Nihara Gooneratne

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State of tech in financial services - 2024

State of tech in Financial Services - hero

financial-services-OG

State of tech in Financial Services: How AI, blockchain, and biometrics are forging the future

<div>
 <ul>
 <li>
 
 57% of banks use AI in fraud detection, and 48% in risk assessment. Major initiatives include Wells Fargo's AI in trade finance and Abound's USD 1 billion raise for AI lending.
 
 </li>
 <li>
 
 GenAI is growing, 69% of wealth management firms using GenAI in customer service.
 
 </li>
 <li>
 
 Blockchain and AI-enhanced biometrics are active, with 60%&ndash;75% biometric adoption in financial services.
 
 </li>
 </ul>
 
 
</div>

<div>
 <h1>
 Key takeaways
 </h1>
 <ul>
 <li>
 
 Classical AI (predominantly machine learning [ML] and natural language processing [NLP]) has found its footing in backend operations, 
 with
 
 57% of banks having deployed it in fraud detection and 48% in risk assessment. Notable developments included 
 <a href="https://www.fintechfutures.com/2024/04/wells-fargo-to-integrate-ai-into-trade-finance-operations-with-tradesun/">
 Wells Fargo
 </a>
 and 
 <a href="https://www.bobsguide.com/lloyds-and-cleareye-ai-forge-ai-centric-trade-finance-alliance/">
 Lloyds'
 </a>
 AI integrations in trade finance and significant funding rounds like 
 <a href="https://sp-edge.com/updates/31021">
 Abound's USD 1 billion
 </a>
 raise for international AI lending platform expansion
 
 </li>
 <li>
 
 GenAI is gaining momentum across customer-facing operations:
 Major initiatives included Wells Fargo's 
 <a href="https://itrexgroup.com/blog/generative-ai-in-banking/">
 Fargo
 </a>
 assistant (handling 100 million annual interactions) and NatWest's
 <a href="https://www.natwestgroup.com/news-and-insights/news-room/press-releases/data-and-technology/2024/jun/natwest-launches-cora-plus-the-latest-generative-ai-upgrade-to-t.html">
 Cora+
 </a>
 having practical applications of GenAI in this space. Notably, Temenos' 
 <a href="https://www.temenos.com/news/2024/05/13/temenos-launches-the-first-responsible-generative-ai-solutions-for-core-banking/">
 launch
 </a>
 of &ldquo;Responsible Generative AI&rdquo; solutions for core banking operations aimed to address regulatory compliance and data security challenges in financial operations.
 
 </li>
 <li>
 
 Blockchain and AI-enhanced biometrics appear as active trends across payments:
 Blockchain is making substantial progress in backend and customer-facing payment applications, with Worldpay reporting a 50% reduction in payment processing time through its stablecoin system and 29% of retail investors using crypto for transactions (up from 23% in 2022). Biometric adoption in financial services has reached 60%&ndash;75%&mdash;among the highest across sectors&mdash;with solutions like Mastercard's
 <a href="https://www.mastercard.com/news/press/2024/april/mastercard-transforms-the-fight-against-scams-with-latest-ai-tech/">
 Scam Protect
 </a>
 combining identity verification and behavioral biometrics.&nbsp;
 
 </li>
 <li>
 
 AI-driven personalization supports retail investment strategies and back-office automation for wealth managers:
 Product updates such as Revolut's 
 <a href="https://www.revolut.com/en-FR/news/revolut_launches_robo_advisor_in_eea_to_automate_investing/#:~:text=Revolut%20has%20made%20investing%20more,Advisor%20service%20in%20the%20EEA.">
 robo-advisory service
 </a>
 s and EarnUp's 
 <a href="https://sp-edge.com/updates/32186">
 AI Advisor
 </a>
 are examples of hyper-personalized investment products. GenAI adoption in wealth management is particularly strong in 
 customer service (69% of firms) and investment research (50%),
 with BCG estimating potential time savings of up to 30% in areas like customer boarding.
 
 </li>
 <li>
 
 Open banking data sharing receives big regulatory boost:
 Relaxation of regulations surrounding open banking has enabled banks to seamlessly share data among themselves, resulting in the emergence of new payment models, such as account-to-account (A2A) and multi-currency payments. Notable developments included 
 <a href="https://sp-edge.com/companies/41928">
 HSBC
 </a>
 &rsquo;s launch of 
 <a href="https://fintechmagazine.com/articles/hsbc-set-to-launch-international-payments-app-zing">
 Zing
 </a>
 , a 
 <a href="https://investor.visa.com/news/news-details/2024/HSBC-Partnered-with-Visa-to-Develop-Zing-International-Money-App/default.aspx">
 multi-currency payments app
 </a>
 , in collaboration with 
 <a href="https://sp-edge.com/companies/13061">
 Visa
 </a>
 
 </li>
 <li>
 
 Asset tokenization regains traction for institutional wealth management:
 The value of tokenized assets reached USD 15 billion as of September 2024 (excluding stablecoins). Major financial institutions, including BlackRock, Fidelity, and JPMorgan,&nbsp; actively implemented blockchain technology for tokenization, players such as State Street 
 <a href="https://www.paymentsjournal.com/state-street-to-launch-tokenization-platform-for-institutional-investors/">
 introduced tokenization
 </a>
 platforms, and partnerships between companies like AlphaPoint, Polymesh, 
 <a href="https://archax.com/insights/assetera-and-archax-announce-first-pan-european-strategic-partnership">
 Archax, and Assetera
 </a>
 aimed to enhance and facilitate asset tokenization.
 
 </li>
 <li>
 
 <a href="https://sp-edge.com/industry/24">
 Quantum computing
 </a>
 also showed promising use cases,
 particularly in portfolio optimization, simulations, and credit analysis. Key players such as 
 <a href="https://aws.amazon.com/blogs/quantum-computing/goldman-sachs-and-aws-examine-efficient-ways-to-load-data-into-quantum-computers/">
 Goldman Sachs
 </a>
 , 
 <a href="https://www.jpmorgan.com/technology/applied-research">
 JPMorgan
 </a>
 , and 
 <a href="https://www.hsbc.com/who-we-are/businesses-and-customers/hsbc-and-quantum">
 HSBC
 </a>
 were among the major institutions frontlining research into quantum computing in financial services. However, most real-world implementations are still in experimental phases, with 60% of regulators expecting a significant impact within as late as 
 <a href="https://www.theasianbanker.com/updates-and-articles/quantum-technology-can-revolutionise-finance,-but-create-new-problems">
 seven years
 </a>
 . Notably, 
 <a href="https://sp-edge.com/companies/29093">
 D-Wave Systems
 </a>
 , a maker of 
 <a href="https://www.dwavesys.com/solutions-and-products/financial-services/">
 quantum annealing systems
 </a>
 , is exploring applications in financial services, a hybrid approach that combines classical CPUs/GPUs with their quantum annealing hardware.
 
 </li>
 </ul>
 
 
</div>

<div>
 <ul>
 <li>
 
 Overall funding volumes declined despite Coinbase's massive USD 1.1 billion debt finance
 
 </li>
 <li>
 
 Continued adoption of AI-powered products and expansion into new business lines witnessed across multiple industries
 
 </li>
 <li>
 
 Diversification and acquisition of licenses drove M&amp;A activity
 
 </li>
 </ul>
 
 
</div>

<div>
 
 This Edge Insight focuses on notable activities related to the sectors covered by SPEEDA Edge under the FinTech vertical from January 2024 to March 2024 (Q1 2024): FinTech: Banking &amp; Infrastructure, FinTech: Blockchain, FinTech: Payments, Wealth Tech &amp; Sustainable Finance, and InsurTech.
 
 <hr/>
 <h1>
 Key takeaways
 </h1>
 <ul>
 <li>
 <h3>
 Regulations
 </h3>
 <ul>
 <li>
 
 SPAA Scheme gained traction; cryptocurrencies subject to sanction violations in the EU: 
 The SEPA Payment Account Access Scheme (SPAA) saw notable progress in Europe, with numerous
 FinTech Infrastructure startups
 , such as TrueLayer and Token, aligning with it. The scheme aims to foster an open and competitive European payment system. Moreover, the EU introduced new regulations targeting 
 <a href="https://www.europarl.europa.eu/news/en/press-room/20240308IPR19002/eu-sanctions-new-rules-to-crack-down-on-violations">
 sanction violations
 </a>
 , particularly concerning 
 cryptocurrencies
 , with potential 
 asset freezing
 for non-compliance.
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 <ul>
 <li>
 <h3>
 Funding
 </h3>
 <ul>
 <li>
 
 Coinbase&rsquo;s debt financing round stood out, but overall funding fell again: 
 The FinTech sector saw total funding decline 
 59% YoY
 to 
 USD 4.3 billion
 in Q1 2024 (vs. USD 10.5 billion in Q1 2023). The sector witnessed 
 10 mega deals
 (USD 100 million+) similar to Q1 2023, collectively raising more than USD 2.9 billion (~67% of total) with the Neobanks, BNPL, and the Financial Wellness Tools industries accounting for two deals each. The 
 Cryptocurrency
 industry emerged as the highest-funded industry, primarily due to 
 <a href="https://sp-edge.com/companies/95666">
 Coinbase&rsquo;s
 </a>
 massive debt financing round of USD 1.1 billion, with the funds earmarked for paying off its existing debt and cost of capped call transactions as well as for general corporate purposes.
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 <ul>
 <li>
 <h3>
 Product updates
 </h3>
 <ul>
 <li>
 
 Continued adoption of AI-powered products and expansion into new business lines witnessed across multiple industries: 
 During Q1 2024, we counted 10 product launches (nine in Q4 2023) related to AI. These AI launches were particularly notable within the 
 Business Expense Management 
 and
 Insurance industries
 , as companies look to incorporate these technologies to automate processes and enhance their offerings. Moreover, other product launches by startups were mainly geared toward 
 complementing
 
 existing offerings
 and 
 expanding into new territories
 .&nbsp;
 
 Another prominent trend observed throughout the quarter across several industries was startups announcing a 
 significant shift
 in their strategy and operations, 
 exiting legacy businesses
 to focus on other
 business lines
 . For example, 
 <a href="https://sp-edge.com/companies/583046">
 Oxygen
 </a>
 terminated its banking activities to focus on health insurance and 
 <a href="https://sp-edge.com/companies/119402">
 Zwipe
 </a>
 exited the biometric payment industry to focus on biometric access control.
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 <ul>
 <li>
 <h3>
 Partnerships
 </h3>
 <ul>
 <li>
 
 Activities centered around enhancing existing product portfolio and value additions: 
 Most partnership activities within FinTech during the quarter were aimed at forging alliances to develop and/or add new features to 
 complement existing offerings
 as well as 
 expand market reach
 . In addition, there was a rising number of partnerships in the 
 InsurTech sector 
 between insurers and infrastructure providers targeted at developing and
 enhancing underwriting
 and 
 claims processing capabilities
 .
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 <ul>
 <li>
 <h3>
 M&amp;A
 </h3>
 <ul>
 <li>
 
 Diversification and acquisition of licenses drove M&amp;A activity: 
 We counted 
 16 M&amp;A transactions
 within the FinTech sector in Q1 2024. Most centered around 
 diversifying businesses
 and 
 enhancing existing product offerings
 . In addition, within the 
 FinTech: Blockchain sector
 , companies resorted to M&amp;As as an 
 alternative strategy
 to quickly 
 obtain licenses
 to expand offerings and market presence. A promising development this quarter was 
 <a href="https://sp-edge.com/companies/301319">
 Virgin Money
 </a>
 receiving an all-cash takeover
 offer worth USD 3.7 billion from Nationwide Building Society. The transaction is pending approval from shareholders.
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 <ul>
 <li>
 <h3>
 Outlook
 </h3>
 <ul>
 <li>
 
 Adoption of AI and GenAI technologies is imperative for organizations to gain a competitive advantage: 
 As 
 <a href="https://sp-edge.com/industry/163">
 GenAI applications
 </a>
 continue to disrupt the market, the FinTech sector is poised for significant integration of this technology, including AI. Companies are strategically incorporating these technologies to gain insights from data and to automate and enhance processes to gain a competitive advantage. The first quarter saw a prominent increase in the adoption of AI within InsurTech, as insurers aimed to improve their underwriting and pricing capabilities. We expect the integration of GenAI technologies (such as chatbots) to increase within the FinTech sector for customer service support as well as to assist employees with internal workflows.
 
 </li>
 <li>
 
 Funding volumes to gradually recover in 2024: 
 The US inflation rate was recorded at 3.2% for the 12 months ending February 2024 according to the Consumer Price Index, compared with an annualized target of 2%. Analysts are expecting rate cuts of around 70 basis points this year beginning from mid-year. The potential easing of monetary policy is expected to act as a catalyst for funding across FinTech industries, with VC funding likely to favor companies that demonstrate greater efficiency and profitability. Moreover, the tight funding environment over the past year is also expected to lead to startups raising cash later this year, as their cash runways begin to diminish after their efforts to conserve cash.&nbsp;
 
 </li>
 <li>
 
 IPOs to make a return, as investors seek exit strategy: 
 After a subdued 2023 market for FinTech IPOs, marked by valuation markdowns, many startups and investors are now looking forward to going public, as market conditions turn favorable. Several startups, including 
 <a href="https://sp-edge.com/updates/27565">
 eToro
 </a>
 , 
 <a href="https://sp-edge.com/updates/27044">
 Klarna
 </a>
 , 
 <a href="https://sp-edge.com/updates/27295">
 Monzo
 </a>
 , 
 <a href="https://sp-edge.com/updates/27220">
 WeBull
 </a>
 , and 
 <a href="https://sp-edge.com/updates/27702">
 Zilch
 </a>
 , have announced plans to list in the next 12&ndash;24 months.
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 
 
</div>

FinTech (Q1 2024): Funding dip continues despite Coinbase’s large debt round; InsurTech adopting AI rapidly

Cryptocurrencies

<div>
 
 This report explores the demand drivers of both wholesale and retail CBDC, the motivations and technologies underlying them, and their diverse applications. It delves into wholesale CBDC at a global level and into retail CBDC with a strong focus on China, owing to the higher use cases in China compared to other countries worldwide.
 
</div>

<div>
 
 1
 . Two forms of central bank digital currency
 : Central Bank Digital Currency (CBDC) is a digital representation of a country's fiat currency issued by a central bank (CB) to serve as a legal tender. CBDC can be categorised into two types based on usage&mdash;wholesale and retail&mdash;according to the Bank for International Settlements (BIS). 
 
 
 2. 
 Need to slash costs while heightening efficiency and security in cross-border wholesale transactions: 
 The common objective of wholesale transactions is to facilitate large-scale transactions and settlements among financial institutions. Compared to the existing alternatives, wholesale CBDC is more effective, promising real-time cross-border payments, cost savings, regulatory adherence, and anti-money laundering compliance.
 
 
 3. 
 Blockchain Technology and digital identity verification enable CBDC Development: 
 The development of CBDCs was possible due to the leveraging of key technologies that were not entirely new but adapted to suit the unique requirements of CBDC development. 
 
 
 4. 
 Governments&rsquo; financial and economic goals underpin push for retail CBDC: 
 Governments drive the creation of retail CBDCs to achieve financial and economic objectives. These digital currencies address economic instability, curb illicit activities, enable targeted monetary policies, and ensure public access to CB money amid decreasing physical cash usage. 
 
 
 5. 
 CBDCs face challenges relating to technical glitches: 
 Notable examples include issue is the occurrence of technical glitches in standalone CBDC apps, as reported by customers of 
 <a href="https://www.ub-speeda.com/company/companyinformation/cid/SPD1ZD1SLYXOQLZE?5">
 HDFC Bank
 </a>
 (IND), 
 <a href="https://www.ub-speeda.com/company/companyinformation/cid/SPD22N26UXYC2N5O?7">
 ICICI Bank
 </a>
 (IND), 
 <a href="https://www.ub-speeda.com/company/companyinformation/cid/SPD3RF51VLPSQLY7?9">
 Yes Bank
 </a>
 (IND), 
 <a href="https://www.ub-speeda.com/company/companyinformation/cid/SPD2LIZ3DWZDP59Y?11">
 Bank of Baroda
 </a>
 (IND), and 
 <a href="https://www.ub-speeda.com/company/companyinformation/cid/SPD21N82LIVP9TBM?13">
 IDFC First Bank
 </a>
 (IND) during the retail digital rupee pilot in April 2023. 
 
</div>

EDGE Insights

State of tech in Financial Services: How AI, blockchain, and biometrics are forging the future

FinTech (Q1 2024): Funding dip continues despite Coinbase’s large debt round; InsurTech adopting AI rapidly

Central Bank Digital Currency (CBDC)

State of tech in Financial Services: How AI, blockchain, and biometrics are forging the future

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