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As fintechs continue to face a plunge in investment, a report by BCG and QED Investors suggests generative AI could offer short-term and long-term benefits for the sector.
The fintech sector has been facing a “funding winter” but is set to get a boost thanks to the potential of generative AI, according to a new global report.
The report – jointly created by Boston Consulting Group (BCG) and QED Investors – estimates that the global fintech sector will grow in value to $1.5trn by 2030, a massive leap from its current value of roughly $300bn.
The report notes that there have been difficulties for the global fintech sector, as investment has rapidly declined over the past few years. The report says the global sector had equity financing of $144bn in 2021, but this fell to $42bn last year
Macroeconomic issues have had a severe impact on funding for the sector. A report from March showed that funding for Irish fintech companies plummeted by 94pc in 2023, while global investment hit its lowest figures in six years.
Despite these results, the latest report shows that revenue is still rising for fintech companies, at 14pc annually over the past two years, and that the investment decline is part of a “short-term correction” from challenges that are beginning to fade.
The potential of AI
The report said that – like many sectors – generative AI (GenAI) is rapidly proving its worth for the fintech and financial services sectors, being deployed in areas such as customer service, coding, testing and documentation.
The report claims that the applications for generative AI will grow for the fintech sector in the future.
“We believe there is strong potential for GenAI for productivity use cases such as customer support, fraud risk management, onboarding and copilots for developers,” said Fran Ryan, Stripe GM for financial services. “It will also provide value by better automating payment method recommendations for different country and average transaction value use cases.”
The report suggests that fintechs will see an impact in the near-term from generative AI, as many of these companies’ cost structures are “heavily weighted” toward areas where generative AI is delivering huge gains, such as coding, customer support and digital marketing.
“We do see a future for the technology particularly in personal financial management, where large language models can better assess and customise recommendations for things like savings advice and suggest ways for customers to achieve their financial goals,” the report said. “Along with its benefits in productivity and innovation, GenAI can help financial institutions in achieving end-to-end transformation into more effective, strategic and competitive organisations.”
A changing landscape
The report also makes some predictions on how the fintech sector will change in the coming years. It predicts that embedded finance – integrating banking and other financial services into other apps and services – will be a sector worth $320bn by 2030. It also predicts that this sector will be led by SMEs.
The report predicts that connected commerce, whereby shoppers can move between in-store, online and app channels to purchase items, could become a “triple play” for banks by creating a new revenue stream, increasing customer loyalty and letting banks offer a marketing channel to their SME and enterprise customers.
“As core payments revenue streams, like interchange and late fees, continue to come under pressure, and as deposits risk becoming commoditised in a higher-yield environment, connected commerce hints at a future model for banks,” the report said.
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