In the ever-evolving field of financial technology, innovation continues to drive seismic shifts in the way we manage, invest and leverage our financial resources. As we navigate the path forward in 2023 and slowly move into the first half of 2024, venture capital firms are at the forefront of this narrative, where the convergence of finance and technology is coming to fruition. to many innovative solutions that are transforming the financial sector.
The fintech landscape, once characterized by exciting startups and innovative concepts, is now becoming a pillar of global economies. For this article, The Recursive reached out to several venture capital firms to get their thoughts on the impending fintech trends that will shake up the industry in the coming period.
DeFi, API and AI-powered risk management
The emergence of decentralized finance (DeFi) has captured the imagination of investors, providing new opportunities for lending, yield generation and financial innovation. Like Dora Trachana from Uni.Fund As highlighted, DeFi presents a step change in the way traditional financial services are accessed and used.
With platforms such as lending protocols, decentralized exchanges, and yield farming, DeFi is not only reshaping the lending landscape but also providing individuals with the opportunity to participate in previously exclusive markets.
“The evolution of decentralized finance (DeFi) is attracting our attention, offering new avenues for lending and yield generation. Exploring central bank digital currencies (CBDCs) and integrating financial services into non-financial products via APIs are intriguing trends,” Trachana told The Recursive.
APIs are bridging the gap between financial and non-financial products, revolutionizing the way we experience transactions. Then there is also the potential for AI-based risk management as a notable focal point for venture capitalists. As Trachana suggests, the marriage of AI and finance promises better risk assessment and fraud detection.
“Personally, I am excited about the potential of AI-driven risk management and the emergence of sustainable finance solutions. As we navigate this dynamic environment, I am confident that innovative startups responding to these trends will shape the future of finance,” she emphasizes.
Borderless payments and synergies with the gig economy
The infusion of gig economy dynamics and borderless payment solutions is the cornerstone of fintech’s evolution, according to Veronica Korzh of SID Venture Partners.
Digital currencies and blockchain technology are poised to revolutionize cross-border transactions, allowing individuals to seize global opportunities without geographic limits.
“It allows people to be agile, find opportunities around the world without being tied to one location, and overcome challenges. Take a look at the CBDCs growing around the world; China has already launched its CBDC with over 260 million users, and the next ones are expected to be European representatives – the UK and Sweden are getting closer to finalizing the CBDC this year,” explains Korzh.
Data sharing for enhanced security
The fight against cyber threats and financial fraud has sparked a new trend in data sharing between financial institutions. This approach, as investment analyst Nazar Halychanskyi of Kyiv-based VC Flyer One Ventures points out, allows banks to respond quickly to emerging threats.
As financial crime compliance costs reach staggering numbers, data sharing can be a game-changer by minimizing instances of fraud and strengthening the financial ecosystem.
“It’s a big problem. In 2021, the total cost of financial crime compliance at financial institutions worldwide was $274 billionan increase from $214 billion in 2020. From 2024, the United Kingdom mandate banks to fully reimburse customers who were victims of APP fraud. I imagine that banks will try to minimize cases of fraud as much as possible,” says Halychanskyi.
Tokenization and convergence of crypto-traditional finance
Tokenization has enabled financial institutions to offer products and services backed by cryptocurrencies, facilitating a much-needed connection between traditional finance and the crypto ecosystem. With the continued growth of DeFi, this trend highlights the transformation of financial systems towards a more decentralized model, investors point out.
Furthermore, when it comes to the crypto field, the next period will see trends ranging from blockchain evolution and institutional adoption to regulatory coordination – all of which reflect the innovations taking place.
“Technologies are expected to see significant advancements in the months and years to come, including energy-efficient blockchain networks. The trend towards proof-of-stake consensus mechanisms and layer 2 solutions is likely to accelerate, addressing concerns related to energy consumption,” says Mykhailo Romanenko, investment activities expert and co-founder from global crypto exchange Kyrrex.
The crypto space is no stranger to regulatory but as Romanenko says, governments are moving towards clearer guidelines. Legal challenges and disputes are expected to lead to the establishment of legal precedents in crypto.
To encourage wider adoption, educational resources and user-friendly interfaces will play a central role in demystifying cryptocurrencies, attracting investment from individual and institutional players.
“User-friendly interfaces, simplified explanations and improved educational resources should drive wider adoption by individuals and businesses. Such actions could attract more investment and participation from retail and institutional players. This could include advances in zero-knowledge proofs, secure multi-party computation, and improved wallet security protocols,” concludes Romanenko.
