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| 1. Blockchain heads for the mainstream |
| 2. Regulators will keep turning up the pressure |
| 3. AI’s transformative power is coming to the fore |
| 4. The expanding potential of Open Banking |
| Looking to level up your Fintech knowledge? |
The Fintech market is growing rapidly, with revenues forecast to hit $1.5 trillion by the end of the decade, according to Boston Consulting Group, and as it does so, its power to revolutionize financial services continues to develop and evolve. The race to innovate shows no signs of slowing, and banks and credit unions must be agile to seize the opportunities and guard against the threats that disruption presents.
As we look ahead, four key fintech trends stand out which look set to shape the landscape in 2025 from an operational and a risk and fraud prevention perspective:
1. Blockchain heads for the mainstream
To many consumers, the term “blockchain” is esoteric and conjures up images of cryptocurrencies and non-standard financial dealings that remain poorly understood and are even viewed with suspicion in some quarters.
Yet – whether they know it or not – blockchain is continuing to fintech trend. It could soon underpin more and more of their financial transactions, as the traditional finance world (TradFi) starts to embrace decentralized finance (DeFi), opening them up to cryptocurrency transactions and more. Indeed, the World Economic Forum predicts that by 2027, 10% of global GDP could be tokenized (where assets of value are represented by digital tokens) and stored on blockchain.
What was once seen as a threat to the established financial order now represents a chance to make transactions faster, more secure and more transparent. As the infrastructure on which DeFi is built, blockchain creates an immutable digital ledger of transactions recorded across multiple computer networks and systems, with each transaction forming a block in the chain.
Since records are encrypted and time-stamped, and with its real-time finance tracking capabilities among the other benefits, blockchain will play an important role in fraud prevention, from assisting with anti-money laundering efforts to flagging suspicious transactions. Blockchain also allows for the integration of smart contracts (self-executing, self-verifying contracts with controls and compliance embedded) into the financial ecosystem, thereby streamlining processes such as KYC and making them more robust.
2. Regulators will keep turning up the pressure
It looks set to be a busy 12 months on the regulation front. The Consumer Financial Protection Bureau (CFPB)’s Rule 1033, which strengthens consumers’ data rights, is due to be finalized towards the end of 2024. Then, for this fintech trend, January 2025 will see the EU’s Digital Operational Resilience Act (DORA) come into effect, while the FSB aims to review how recommendations for crypto-asset market regulation are being implemented by the end of the year. And that’s by no means all.
Intensifying Fintech regulation is a major issue for the industry. As important as it is to put appropriate regulatory frameworks around new and emerging technologies, some worry that that it could stifle innovation, increase costs and lead to unintended consequences.
The regulatory environment is becoming ever more complex, as rules become more stringent and wide-ranging, and as more jurisdictions introduce their own sets of rules, creating a global patchwork. Keeping track can be extremely challenging.
From KYC, CDD and CIP to AML, and rules around AI (to name just a few acronyms), the list of requirements with which banks and credit unions must not only comply, but report on, seems to keep on growing. While this should be beneficial in terms of increasing protections, it also imposes a significant burden on financial institutions. Meeting obligations cost-effectively is key.
3. AI’s transformative power is coming to the fore
Artificial intelligence (AI) is a natural fit for financial institutions and regulatory compliance with AI is one area where it could come to the fore. AI is here to stay and will continue to fintech trend. AI models should help banks and credit unions stay on top of ever-changing regulations across all the necessary geographies, thanks to their capabilities to assimilate and analyze large volumes of data, and scope for continuous learning and adaptation. Where humans would need to spend ages tracking regulatory updates and making sure the right rules are being applied, AI can do the job in no time, with complete accuracy.
AI can be a powerful tool in fraud prevention, too. Its ability to spot patterns and anomalies means it’s an ideal tool to flag up unusual behaviors or suspicious activity in real time, so that appropriate action can be taken.
Financial institutions can use AI to learn more about their customer base, so that they can enhance the customer experience and offer personalized services and tailored products. By digging deep into their data, AI can help them meet (or even exceed) expectations, helping to foster customer loyalty, sharpen their competitive edge and increase revenues.
4. The expanding potential of Open Banking
The concept of Open Banking has been around for some time, but now this new model, which transforms the way financial data is accessed and shared, is being taken in new directions in the form of Open Payments and Open Finance.
With this fintech trend, Open Finance and Open Payments extend the possibilities offered by Open Banking, to open up data sharing on products such as investments, pensions, insurance and mortgages, and make payments more efficient by cutting out many steps in the process. It’s been estimated that by 2026, global payment transactions facilitated by Open Banking will hit $116 billion, having increased by 2,800% since 2021.
While Open Banking can benefit banks by encouraging innovation and improving customer service, it also increases competition and raises the risk that bad actors could access sensitive data more easily.
Looking to level up your Fintech knowledge?
Money20/20 USA is known as the world’s biggest and most important meeting of the global money system. Executives and decision makers across Fintech and financial institutions, technology, new businesses, stores, policy, and more will meet for another year. If you are attending Money20/20 USA in Las Vegas, be sure to come check out the Thomson Reuters booth to engage with industry leaders, explore new ideas, and forge significant business connections. Thomson Reuters company representatives will be on hand at booth #10137 to discuss and demonstrate its technology solutions for the Fintech audience.
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