The fintech industry is undergoing a rapid transformation, driven by new technologies and evolving consumer needs. Similar to the internet and the dot-com crash of 2000, the fintech industry underwent a shakedown in 2022 which has helped to weed out the
weak business models and showed the resilience of the rest.
Today, nearly three years on, we are at an inflection point. While the growth parallels with the internet are yet to fully manifest, as business models adapt to the new normal, shaped by rising interest rates, inflation, and macroeconomic shifts, fintech
as a sector is poised to drive growth re-acceleration.
Let us focus on a major fintech subsegment: payments – which accounts for around 66% of all publicly listed fintech companies. Three major trends are currently shaping the payments landscape globally: embedded payments, generative AI, and cross-border payments.
These trends focus on enhancing convenience, speed, and security, and are being scaled up to meet growing customer demand.
Figure 1. A vast majority of public fintech companies are in payments
Embedded payments: Revolutionising transactions
Embedded payments are redefining customer experience by enabling seamless, frictionless transactions directly within apps and websites. This integrated approach boosts engagement and conversion rates, eliminating traditional checkout barriers. Growing at
an annual rate of around 23%, the embedded finance market is projected to reach $138 billion by 2026 according to
Juniper Research, making it an attractive sub-segment in global payments.
The impact on customer experience is significant. As a nation, almost
27% of our purchases are completed online and
73% of buyers admit they are likely to abandon a purchase if there is friction during checkout. This process is significantly streamlined with embedded payments, but integrating these systems can be challenging due to the complex regulatory environment
and security demands. It can be a resource-intensive process involving robust encryption, tokenisation, and adhering to various compliance standards. Companies must balance compliance and usability to create a seamless yet secure experience.
Generative AI: Enhancing security and efficiency
Generative AI has been making waves across industries, and its role in payments is transformative. With global card payment fraud
projected to result in $400 billion in losses over the next decade, AI-driven tools like those from Quantexa improve fraud detection and customer support by creating synthetic data to simulate fraud patterns using AI, making prevention systems smarter and
more efficient.
Gen AI technology is used widely across the financial services sector, where large inflows and outflows of capital can entice fraudsters, helping companies save millions on fraud prevention and operational costs. AI and its role in financial services is
only set to grow and is projected to reach nearly $11 billion by 2027 according to
Juniper Research, with companies already reporting 30-40% reductions in fraud.
Generative AI is also part of our day-to-day lives, often with consumers never realising the significant impact it has on safeguarding our money. Identity fraud accounts for 64% of all fraud cases, underlining the need for payment vendors to tackle this
issue head-on.
Figure 2. Different types of identity fraud in credit products
Companies like PayPal use it to analyse transaction patterns in real-time for early fraud detection; most banks, especially neo-banks like Starling and Monzo employ AI to identify unusual transaction patterns and protect customer funds. Form3, another UK-based
fintech, provides cloud-native payment technology for banks and companies, using AI to help reduce fraud and streamline payments.
However, as AI becomes more integrated, companies face the ongoing challenge of balancing security with user privacy. Ethical considerations and regulatory compliance will become increasingly critical as AI handles sensitive customer data. Companies use
advanced encryption and data minimisation to retain only the necessary information. Tokenisation technology and adherence to payment industry standards like PCI DSS, which requires organisations that process, store or transmit cardholder data to follow rigorous
security measures, are also critical in maintaining security and privacy.
Figure 3. PCI DSS sets the standards for secure payments
Cross-border payments: Meeting global demand
Cross-border payments have become essential in our interconnected global economy. Traditionally dominated by banks, which still hold the majority share of the personal market, cross-border payments are increasingly influenced by fintechs such as Wise and
Revolut, which offer quicker, transparent transactions compared to the often slow, opaque processes of traditional providers. This trend is significant as global e-commerce and remote work continue to rise.
In its inaugural cross-border payment report in 2021, the Financial Stability Board (FSB) outlined the targets set by the G20 countries on the sustainability goals for cross-border payments, which are focused on
- cost;
- speed;
- transparency; and
- access.
These regulatory pressures have aided cross-border payment vendors by bringing high operational standards, which positively impact customers.
Figure 4. Cross-border targets set by G20 countries
Figure 5. Wise has a compelling story in key metrics
We have seen banks such as HSBC launch payment apps to compete against these fast-growing platforms, but with a strong foothold in the market already, I believe the momentum is already behind the fintechs. With the technology already established, there is
also a commercial argument to use a white-label product rather than take on the cost of developing your own software.
The B2B cross-border market also holds substantial growth potential, with companies like Alpha Group offering FX risk management and payment solutions that allow businesses to navigate international transactions smoothly. In a market dominated by banks,
filled with generic FX risk management solutions with a one-size-fits-all approach. Fintechs offer unique bespoke hedging strategies for each company based on their characteristics and needs. Managing FX in receivables, payables, and employee salaries can
improve cash flow and free up working capital, benefiting companies that operate on a global scale.
The future of payments
Looking ahead, the payments industry is likely to see even tighter AI integration, the spread of embedded payments to more sectors across the financial services and e-commerce space, and growth in real-time cross-border solutions. With advancements in payment
technologies, security and privacy have become top priorities.
Customers can now open bank accounts with a selfie and a photo of their passport or license, and many apps use face ID or fingerprint recognition. While customers prefer a frictionless experience, businesses must protect their customers’ privacy and data
– this will be key to the sector’s lasting success. ID verification companies like GBG in the UK play a crucial role in protecting against identity fraud.
The industry is moving towards giving consumers more control, speed, and transparency in payments. Many UK companies, both publicly listed and private, are leading this evolution and setting high standards for the market. It’s an exciting time to be in payments
and fintech, with continuous advancements promising to reshape the industry.
The payments industry is at a pivotal point, driven by embedded payments, generative AI, and cross-border solutions. As the industry evolves, companies must balance innovation with regulatory compliance and security to meet the growing demands of consumers
and businesses alike.