Look into the fintech crystal ball and explore our predictions on upcoming trends set to redefine European fintech in 2024.
The entire startup ecosystem, particularly fintech, had a reset in 2023. As fundraising slowed down and capital was not as deployable, startups and investors adapted and doubled down on profitability and cost reduction.
With 2023 behind us, let’s look forward to what’s on the horizon for European fintech. We are hopeful of seeing a fintech rebound in 2024 – with the evolution of business models and startups, increasing regulatory and compliance challenges, and shiny new tech (looking at you, AI!).
The rise of Artificial Intelligence (AI)
No surprises here. No conversation about future outlooks and predictions in 2024 can happen without discussing AI. Fintech and financial services are certainly not being left behind in the AI race. Jamie Dimon, JPMorgan CEO recently shared his predictions about AI – claiming that AI will bring the next generation a 3.5 day workweek in the future. He said that AI is already being used by thousands of JPMorgan employees, affirming that the technology enhances productivity.
On the world stage, Europe is leading in advancements in regulating AI. But it’s currently ambiguous when it will enforced – some are estimating in 2025 or 2026. In the meantime, we anticipate a proliferation of AI use cases in the European region. AI has a multitude of use cases within fintech and financial services; from enhancing back-office operations in risk management or compliance to customer-facing experiences such as optimising customer service experiences and personalising financial advice. We should also continue to expect non-AI native fintech and financial services companies to introduce AI features into their products. Last year, we saw both Klarna and Stripe working with OpenAI; Klarna launched a Klarna plugin with ChatGPT, and Stripe announced they were using GPT-4 across support, onboarding, and fraud detection.
An area to watch is companies leveraging AI to support compliance teams. Compliance professionals manage rules-based and manual processes where AI can be an antidote in creating more efficiency and reducing costs in their functions. AI is used to automate KYC/AML and transaction monitoring – interesting companies to watch that are building AI solutions in this space are Prague-based Resistant.AI and Munich-based HAWK:AI.
With the boom in generative AI in 2023, we should expect to see more startups experimenting with applications of generative AI, and banks and fintechs alike applying their data on LLMs. Last year, Reykjavík-based, Lucinity, launched an AI-powered compliance co-pilot called Luci, powered by LLMs from OpenAI. Luci can break down information for compliance professionals, summarise and analyse information, and write detailed regulatory reports.
Fraud prevention
Fraudsters are becoming more sophisticated and fraud threats are increasing globally. 69% of global executives and risk professionals expect financial crime risks to increase in the next year. The burden on risk and compliance teams is expected to continually rise, signalling a potential surge in startups focusing on fraud prevention throughout the year. In Ravelin’s Fraud & Payments 2023 report, the survey found that European businesses are most concerned with fraud risks such as payments fraud, account takeovers, and returns fraud. A few European fraud prevention startups to watch include Lynx Tech, AI to detect and predict behavioural patterns to stop fraud and financial crime; Cable all-in-one financial crime effectiveness testing platform; and Salv, an information-sharing, collaborative financial crime-fighting platform.
Along with increasing fraud, there are more incoming regulatory measures on the horizon including the Digital Services Act and PSD3 that will be enforced to protect consumers. The incoming Digital Services Act, which will be enforceable from Feb 2024, aims to protect consumers from illegal and harmful content and also ensure that products sold online are safe. Regulators in the UK are rolling out regulations to protect consumers from authorised push payment (APP) fraud, where payment service providers (PSPs) would be required to reimburse APP fraud victims. According to UK Finance, APP fraud rose by 22% compared with the same period in 2022. APP fraud is when the payer sends money to a fraudster, where the payer is tricked into believing that the fraudster is a genuine payee. Typically these scams originate from online dating platforms, auction websites, and social media.
AI can be a blessing and a curse for companies that are combating fraud. Fraudsters can leverage AI to commit financial crimes and fraud by generating synthetic identities and data. European startups such as Duck Duck Goose and Sensity are building solutions to protect businesses with deepfake detection that can detect AI-generated images and voices.
Fintech for businesses
In our 2023 fintech predictions, we had a similar prediction. This prediction won’t be going away anytime soon. Against the backdrop of businesses intensifying their focus on cost management and profitability, there will be more growth of fintech startups building solutions to support businesses and their finances.
Various startups and solutions are helping to optimise the work of finance teams. Starting with, Zurich-based startup, Numarics, which helps with various finance functions. Numarics eliminates the need to use different software for accounting, invoicing, document management and liquidity planning and can save SMEs money by avoiding having to hire consultants by automating these functions with a combination of AI and human expertise.
Beyond all-in-one tools to serve entire Finance teams, we should continue to see startups serving focused aspects of Finance teams such as invoicing, treasury, and payroll. Getting invoicing and accounts payable right is essential to helping businesses to manage their cash flow. Incumbent invoicing solutions are typically reliant on credit cards and manual bank transfers – which makes them subject to delays, manual processes, and back-and-forth communications. Invoicing platforms help businesses to get paid on time, in in-full to enable them to manage their cash flow. Some are integrating embedded loans in their solution to strengthen their propositions. Prague-based 4Trans who specialise in supply chain and logistics SMEs offer instant embedded loans and credit insurance to protect against non-payment risks offered by Allianz Trade. Aria is an embedded invoice financing platform which enables businesses to offer their customers a wide array of payment options and invoice financing. Clément Carrier, CEO and co-founder of Aria said “while B2B payment volume is 5x the size of B2C retail payments, only 7% of B2B commerce is transacted online.”
Payments evolution
The appetite for alternative payment methods continues its upward trajectory. The ECB found that there was a 120% increase in e-money usage in 2021 compared to 2017. There are a plethora of new alternative payment solutions widely available to consumers including BNPL, account-to-account payments, wallet payments, and digital currencies. EBA’s register of payment and E-Money Institutions under PSD2 presented 724 PIs and 275 EMIs in 2022.
In 2024, anticipated regulatory developments on Open Banking and PSD3 are expected. This unlocks the opportunity for further evolution of payment experiences and driving the adoption of alternative payment methods further, whilst protecting consumers and preventing fraud and money laundering.
Aside from payment solutions serving consumers, B2B payments are an emerging area to watch; bolstering the emergence of startups serving finance functions in businesses. Startups are leveraging open banking to optimise payment experiences for businesses. Crezco, is a UK fintech company using open banking to make B2B invoice and bill payments as convenient as B2C card payments. They have also partnered with Xero to deliver on-platform bill payments using open banking on Xero. The solution will allow small businesses to simply and securely manage, approve and pay their bills without leaving Xero’s platform.
Read the orginal article: https://www.eu-startups.com/2024/01/unveiling-the-future-european-fintech-predictions-for-2024/
