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>
 
 Regulators propose laws to improve crypto-related tax compliance and safeguard investors
 
 </li>
 <li>
 
 Funding recovers on the back of mega deals, which accounted for 86% of total funds raised
 
 </li>
 <li>
 
 Notable product updates from incumbents across FinTech verticals
 
 </li>
 </ul>
 
 
</div>

<div>
 
 This Edge Insight focuses on notable activities related to the sectors covered by SPEEDA Edge under the FinTech Services vertical from January 2023 to June 2023 (1H 2023): FinTech: Banking and Infrastructure, Wealth Tech and Sustainable Finance, InsurTech, FinTech: Blockchains, and FinTech: Payments.
 
 <hr/>
 <h1>
 Key takeaways
 </h1>
 <ul>
 <li>
 <h3>
 Funding:
 </h3>
 <ul>
 <li>
 
 Significant slowing in funding volumes; mega deals accounted for three-fourths of all funding: 
 FinTech Services saw total funding declining 43% YoY to USD 13.5 billion. However, the sector witnessed 20 mega deals (USD 100 million+), which collectively raised more than USD 10.0 billion (~75% of total). Leading payment services startup 
 <a href="https://sp-edge.com/companies/57000">
 Stripe
 </a>
 secured the largest amount of funding by raising USD 6.5 billion in 
 <a href="https://sp-edge.com/updates/17162">
 Series I
 </a>
 financing, achieving a valuation of USD 50 billion.
 
 </li>
 </ul>
 </li>
 </ul>
 <hr/>
 <ul>
 <li>
 <h3>
 Regulations: 
 </h3>
 <ul>
 <li>
 
 Stricter laws being finalized for cryptocurrency exchanges and digital tokens issuers: 
 The 
 <a href="https://www.reuters.com/technology/eu-states-approve-worlds-first-comprehensive-crypto-rules-2023-05-16/">
 Markets in Crypto Assets
 </a>
 regulation finalized in May 2023 (to take effect from 2024) was the first set of laws aimed at regulating crypto exchanges and digital token issuers. This regulation offers clear definitions for crypto assets and enforces laws pertaining to governance, reporting, and capital requirements of such exchangers and issuers. In the same month, the International Organization of Securities Commissions (IOSCO) also published a 
 <a href="https://www.reuters.com/business/watchdog-proposes-first-set-global-rules-crypto-sector-2023-05-23/">
 set of standards and policy recommendations
 </a>
 proposing a global approach to regulating the crypto industry.
 
 </li>
 </ul>
 </li>
 </ul>
 <hr/>
 <ul>
 <li>
 <h3>
 Product updates:
 &nbsp;
 </h3>
 <ul>
 <li>
 
 Complementary offerings abundant amid some notable launches from incumbents: 
 During 1H 2023, we counted 
 70+
 product launches, which focused on complementing existing offerings, diversifying business models, and creating additional revenue streams in response to challenging market conditions. For instance, certain neobanks launched investing platforms and premium subscription services, such as 
 <a href="https://sp-edge.com/companies/220119">
 Revolut
 </a>
 , which launched a new subscription plan called 
 <a href="https://sp-edge.com/updates/15855">
 Ultra
 </a>
 and a 
 <a href="https://sp-edge.com/updates/19814">
 robo-advisory
 </a>
 platform, while neo-insurers pivoted toward distribution services (Wefox&rsquo;s 
 <a href="https://sp-edge.com/updates/18304">
 Global Affinity Business
 </a>
 ). Moreover, the period saw incumbents such as 
 <a href="https://sp-edge.com/companies/1658">
 Apple
 </a>
 foraying into the 
 <a href="https://sp-edge.com/updates/17372">
 Buy Now, Pay Later
 </a>
 industry and 
 <a href="https://sp-edge.com/companies/46376">
 JP Morgan
 </a>
 piloting a 
 <a href="https://sp-edge.com/updates/17299">
 biometrics payment
 </a>
 solution with plans for a larger roll-out in 2024.
 
 </li>
 </ul>
 </li>
 </ul>
 <hr/>
 <ul>
 <li>
 <h3>
 Partnerships: 
 </h3>
 <ul>
 <li>
 
 Enhancing existing product portfolio and value additions driving partnership activity: 
 Similar to product updates, partnership activity focused on launching new products or features that enhance the existing product portfolio of customers. In addition, incumbent activity remained strong, with notable partnerships between Microsoft, Goldman Sachs, Deloitte, and Cboe Global Markets to 
 <a href="https://finance.yahoo.com/news/goldman-microsoft-cboe-others-collaborate-152808338.html">
 develop a new blockchain network
 </a>
 for financial product smart contracts, and Wells Fargo, JP Morgan, and Bank of America developing a 
 <a href="https://www.cnbc.com/2023/01/23/bank-of-america-jpmorgan-and-other-banks-reportedly-team-up-on-digital-wallet-to-rival-apple-pay.html">
 new digital wallet
 </a>
 to rival Apple Pay.
 
 </li>
 </ul>
 </li>
 </ul>
 <hr/>
 <ul>
 <li>
 <h3>
 M&amp;A:
 </h3>
 <ul>
 <li>
 
 FinTech players actively seeking entry into youth money app market: 
 We counted 
 49 M&amp;A transactions
 within the FinTech Services vertical in 1H 2023. Most of these were primarily aimed at adding new products and services to complement their existing product portfolios. Furthermore, a notable trend emerged, with FinTech companies entering the youth money app and card market to capitalize on its significant growth potential.
 
 </li>
 </ul>
 </li>
 </ul>
 <hr/>
 <ul>
 <li>
 <h3>
 Outlook:
 </h3>
 <ul>
 <li>
 
 More consolidation expected as funding environment remains challenging: 
 As interest rates are expected to continue rising, access to funding may become more exclusive, favoring well-established and promising companies. Consequently, smaller, unprofitable companies may encounter challenges in raising funds, leading them to explore M&amp;A opportunities to survive.
 
 </li>
 <li>
 
 Crypto regulations to drive more adoption amongst retailers: 
 The implementation of more stringent regulations on the cryptocurrency industry will instill confidence among the public, encouraging greater adoption. Furthermore, the anticipation of additional regulations aimed at combating money laundering is likely to act as a deterrent against rug pulls and scams.
 
 </li>
 </ul>
 </li>
 </ul>
 
 
</div>

Financial Services (Q3 2023): Funding recovers on the heels of Finastra’s record-breaking private credit deal

<div>
 <ul>
 <li>
 
 Mega investment deals constitute 75% of all funding amidst a decline in funding volumes
 
 </li>
 <li>
 
 Regulators enforce stricter laws on crypto exchanges and issuers to improve consumer protection and adoption
 
 </li>
 <li>
 
 Product launches centered around complementary services and diversifying business models
 
 </li>
 </ul>
 
 
</div>

In 1H 2023, the FinTech Services sector saw a significant decline in funding volumes, but there were 20 mega deals that raised over USD 10 billion. Stripe secured the largest amount of funding at USD 6.5 billion. Regulations for cryptocurrency exchanges and digital token issuers were being finalized, with new laws aimed at regulating the industry. There were numerous product launches focused on complementing existing offerings and creating additional revenue streams. Partnerships were formed to enhance product portfolios, and there were several M&A transactions, with a trend of FinTech companies entering the youth money app and card market. The funding environment is expected to remain challenging, leading to more consolidation, and stricter regulations may drive adoption among retailers.

Financial Services (1H 2023): Complementary services and diversification a common trend across the sector

Retail investors demanding sophisticated passive investment strategies are looking for an edge.

Retail Trading Infrastructure

<div>
 <ul>
 <li>
 
 The New York megabank is readying its robo-advisory product.
 
 </li>
 <li>
 
 UK-based Nutmeg already manages around USD 5 billion.
 
 </li>
 </ul>
 
 
</div>

EDGE Insights

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

Financial Services (Q3 2023): Funding recovers on the heels of Finastra’s record-breaking private credit deal

Financial Services (1H 2023): Complementary services and diversification a common trend across the sector

JPMorgan spices up UK push with Nutmeg acquisition

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

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