2024 is expected to be a year of innovation for the fintech industry, marked by advancements in artificial intelligence (AI), cross-border and real-time payments, cryptocurrency and blockchain, and bundled software-as-a-service (SaaS) offerings.

At the same time, the sector is anticipated to witness a massive wave of consolidation as attractive capital continues to lack, forcing many firms to seek outcomes such as acquisition or closure, partners and advisors of venture capital (VC) firm Lightspeed Venture Partners predict.

These predictions, shared in a blog post on January 31, 2024, reveal the thoughts of Lightspeed partners and advisors Aaron Frank, Sam Eisler, Connor Love, Adrian Radu, Alexander Schmitt, Justin Overdorff, Shan Shan, Anuvrat Jain, Mercedes Bent, Shuvi Shrivastava and Priyal Motwani on the trajectory of the fintech sector, highlighting how much of a pivotal year 2024 is set to be for the global fintech landscape; a year that’s expected to be characterized by groundbreaking innovation and tech adoption, but also many business closures.

The rise of real-time fraud detection

According to these experts, 2024 will see the rise of real-time fraud detection, driven by advancements in AI and the escalating challenge of fraud. Fintech firms will increasingly turn to AI to tackle the rising challenge of fraud, leveraging AI-powered tools to better assess risk, detect complex fraud patterns, and proactively investigate and respond to threats.

At the same time, the advent of real-time payments will prompt the need for real-time fraud detection and prevention. This trend will be further accelerated by the changing regulatory landscape as regulatory bodies give increased attention to payment fraud.

Automated accounting takes another leap

In 2023, financial institutions took significant steps towards full accounting automation, using AI to drive improvements in data processing and categorization, capital deployment and management, month-end bookkeeping, and other basic fiduciary responsibilities.

In 2024, the focus will be put on execution and streamlining the workflows of the entire finance organization. Finance leaders will seek products that consolidate and ease their day to day work, and in turn, enable, the office of the CFO to adopt a more strategic role within the organization.

Innovation carries on in cross-border payments

Despite widespread adoption of tech-enabled remittance services like Wise and Remitly, cross-border payments will continue to remain expensive and slow for many individuals and businesses in 2024. This innovation gap will be even more substantial for small and medium-sized businesses operating on the global stage and in trade finance.

This will prompt industry stakeholders to heighten their efforts to address cross-border payment inefficiencies through developments in crypto payment systems, the expansion of real-time payment capabilities, and solutions aimed at enhancing foreign exchange management and banking access across different countries.

New capital markets

In 2024, federal and state local governments will continue to play an important role in financial services outside of the traditional financial sector. In particular, climate change is expected to spur governments’ involvement in creating new capital markets driven by securitized or transferable tax credits, ultimately leading to the formation of a new financial market.

In 2022, funding to climate fintech companies reached a new high, totaling US$2.9 billion in venture capital (VC) funding, data from CommerzVentures, the corporate venture capital (CVC) arm of Commerzbank in Germany, show. The sum represents more than double what was secured in 2021 (US$1.2 billion) and showcases accelerating investor appetite for the nascent sector. Lightspeed partners expect this trend to gain even more momentum into 2024.

Blockchain moves closer to mainstream use

Blockchain technology will continue to move towards mainstream adoption, building on the uptake of cryptocurrencies and advancements of the technological foundation of blockchain.

The development of Layer 2 blockchains like Polygon and Arbitrum, along with alternative Layer 1s such as Solana, is facilitating higher transaction volumes per second, while reducing associated fees, paving the way for widespread adoption. At the same time, bitcoin experienced a resurgence in 2023, with traditional institutions leading the charge in exchange-traded fund (ETF) markets and implementing new programmability features like Ordinals to allow for the creation of non-fungible tokens (NFTs) directly on the Bitcoin blockchain.

In 2024, cryptocurrencies will solidify their position as settlement layers for new payment methods and money-transfer solutions across various real-world business and consumer applications. Meanwhile, blockchain’s role as a distributed database and universal computing power will become increasingly integral in various sectors, including AI, physical infrastructure, and network nodes.

More bundled offerings

The past years have seen SaaS companies expand their product portfolios by integrating fintech-related offerings amid escalating challenges and expenses tied to customer acquisition.

One relevant example is Toast, a company that initially launched as a restaurant point-of-sale (POS) system before evolving into a comprehensive platform encompassing inventory management, payroll processing, scheduling, online ordering, and capital raising. Toast has reported a 50% attach rate on some of these products, underscoring the effectiveness of the bundling strategy.

Lightspeed partners anticipate this trend to accelerate this year, with more players diversifying their marketplaces and more vertical-SaaS businesses integrating payments, payroll processing, embedded lending, insurance and more financial products into their offerings. Additionally, AI is expected to play a pivotal role in transforming how embedded players serve these verticals, offloading some of the customer support work for specialized offerings.

A year of consolidation

Although Lightspeed partners anticipate a rise in the adoption of fintech solutions and improvements in technology throughout the entire fintech sector, these investors also expect 2024 to be a challenging year for cash-hungry startups as the lack of attractive capital forces many to seek outcomes such as acquisition or closure.

This consolidation process will affect both business-to-business (B2B) and business-to-consumer (B2C) companies, and will provide the opportunity for resilient fintech companies to showcase their adaptability.

A new class of winners will ultimately emerge, armed with heightened products and capabilities. These innovators will inject further efficiency and value creation into the financial services ecosystem, driving fintech towards greater resilience and innovation.

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