The Fintech sector is rapidly evolving as a result of emerging technologies and changing consumer demands. In this blog, we explore our forecasts for the Fintech trends that will shape the industry in 2025 and the years to follow. Recognizing these trends enables businesses to adjust and capitalize on new prospects.
Ongoing expansion in embedded finance
Embedded finance is rapidly transforming the financial landscape by integrating financial services directly into non-financial platforms.
One of the key drivers behind the expansion of embedded finance is the increasing demand for convenience and efficiency. Consumers today expect financial services to be available at their fingertips, without the need to switch between multiple apps or platforms. By embedding financial services into everyday applications, companies can meet these expectations and foster greater customer loyalty.
The growth of embedded finance has been nothing short of remarkable. According to a report by Future Market Insights, the global embedded finance market is projected to reach a staggering $248.4 billion by 2032, up from $54.3 billion in 2023. This exponential growth underscores the sector's immense potential and the increasing reliance on integrated financial solutions.
A recent survey by eMarketer found that 49% of Americans have used a digital wallet. Notably, the study also found that 80% of Gen Z use digital wallets on a regular basis. Furthermore, consumers are spending more with digital wallets, with the most popular embedded finance tool right now being payments via digital wallets. This trend highlights the growing importance of seamless, integrated payment solutions in the embedded finance landscape.
With the embedded finance market showing no signs of slowing down, companies that leverage these technologies will be well-positioned to capitalize on this burgeoning trend.
Fintech's shift toward sustainable solutions
As the Fintech industry grows, there's a focus on sustainability and ethical practices. Companies are aligning their operations with environmental, social, and governance (ESG) criteria. This change is driven by consumer demand and regulatory pressures. Consumers are more aware of the impact of their financial choices and expect fintech companies to reflect these values. As a result, many Fintech firms are adopting sustainable practices, such as offering green financial products and reducing their carbon footprint.
Regulatory bodies are also playing a crucial role in this transition. Governments and international organizations are introducing stricter regulations to ensure that financial institutions adhere to sustainable practices. For instance, the European Union's Sustainable Finance Disclosure Regulation (SFDR) requires financial market participants to disclose how they integrate sustainability risks into their investment decisions.
This regulatory push is encouraging Fintech companies to adopt more transparent and responsible practices. By prioritizing sustainability, fintech firms can not only comply with regulations but also build trust and loyalty among their customers.
Cautious approach to buy now, pay later models
Buy Now, Pay Later (BNPL) models have surged in popularity, offering consumers a convenient way to make purchases without immediate payment.
The global BNPL market is projected to grow to a staggering $576 billion by 2026, according to Statista. However, this trend has also raised concerns about financial stability and consumer debt.
A recent survey revealed that 85% of Gen Z and 83% of Millennials admit to pretending all is well with their finances in front of family and friends, highlighting the depth of overspending and financial strain many are experiencing.
Fintech companies need to be vigilant when providing BNPL services. Implementing strong credit assessment mechanisms is essential to assist consumers in handling their postponed payments responsibly and preventing debt accumulation. Regulatory scrutiny of BNPL frameworks is intensifying. Financial authorities, including the Consumer Financial Protection Bureau (CFPB) in the U.S. and the Financial Conduct Authority (FCA) in the U.K., are increasingly worried about potential problems such as hidden fees and insufficient transparency.
To succeed in this evolving regulatory landscape, Fintech companies need to prioritize compliance and maintain a high level of transparency in their operations.
Responsible AI adoption
Artificial Intelligence is revolutionizing the Fintech industry. According to recent insights by Fintech Futures, the AI in Fintech market is projected to reach a staggering revenue of USD 70.1 billion by 2033. Additionally, a Deloitte report highlights that 70% of financial services firms recognize the significant benefits of AI, particularly in enhancing customer experience and operational efficiency.
As the Fintech AI market continues to expand and more organizations begin to adopt this technology, the importance of data security and ethical considerations cannot be overstated.
AI systems in Fintech often require access to highly sensitive financial information, making data privacy and security paramount. As adoption increases, to mitigate risks, Fintech companies must implement robust data protection measures and adhere to stringent regulatory requirements.
Moreover, as AI becomes increasingly integrated into financial services, addressing ethical considerations is crucial. Ensuring transparency in AI operations and eliminating biases in algorithms are essential steps for fintech firms to build trust with their customers and deliver superior financial services.
By prioritizing data security and ethical practices, Fintech companies can navigate the complexities of AI adoption while maintaining the confidence of their clients.
Defending against cyber attacks
As Fintech continues to evolve, so do the threats posed by cybercriminals. In fact, Forbes Advisor found that 2023 saw a staggering 72% increase in data breaches since 2021.
The risk of a data breach doesnt just lie in the loss of data, a significant 46% of consumers are likely to abandon a business after a data breach, according to a Forbes Tech Council report. As financial technology is adopted more and more, ensuring the security of customer data is not just a technical necessity but a critical component of maintaining consumer trust and loyalty.
Now and in the future, Fintech companies must prioritize the implementation of advanced security measures to protect sensitive financial data and maintain customer trust. This includes employing multi-layered security protocols, such as encryption, multi-factor authentication, and continuous monitoring of network activities. By staying ahead of potential threats, Fintech firms can safeguard their operations and ensure the integrity of their services.
Collaboration within the industry is crucial for combating cyber threats. Sharing information and best practices can help fintech companies stay aware of new risks and develop effective defenses. Regulatory bodies are also stressing the importance of cybersecurity with strict guidelines and compliance requirements. Following these rules not only reduces risks but also boosts the credibility of fintech firms. By promoting a culture of security and alertness, the Fintech industry can better protect itself against evolving cyber threats.
Increasing use of biometrics
The surge in cyber attacks has led to heightened security measures, driving the rise of biometric technology in the Fintech industry.
By leveraging unique biological traits such as fingerprints, facial recognition, and voice patterns, Fintech companies can offer more secure authentication methods than traditional passwords. This not only mitigates the risk of fraud but also enhances the user experience, making it faster and more convenient for customers to access their financial services.
A recent report by Juniper Research reveals that biometrically authenticated remote mobile payments are projected to soar to $1.2 trillion globally by 2027, a substantial increase from $332 billion in 2022.
This remarkable growth underscores the rising trust and dependence on biometric authentication within the financial sector, emphasizing its pivotal role in the future of secure digital transactions.
Revolutionizing consumer credit with alternative data
In the evolving landscape of Fintech, the use of alternative data for credit scoring is gaining momentum. This innovative approach leverages non-traditional data sources, such as utility payments, rental history, and even social media activity, to assess creditworthiness. By moving beyond conventional credit scores, Fintech companies are expanding financial access to underserved populations who may lack a traditional credit history.
For example, companies like Petal and Upstart are pioneering the use of alternative data to offer credit products to consumers who might otherwise be excluded from the financial system. This shift not only democratizes access to credit but also encourages more inclusive financial practices.
The impact of using alternative data for credit scoring is profound. It allows lenders to make more informed decisions, reduces bias in credit assessments, and ultimately enhances consumer credit access. As this trend continues to grow, it represents a significant step forward in creating a more equitable financial ecosystem.
Advances in payment technology
Payment technology is advancing at an unprecedented rate, driven by the demand for faster, more secure, and more convenient transactions.
Digital and cashless transactions have gained significant traction, according to a report by IR, 46% of consumers switching from cash to digital transfers after the pandemic began.
One of the most transformative trends in the payments industry is the rapid adoption of contactless payments, driven by their convenience and enhanced security features. Technologies such as Near Field Communication (NFC) and QR codes enable consumers to complete transactions with a simple tap or scan, significantly reducing the need for physical cash and cards. This evolution not only streamlines the payment process but also bolsters security by minimizing the risk of fraud and theft.
Another revolutionary advancement is the integration of blockchain technology into payment systems. Blockchain offers a decentralized and transparent method for processing transactions, which can dramatically reduce costs and improve efficiency. For instance, cross-border payments, which traditionally involve multiple intermediaries and high fees, can be executed almost instantaneously and at a fraction of the cost using blockchain technology.
Additionally, the rise of digital currencies, including central bank digital currencies (CBDCs) and cryptocurrencies, is reshaping the payment landscape. These digital currencies provide new avenues for secure and efficient transactions, paving the way for a future where traditional financial barriers are significantly diminished.
Rising dependence on Fintech apps
As economic challenges persist, consumers increasingly turn to Fintech apps for financial management and support.
Fintech apps offer a range of services, from budgeting and savings tools to investment platforms and loan management, catering to diverse financial needs. The convenience and accessibility of these apps make them an attractive option for consumers seeking to streamline their financial activities and gain better control over their finances.
For the Fintech industry, this trend presents both opportunities and challenges. Companies must ensure their apps are equipped with robust security measures to protect sensitive user data while also enhancing user experience through intuitive design and personalized features. By addressing these demands, Fintech firms can strengthen their market position and foster greater consumer trust and loyalty.
Challenger banks' growing popularity among youth
Challenger banks or digital banks, also known as neobanks, are rapidly gaining traction among younger generations. According to the FICO, 89% of young adults aged 18 to 34 are now using mobile banking apps to manage their finances, and 47% of them have accounts with digital-only banks.
Statista projects that the number of neobanks is expected to grow to 700 million by 2027, further highlighting their popularity.
Young consumers are increasingly attracted to the effortless digital experience offered by neobanks. They prefer the AI-driven customer support and the absence of traditional banking infrastructure. With just a few taps on the neobank's app, they can quickly set up an account and start using it through a digital wallet almost instantly.
The convenience of managing finances entirely from a smartphone aligns perfectly with the lifestyle of young consumers who are constantly on the move, solidifying the shift away from traditional megabanks to more agile, digital-first banking solutions.
Conclusion
As we look towards 2025 and beyond, the Fintech landscape is set to undergo significant transformations driven by technological advancements and evolving consumer expectations. From the ongoing expansion of embedded finance to the increasing use of biometrics, each trend presents unique opportunities and challenges for businesses and consumers alike. The shift towards sustainable solutions and the cautious approach to Buy Now, Pay Later models highlight the industry's commitment to ethical practices and financial stability.
