial intelligence (AI), generative AI, and machine learning (ML) algorithms.
AI integration in financial services has changed financial institutions’ workflows, improved decision-making, offered personalized customer engagement, and increased operational efficiency.

How Fintech Startups Use AI and ML in Their Software Products

Personalized Financial Services: Fintech startups and other financial institutions have solutions that help analyze vast amounts of customer data to gain valuable insights, allowing them to tailor services accordingly. ML algorithms offer personalized financial advice and product recommendations based on customer profiles.
Transactions monitoring: AI-powered systems help monitor transactions 24/7, identifying and flagging suspicious activities and fraudulent transactions.
ML models for detecting anomalies: ML algorithms help detect patterns and anomalies in large datasets. These models can identify fraud tactics by continuously learning from transaction data.
AI-powered chatbots and virtual assistants: Fintech businesses deploy AI chatbots to deal with customers’ queries and provide support around the clock. AI-driven customer support systems can personalize interactions and give recommendations based on customer history.
Predictive analytics for risk assessment: AI and ML analyze historical data to identify high-risk customers and transactions, helping with proactive risk management.
Automated credit scoring: ML algorithms can evaluate data points to determine creditworthiness.
AI in trading: When AI-driven trading algorithms analyze market data, they identify profitable trading opportunities and can execute trades automatically, maximizing returns.

Source: Mordor Intelligence

RegTech

RegTech, or regulatory technology, relies on companies offering cloud computing and software-as-a-service (SaaS) solutions to help businesses comply with regulations more efficiently. RegTech uses big data and ML to enhance financial institutions’ compliance capabilities by identifying online money laundering activities. Traditional compliance teams have struggled to detect these activities for years due to the increasing presence of online black marketplaces.
RegTech tools monitor online transactions, identifying any irregularities or issues within the digital payment ecosystem. When an anomaly is detected, it is flagged and relayed to the financial institution for further analysis. By identifying potential threats to economic security early, institutions can minimize the risks and costs associated with lost funds and data breaches.

Examples of RegTech platforms

Onfido uses AI to verify identities, ensuring customers are who they claim to be.
Jumio provides identity verification and KYC (Know Your Customer) solutions that use machine learning and big data analytics to prevent fraud.
Actico: Their software uses AI and ML and offers transaction monitoring to detect and prevent money laundering and fraud for banks and insurance companies.
Wolters Kluwer offers integrated regulatory compliance solutions that automate reporting processes and ensure accuracy in compliance reporting.
According to Facts & Factors, the global RegTech market was valued at approximately USD 13.27 billion in revenue in 2023 and is anticipated to reach USD 86.45 billion by 2032. This represents a compound annual growth rate (CAGR) of about 23.15% from 2024 to 2032.

Global Regtech Market Size Forcast for 2032
Source: Fnfresearch

Crypto & Blockchain

Blockchain underpins cryptocurrencies and operates without a central authority. It distributes control across a network of nodes, a process known as decentralization. the technology helps record all transactions on a public ledger, allowing for independent verification and transparency. Once recorded, no one can alter transactions, ensuring the integrity of the data. Advanced cryptographic techniques protect the data, making it highly secure.
Public blockchains are open to anyone, while private blockchains are restricted to specific users, providing different levels of accessibility and control.

Examples of Blockchain Use Cases in FinTech

Blockchain in Capital Markets

Capital markets facilitate the connection between issuers needing capital and investors. Raising capital is a complex task for the issuers: entrepreneurs, startups, or large companies. Blockchain technology offers numerous benefits for capital markets, including digitizing or tokenizing assets and financial instruments. Tokenization also allows for broader market access through increased connectivity and the possibility of fractional ownership, resulting in enhanced liquidity and reduced cost of capital.

Blockchain Impacts Asset Management

Blockchain can streamline asset and stakeholder management by automating fund launches and seamlessly engaging stakeholders with digitized assets and services. This technology enhances transparency and efficiency in managing investments and regulatory compliance.

Blockchain Impacts Global Payments and Remittances

Blockchain can simplify payment and remittance processes, drastically reducing settlement times and costs. Blockchain allows these transactions to be completed more quickly and affordably, benefiting senders and recipients alike.

Blockchain Impacts Banking and Lending

Blockchain streamlines financial services, and reduces risks and decreases the time required for issuance and settlement. This efficiency can significantly speed up processes and improve customer satisfaction.

Blockchain in Insurance

Blockchain can securely streamline data verification, claims processing, and disbursement, significantly reducing processing times. The use of smart contracts enables automated claims processing, and tokenized reinsurance markets facilitate policy reinsurance in open marketplaces, moving away from traditional broker-based systems. This technological shift enhances the efficiency and security of insurance operations.

Source: Mordorintelligence

Embedded Finance

Embedded finance transforms the fintech market, allowing the integration of financial services into non-financial platforms. Different businesses offer banking, lending, insurance, and investment services without customers needing to leave their ecosystem. Application Programming Interfaces (APIs) and Software Development Kits (SDKs) help seamlessly integrate financial services into any platform.

Applications of Embedded Finance

Embedded Payments: Platforms, apps, and marketplaces offer embedded payment solutions, allowing customers to pay directly within an app or platform.
Embedded Lending: Businesses also provide lending services through digital products so customers can get credit quickly, using the buy-now-pay-later principle.
Embedded Insurance: E-commerce websites or travel booking platforms integrate insurance services, and customers have insurance options at purchase.
Embedded Investment Services: Platforms can offer investment products and services directly to users, making it easier to invest or raise funding for charity.

Source: Marketsandmarkets

Fintech-as-a-Service (FaaS)

FaaS offers modular, scalable financial services that companies can integrate into existing platforms. The service uses APIs and cloud computing to help companies offer financial products and services without having to build their own infrastructure from scratch.
APIs allow data to be shared between software applications, while cloud computing provides the necessary infrastructure to host and manage financial services efficiently.
Modular financial services such as payment processing, digital banking, lending platforms, and wealth management can be easily customized and integrated into existing systems.

Examples of FaaS Applications

Payment processing: FaaS providers offer to integrate payment processing solutions into e-commerce platforms, mobile apps, etc.

Digital banking services:

Companies can offer digital banking services such as account management, money transfers, and mobile banking without building their own banking infrastructure.

Lending platforms:

Businesses can establish lending platforms that provide credit to consumers and small businesses, utilizing advanced algorithms for credit scoring and risk assessment.

Wealth management and investment services:

Wealth management and investment tools have an option to offer customers personalized financial advice and investment perspectives.

Fraud detection and compliance:

FaaS solutions offer advanced fraud prevention and compliance tools that help identify fraudulent activity and comply with regulatory requirements.

Source: Marketsandmarkets

FAQ

Is fintech a growing industry?

The adoption of digital financial services has accelerated the industry growth. Advanced technologies are transforming fintech sectors, including payments, lending, insurance, and wealth management.

What are the predictions for the fintech industry?

The fintech industry is expected to continue its growth due to following key trends like

• Generative AI for personalized financial services.
• Sustainability as a trend.
• Greater integration of blockchain technology.

Additionally, collaborations between fintech companies and traditional financial institutions influence the unprecedented growth of fintech solutions.

What is a fintech startup?

A fintech startup is a new company that develops software development products and uses technology to offer financial services or products. Startups aim to disrupt traditional financial systems by providing more efficient, cost-effective, and user-friendly solutions. Examples include neobanks, mobile payment apps, peer-to-peer lending platforms, robo-advisors, and blockchain-based services.

Can you start a fintech company?

Starting a fintech business requires a clear business plan, a thorough understanding of regulatory requirements, a discovery stage, and finding the proper dedicated team and the right technology stack. Entrepreneurs must identify a niche market, develop a unique value proposition, raise secure funding, or find valuable partnerships.