I’ve received dozens of 2024 fintech trends prediction pitches in my email inbox over the past month. And while many of them are insightful, I wanted to see what our AI overlord ChatGPT had to say about the matter.

My prompt read, “What are your predictions for the top five newest and hottest trends in fintech for 2024?” Here is how the AI responded:

Predicting the exact trends for 2024 is speculative, but here are potential emerging trends in fintech:

1. Embedded Finance: Further integration of financial services into non-financial platforms like e-commerce, SaaS, and marketplaces. This trend will offer users seamless access to financial products within their daily activities.
2. Metaverse Finance: With the growing popularity of the metaverse, fintech might explore virtual currencies, digital assets, and decentralized finance (DeFi) solutions tailored for this space.
3. AI-Powered Personalization: Enhanced AI-driven tools for hyper-personalized financial recommendations, wealth management, and banking services. AI will further analyze vast datasets to offer tailored financial advice.
4. Climate and Sustainable Finance: Continued growth in green finance, impact investing, and ESG-driven financial products as consumers and investors prioritize sustainability.
5. Regulatory Evolution: Fintechs navigating evolving regulations, especially around data privacy, digital currencies, and open banking. Compliance and adapting to regulatory changes will remain crucial.

As usual, ChatGPT not only did a pretty good job, but it also sounds pretty convincing. And while there are truly no blatant errors in the prediction, it could be better. Here’s what’s wrong or what’s missing in each of the five predictions.

Embedded finance

ChatGPT was spot on. It is quite obvious that this will be a big trend in 2024. Why? Because it’s a big trend right now. However, this is more of a continuation of a current trend rather than a new trend in 2024. Also, ChatGPT failed to mention the role that regulation will likely play in embedded finance next year, especially in the U.S. That’s because partner banks have become more wary to partner with fintechs after the FDIC issued a consent order to Cross River Bank, saying that it was involved in unsound banking practices. Where there is opportunity, there is liability.

Metaverse finance

ChatGPT was wrong. This is one trend that can be thrown away with all of those 2023 desk planners out there. The metaverse offered a fun distraction during the pandemic, when the industry was obsessed with moving all of a bank’s operations to digital channels. However, most consumers lack interest in moving their lives to the metaverse, and banks have realized that their investments in more traditional channels are more likely to pay off.

AI-powered personalization

This is another win for ChatGPT. However, personalization is not the only AI-powered aspect of banking and fintech that will surge in 2024. Many organizations are now turning toward generative AI, which has the potential to produce creative outputs for generating investment strategies, designing financial products, building marketing campaigns, simulating data to predict market movements, simulating economic scenarios, or stress-testing financial systems.

Climate and Sustainable Finance

While I want to believe ChatGPT on this prediction, I wouldn’t list it among the top five trends for 2024. There are two major reasons why sustainable finance will take a backseat (though not disappear) next year. First, the high cost of capital has both banks and fintechs searching for new revenue opportunities. Given this high interest rate environment, firms are more focused on direct cost-saving and revenue growth initiatives such as AI. Second, in many geographies, regulation has not caught up with sustainability initiatives. This lack of regulation and industry standards makes it difficult for organizations to pose definitive claims about what they are doing for the environment.

Regulatory evolution

This is absolutely among the top trends I have my eye on for 2024. Again, this is a continuation of a current trend and not a new development, but it will remain at the forefront in fintech next year. ChatGPT cited regulatory changes across data privacy, digital currencies, and open banking. In regards to open banking, the CFPB released its notice of proposed rulemaking to implement Section 1033 of Dodd-Frank earlier this year and made clear that it will issue the final regulation in the fall of 2024.

One piece that ChatGPT left off its list of anticipated regulatory changes is the formalization of rules around buy now, pay later (BNPL) companies. As consumers rely on BNPL payment technologies as an alternative to traditional credit models, regulators in both the U.S. and the U.K. have announced their intent to formalize regulation in the space.

Photo by Matheus Bertelli

Citizens Bank of Edmond has a single branch located in Oklahoma– what many people consider a “fly over state.” The town of Edmond, where the building is located, boasts a population of just under 100,000 people. That’s not stopping President and CEO Jill Castilla from pursuing growth, however.

Castilla announced today that her bank– with $400 million under management and just 55 employees– is taking Citizens Bank of Edmond national. Now, U.S. citizens across the country can sign up for a retail bank account at Citizens Bank of Edmond. The move broadens the bank’s reach to around 300 million people.

“In an unprecedented 72 day timeline to implementation, Citizens proves that small banks can be nimble, fast, thorough, sophisticated and still deliver a George Bailey-like experience,” said Castilla in an announcement on LinkedIn. “We love leading the way for other community banks to stay relevant for decades to come!”

Powering the launch is digital banking technology company Narmi. Founded in 2016 by former bankers Nikhil Lakhanpal and Chris Griffin, Narmi has a mission to offer financial institutions the best digital banking platform in the industry. The New York-based company offers both retail and commercial accounts, as well as a digital account opening solution that takes only two minutes and 13 seconds to complete.

Narmi, which has amassed $55 million in funding, counts Radius Bank (now Lending Club), Greater Alliance Federal Credit Union, Berkshire Bank, Freedom Credit Union, and more among its clients.

By opening its digital doors to everyone in the U.S., Citizens Bank of Edmond is breaking down geographical barriers. This shift toward “affinity banking” or “identity-based banking” will enable Citizens Bank of Edmond to take advantage of the brand identity and recognition it has spent the past few years building.

During the pandemic, the bank leaned hard into its focus on community and the small businesses that make up the community. For example, Castilla frequently shared her phone number on public channels as a resource for those in need. She also contacted all of the bank’s business customers to determine their main areas of stress. And when the bank had to close its lobby, its employees met customers at the curb to schedule time slots to serve its customers and maintain a personal touch.

It will be interesting to see how Citizens Bank of Edmond plans to maintain that level of personal touch while scaling up its accounts. Given Castilla’s fastidious determination, however, I do not envision the bank will have an issue maintaining its reputation of offering a top-notch customer experience. To hear Castilla talk about customer experience in person, come to FinovateFall next month and check out her panel.

Point-of-sale (POS) and restaurant management platform Toast unveiled recently that it is rolling out a new fee. At only $0.99, the new fee doesn’t sound particularly problematic initially. Many of the technology provider’s customers, however, are not happy. And looking deeper into the issue, it’s easy to see why.

The fee

Toast is imposing the new fee to the end customers who make purchases of $10 or more on online Toast POS systems. The charge will appear under the “taxes and fees” line item. According to the Boston Globe, if a consumer clicks to see more information, they will see the charge listed as an “order processing fee” that Toast explains is “Set by Toast to help provide affordable digital ordering services for local restaurants.”

Circumventing their merchant client and charging the end consumer directly not only places strain on a restaurant’s business relationship with Toast, but it is also likely to strain the end customer’s relationship with the restaurant. Many have had to increase menu prices over the past few years because of inflation, and they have had to work hard to pay their workforce a competitive wage while not driving away customers with higher meal prices. Toast’s move is certain to exacerbate this.

There has already been much insight into why publicly listed Toast is doing this from a business perspective. The company has yet to become profitable and it’s stock price is down 61% since its 2021 IPO. With 85,000 merchants, Toast is sure to benefit financially from the new fee. Whether it will be enough to turn the company profitable is yet to be seen.

The fee doesn’t take effect nationwide until July 10, so the fallout is yet to be seen. So what can banks learn from this?

The lesson

Banks need to maintain tight control of the customer experience. With the “as-a-service” model taking off in banking, it makes sense that banks are leveraging third party technologies to create efficiencies and focus on their core product. There’s nothing wrong with using third party providers to help create a better user experience, build out a product set, or create a more secure environment. However, if there is a flaw that is the fault of the third party provider, it is ultimately the bank’s reputation that is on the line– not that of the third party.

Prevention

Preventing the fallout of a rogue fintech partnership comes down to vetting the third party. It’s important that banks do their research by talking with other customers of the third party to garner feedback or run through customer scenarios to ensure optimal outcomes in all cases. Banks should also protect themselves by not locking themselves into a rigorous or limited contract.

Ultimately, banks are in business to serve the customer, and if a third party is ruining that relationship, it’s time for the bank to look elsewhere to suit their needs instead of sacrificing the customer experience.

Looking at Toast’s move, it’s difficult to say how (or if) the move will impact user behavior. When asked about potential customer reactions, Dustin Magaziner, CEO of PayBright, said, “I actually don’t think this will impact sales or customer relationships much. Many customers are accustomed to paying additional fees these days. However, I do think the angle to review this from is the lost revenue for the business owner. If a merchant runs 1000 online sales per month, it’s $1,000 the merchant is essentially not earning.”

Photo by cottonbro studio

As someone who is passionate about personal finance, I was excited to see Apple Card unveil its Savings account today, especially during financial literacy month. The launch comes three-and-a-half years after Apple first debuted the Apple Card in partnership with Goldman Sachs in 2019.

Launching today, the new Savings account enables Apple Card users to set up and manage their funds from within their Apple Wallet. With the high-yield savings account, users will earn 4.15% APY with no minimum deposits and no minimum balance requirements.

The accounts build on Apple Card’s Daily Cash, the credit card’s cashback rewards feature. When a user sets up their Savings account in the Apple Wallet, the Daily Cash they earn on purchases is automatically deposited into their Savings account. In addition to saving their Daily Cash, users can deposit funds through a linked bank account or from their balance in Apple Cash.

“Savings helps our users get even more value out of their favorite Apple Card benefit — Daily Cash — while providing them with an easy way to save money every day,” said Apple VP of Apple Pay and Apple Wallet Jennifer Bailey. “Our goal is to build tools that help users lead healthier financial lives, and building Savings into Apple Card in Wallet enables them to spend, send, and save Daily Cash directly and seamlessly — all from one place.”

Apple Card’s Savings account also comes with a dashboard to enable users to track their account balance and the interest they’ve earned over time. The account, which is powered by Goldman Sachs, does not charge fees for account origination, maintenance, or withdraws.

The U.S. Federal Reserve has raised rates consistently since March 2022. Despite many incumbent banks holding the rates on their savings accounts near zero, it’s nice that a handful of fintechs are passing the positive impacts of the higher rates down to consumers.

But with the rising cost of living, many consumers may not take advantage of such high rates. Credit Karma issued the results of a survey today that details the impact of Americans’ poor savings habits and inadequate financial literacy. The survey targeted Americans’ knowledge (or lack thereof) of their own net worth, and took a look into their retirement savings. Here’s an overview of some of the survey results:

• 51% of Americans don’t know how to calculate their net worth
• 31% of Americans have a net worth of $0 or less
• 21% of respondents aged 59+ report they have a net worth of $0 or less
• 30% of Gen Z care more about celebrities’ net worth than their own 
• 27% of respondents (including 25% of Gen X and 27% aged 59+) say they don’t have any money saved for retirement right now.
• 67% of Americans say they don’t currently track their net worth
• 22% of Americans believe the term “net worth” only applies to wealthy people

For me, these statistics are eye-opening, and the lack of savings are disheartening. Can fintech fix this? My guess is that, even with enticingly high rates, Americans’ poor savings habits will die hard. And the American Dream may die harder.

Photo by Mikhail Nilov

What does it take to be a fintech analyst? You have to be willing to get things wrong on occasion. Along with that, you need to be able to admit when you’re wrong. This becomes most apparent every December, when it comes time to share predictions on what the fintech industry can expect in the coming year.

Many of my predictions for 2023, which you can find published in this month’s eMagazine, were shaped from looking back at the trends I predicted for the latter half of 2022. Here’s a look at some of those trends, along with an assessment of how I did and a prediction for how the trend will fare in 2023.

Prediction #1: Beginning the era of “neo super apps”

How I did:
Wrong. With every other fintech company claiming to be a super app these days, this prediction is slightly subjective. In my opinion, however, we haven’t entered an era of neo-super apps.

What to expect:
A year ago, I would have identified the first potential U.S. super app as PayPal. However, Walmart has been making strides in this area and is getting ready to compete in the fintech arena. As a bottomline, we are still a ways out from super apps taking over fintech.

Prediction #2: Accelerating M&A activity

How I did:
Somewhat correct. In comparing M&A activity to pre-pandemic 2019 levels, M&A activity has indeed increased. Though year-end data for 2022 hasn’t been published yet, according to FT Partners’ Q3 2022 Fintech Insights Report, there have been 998 deals so far in 2022. While this represents a slight increase over the 986 M&A deals conducted in 2019, it is a large slide from the 1,486 deals closed last year.

What to expect:
The recent economic decline is causing companies to watch their pockets closely and mitigate risk where they can. Many large fintechs have already made major layoffs in order to maintain their bottomline or reduce their burn rate. These factors will contribute to both lower deal numbers and deal volume in 2023.

Prediction #3: Dwindling conversation around digital transformation

How I did:
Correct. While the need for digital transformation across verticals has not subsided, the continuous pulse of conversation around digital transformation has eased up.

What to expect:
This does not mean that digital transformation is over. In fact, many of the conversations we can expect to have in 2023– such as embedded finance, banking-as-a-service, and personalization– are built on the foundation of digital transformation.

Prediction #4: More discussion around Central Bank Digital Currencies (CBDCs)

How I did:
Correct. In the U.S., the Federal Reserve has not taken much action toward creating a CBDC other than issuing a discussion paper on the topic. However, there has been a flurry of activity around CBDCs across the globe. In December of 2021, nine countries had launched a CBDC, while today, 11 have launched their own CBDC. Similarly, CBDC development has increased. In December of 2021, 14 companies had a CBDC in development, while today there are 26 countries with a CBDC in development.

What to expect:
In the U.S. the discussion around CBDCs will progress, especially now that the FTX scandal has brought to light the need for more governmental intervention and oversight.

Prediction #5: BNPL takes a backseat

How I did:
Wrong. Though there have been many publications warning consumers about the dangers of misusing BNPL tools, we are still seeing a regular pulse of new BNPL launches throughout the industry. And while the CFPB published a study on the growth of BNPL and its impact on consumers, the organization has not implemented any formal regulation restricting BNPL players’ movements in the market.

What to expect:
I’m refreshing this prediction for 2023. Consumers have over-leveraged themselves when it comes to BNPL, and it is not only starting to catch up with them, but it is also catching up with the BNPL companies themselves. According to the CFPB’s study, “Lenders’ profit margins are shrinking: Margins in 2021 were 1.01% of the total amount of loan originated, down from 1.27% in 2020.”

Additionally, though the CFPB has been vague on the timing, there is looming regulation facing BNPL tools. “Buy Now, Pay Later is a rapidly growing type of loan that serves as a close substitute for credit cards,” said CFPB Director Rohit Chopra. “We will be working to ensure that borrowers have similar protections, regardless of whether they use a credit card or a Buy Now, Pay Later loan.”

Subsiding talent acquisition

How I did:
Correct. Though companies will always face difficulties trying to secure quality employees, we are no longer seeing the tech talent war that we experienced in 2021. In fact, in the latter half of 2022, we saw the opposite. A handful of fintech companies, including Plaid, Autobooks, MX, Klarna, Brex, Stripe, Chime, and more, have laid off sizable portions of their staff.

What to expect:
The painful reality is that the layoffs will likely continue into 2023 as the economy continues to contract.

Photo by Brett Jordan

For many in the fintech industry, there are few things as scary as the economy right now. High inflation, lowered investor and consumer confidence, and political tensions are all contributing to an uncertain future.

One of the largest impacts of this pullback in the fintech industry is seen in the drop in venture capital funding, the lifeblood of privately held companies. The lack of funding is giving startups of all sizes a shorter cash runway, which is leading to employee downsizing and increased exit activity.

We turned to CB Insights, which recently dropped its Q3 2022 State of Venture report, for some statistics that help tell the story of today’s funding environment in fintech and beyond. Here are some of the high-level takeaways:

71% drop in new unicorns in the third quarter of this year

Across the globe, there were only 25 newly minted unicorns in the third quarter of 2022. This is the lowest count since the first quarter of 2020, when the pandemic first began. It is worth noting that 14 of the 25 new unicorns are U.S. based. The total number of unicorns across the globe is now 1,192.

38% drop in fintech funding QoQ

Looking at the fintech sector specifically, fintech funding across the globe dropped to $12.9 billion. This dip– a 38% drop– marks the lowest quarterly funding amount in nine quarters. The last time fintech funding was this low was in the second quarter of 2020, when fintech funding totaled $12.2 billion.

42% drop in median deal size for late-stage rounds this year

So far in 2022, the median size of late-stage deals has totaled $29 million. This represents a 42% drop from last year’s total of $50 million. This year’s median late-stage deal size is similar to the median size of mid-stage deals, which totals $30 million. Interestingly, this median mid-stage deal size is on-par with the median mid-stage deal size of 2021, which also totaled $30 million.

56% fewer investments from top 3 investors

According to CB Insights, last quarter’s top three investors are quieter this quarter. Tiger Global Management, Gaingels, and SOSV made 109 investments this quarter. This figure is 56% lower than the number the investors made in the second quarter of this year. Notably, Tiger Global Management, which has been the number one investor in the past three quarters, did not even rank among the top 10 investors this quarter.

A bright light

Things are not all gloom and doom this Halloween. Looking at the bright side, while fintech funding is dropping, it is still above pre-pandemic levels.

As an example, in the first quarter of 2020, before the pandemic truly exploded, quarterly fintech funding totaled $11.3 billion. That’s $1 billion lower than today’s level. Going back even further, in the first quarter of 2018, quarterly fintech funding totaled $9.6 billion.

So perhaps it’s best to look at these drops as a market reset, instead of as the fintech world coming to an end.

Photo by Karolina Grabowska

We’re more than halfway through the year, and before you know it, we’ll be publishing trends predictions for 2023. However, a lot can happen over the course of five months, so we’ve decided to examine what to look for and what you can expect in fintech between now and the new year.

Beginning the era of “neo super apps”

Over the past year, there has been much debate on whether or not the U.S. and Europe will ever have a super app. Plaid CEO Zach Perret takes a different angle on this. He is expecting “neo super apps” to rise in popularity.

“Within lending, brokerage, and banking, super apps will emerge, adding every bit of functionality within financial services. Over time, they’ll actually be able to add in things that are above and beyond financial services,” said Perret in a Plaid report.

Accelerating M&A activity

It’s no secret that fintech funding is down, especially in later stage deals. Because of this, some fintechs have been driven to sell sooner than they had hoped. As for acquirers, many are looking to cash in on the “neo super app” trend by adding to their firm’s expertise, bundling multiple services into a single offering. In the first half of the year, we have seen an increase in M&A activity over 2019 levels, and we expect that to continue into the second half of the year.

Ramping up a focus on ESG

Fintech companies and traditional financial institutions alike have sharpened their focus on ESG initiatives in the past couple of years. And while climate change may be enough of a reason for firms to implement new ESG practices, the SEC is giving laggards an incentive to step up their game. The commission recently proposed amendments to rules and reporting forms to promote consistent, comparable, and reliable information for investors concerning funds’ and advisers’ incorporation of ESG factors.

Increasing solutions surrounding consumer credit

After dipping in 2020, Americans’ credit usage is now on the rise. Inflation, and especially the increase in costs of everyday expenses such as housing and gas, is prompting higher credit usage while consumers iron out their budgets and adjust their lifestyles to fit the extra expenses.

Dwindling conversation around digital transformation

We have finally arrived at the moment when digital offerings have become the rule, not the exception. While we can still expect to hear the phrase “digital transformation,” it is becoming less and less common.

More discussion around Central Bank Digital Currencies (CBDCs)

The progress toward CBDCs has been slow, but steady. Currently, 10 countries have fully launched a digital currency and more than 105 countries are exploring them. Just two years ago, only 35 countries were considering a CBDC. This digital currency race will only become more heated as more countries seek to be among the first to offer a CBDC.

Growing competition in alternative business payments solutions

After launching just five years ago, Brex has quickly risen to become one of the most successful fintechs, boasting a valuation of $12.3 billion. The startup is a super app for businesses, offering companies credit cards and cash management solutions.

At three years old, Brex’s competitor Ramp isn’t too far behind. The company is valued at $8.1 billion. Clearly, these companies are filling a need for businesses that has not previously been met. We can expect others to follow their footsteps to cash in on the gold rush.

BNPL takes a backseat

It’s no secret that BNPL payment schemes are causing cash flow difficulties for younger, less financially savvy consumers. Many are finding it difficult to keep up with the repayment obligations. This, combined with a lack of regulatory oversight, is tarnishing BNPL’s reputation.

We can expect to see a slowdown in BNPL newcomers, though I do think we’ll still see more large firms add BNPL schemes to their existing offerings.

Subsiding talent acquisition

A year ago, the workforce shortage was taking its toll on the fintech industry and we were discussing strategies to acquire new employees. After the economic sedation started this spring, however, this discussion has slowed. Startups have started to worry about burn rate and corporations have shifted their focus to their bottomline, which has already resulted in layoffs. With VC funding down, we can expect to see a continuation of this decline in the next five months.

Providing everything-as-a-service

These days companies can fill holes in their offerings by purchasing just about anything as a service, including ESG-investing-as-a-service, credit-cards-as-a-service, accounting-data-as-a-service, and more. As banks, startups, financial services, and even non-financial players seek to build up their customer base and play into the “neo super apps” trend Perret discussed, we can expect to see even more companies take the “-as-a-service” model to increase their customer base.

Photo by Dany Kurniawan