This April, The Fintech Times is focusing on all things embedded finance, the integration of financial services into non-financial products and services. As the space rapidly develops, we look to highlight the latest developments, initiatives and challenges embedded finance has to offer and overcome across the globe. 

Having established what regulatory challenges banks and fintechs should be aware of when leveraging banking-as-a-service (BaaS), and how the technology is advancing financial inclusion across the globe, we now turn our attention to emerging trends and if they are region-dependent.

A focus on regulations or financial inclusion

Richard Kalas, client solutions director for retail banking, GFT, the digital transformation pioneer, notes the various different ways that embedded finance is impacting the financial sector.

“BaaS is experiencing a significant, and quite exciting, expansion of its ecosystem, with more banks, fintech startups and technology companies entering the market as service providers or consumers. This trend fosters greater collaboration and innovation.

“The ecosystem’s expansion is paving the way for groundbreaking products and solutions that have the potential to revolutionise the financial services sector, empowering consumers and businesses alike with seamless, tailored experiences.

“It is also great to see a surge in innovation, which can be witnessed by the number of neobanks entering the market and disrupting the financial services sector by challenging the status quo of traditional banking models. Neobanks are known for their strong focus on improving the overall customer experience. By leveraging BaaS solutions, neobanks gain the ability to offer cutting-edge and user-friendly financial services tailored to meet the evolving needs of their client base.

“The modularity, interoperability and seamless integration of BaaS have also proven to be powerful drivers of innovation in sectors beyond banking. For example, the retail and e-commerce sectors are taking advantage of BaaS by embedding financial products directly onto their platforms, making payments more accessible and efficient as well as enhancing the overall customer experience of shopping online.”

Emerging markets vs developed ones

Kalas concluded: “Whilst these trends are evident on a global scale, their implementation and impact may vary across different regions. For example, in mature markets like North America and Europe, there is a strong emphasis on regulatory compliance and data privacy, driving innovation in secure and compliant BaaS solutions. In contrast, in emerging markets in Asia and Africa, there is a greater focus on financial inclusion and leveraging mobile technology to reach unbanked populations.”

Regulation and socio-economic landscapes shape trends

Regulatory frameworks are shaping the emergence of embedded finance across the world explains Maz Karimian, head of strategy at ustwo, the digital products and services provider.

“The landscape of Banking-as-a-Service (BaaS) is undergoing significant transformation, driven by a blend of regulatory initiatives, technological advancements, and evolving consumer expectations.

“The advent of open banking, particularly in Europe with the implementation of the Payment Services Directive 2 (PSD2), has sparked a wave of innovation. By compelling banks to share customer data with third-party providers upon customer consent, it has democratised banking data, thus empowering fintechs like Revolut and Tink to craft more personalised financial offerings.

“Simultaneously, embedded finance is redefining financial adoption and engagement models in regions like Southeast Asia, with trusted homegrown companies like Grab, the Uber of Southeast Asia, incorporating financial services into their otherwise unrelated offerings through a mobile-first strategy that aims to circumvent Asia’s fragmented banking sector.

“In the US, the environment for embedded finance is starkly different. Faced with the sophistication and strength of the financial services industry; tech giants like Apple have taken a more partnerships-led approach to offering embedded services like Apple Pay and the Apple Card.

“Such initiatives have won market share on the basis of simplified, seamless user experiences. This tendency to prioritise convenience raises fascinating questions regarding the potential benefits and pitfalls of on-demand, AI-powered financial services.

“The bottom line is that BaaS innovation differs widely across regions, and trends in the space, more so than in other ‘blank-as-a-service’ domains, are shaped by specific regulatory frameworks, technological landscapes, and socio-cultural contexts.”

Emergence of lending-as-a-service

As more non-banking players look to enter the financial space, BaaS is becoming increasingly helpful. According to Aman Behzad, managing partner, Royal Park Partners, the fintech focused financial advisors, lending-as-a-service is once trend being seen across the globe.

“We will see BaaS break new ground over the next two years. Macroeconomic conditions are driving the need for client monetisation, presenting more opportunities to extend the reach of BaaS. Lending, for instance, has become increasingly appealing to various non-bank players seeking higher interest yields and new revenue streams, driving the growing of new lending-as-a-service (LaaS) solutions.

“The applications of BaaS will continue to grow, and it’s exciting to see it transcend the boundaries of finance. In an era where customer-centricity is paramount, businesses across all sectors will be looking to BaaS to give them a competitive edge.

“Sectors as far reaching as healthcare and travel are tapping into the potential of BaaS to generate ancillary revenue streams, and augment customer retention. In the travel sector, for instance, one growing use-case is the integration of banking functionalities into airline loyalty programmes. Passengers can now earn, manage and redeem rewards seamlessly, benefitting from a more enhanced and integrated experience.”

Partnerships can help modernise infrastructure

Consumers want easily accessible solutions. Karthik Sethuraman, chief delivery and risk officer at audax, a corporate venture backed by Standard Chartered Bank, notes that one way firms can ensure they meet this need is through partnerships.

“Consumers want to be able to make a series of transactions with one app – from booking transport, paying for groceries, getting a micro-loan, and purchasing travel insurance. We help to empower banks and financial institutions to accelerate their digital transformation to meet those needs.

“Southeast Asia’s population is increasingly digitally-native, which has seeded the growth of BaaS by increasing the demand for digital financial services and accelerating the adoption of innovative banking solutions. The digital natives are accustomed to digital interactions and prefer seamless, convenient, and personalised digital financial experiences that can be accessed via mobile or online banking services.

“More partnerships between BaaS providers and fintechs create more comprehensive offerings both for banks, FIs and end-users. An example is the audax partnership with Thought Machine, where audax’s scalable digital banking technology platform is integrated with Thought Machine’s configurable core banking technology, enabling institutions to swiftly modernise infrastructure and develop fully customisable financial products for end customers.”

Ensuring consumers are protected

Daniel Grunstein, CEO and co-founder at Crowded Banking, the digital banking platform notes that consumers can find themselves open to fraud if BaaS providers don’t play their roles properly.

He explains how they can: “BaaS providers have gotten a bad rap recently – with all of the reports of fraud and failed ventures. I want to draw attention to the companies in the BaaS industry that are thriving, as a founder in this space myself.

“Embedded finance platforms for established clients are being unfairly grouped with the neobanks that acquire customers through B2C ads or other unreliable methods that leave them vulnerable to fraud.

“There are embedded finance platforms that are growing, irregardless of the fraud and compliance complications that other neobanks are facing. Crowded, having tripled its customer base last year, works with nonprofit organisations that have been around for longer than most banks – fraternities, universities, Girl Scouts, etc. Fraud around KYC/KYB is harder to pull off with established clientele, as the BaaS provider can easily weed out fraud accounts by checking with the national office of these multi-chapter organisations.

“When providing BaaS to an established organisation, rather than to individuals, more accountability and checkpoints prevent some of the vulnerabilities to fraud. Also, unlike most fintechs, where compliance is a burden, Crowded has monetised it, allowing their non-profit clients to maintain their tax-exempt status, and turned it into a revenue driver and competitive advantage.”

Who can move money

Different regions have different rules on who can move money highlights Donald Chapman, head of North America at Pollinate, the digital tool provider.

“BaaS enables non-banks to provide financial services, so tech firms that can innovate to find ways to profitably serve underbanked people or businesses. They can now deliver financial services where banks previously weren’t able or willing.

“These companies are not banks so they need to work very closely with their bank compliance teams to ensure they adhere to all pertinent rules and regulations.

“BaaS definitely varies by region. For example Europe almost encourages the dissemination of banking capabilities, such as PSD and PSD2 allowing non-banks to move money whereas in the US it is more strictly a bank situation.

“There are e-money licenses in Europe and money services business (MSB) licenses in the US, but in the US a company needs to go state by state to properly conduct business nationally which is a regulatory nightmare yet to be solved.

“Banking is a staid and highly traditional industry, so as the capabilities open up to tech firms that innovate, we will see more sectors, more adoption, and more opportunities… as well as more missteps.”

“Cash is king” and “if it ain’t broke don’t fix it” are common phrases heard in the payments industry. However, digital payments have had an undeniable impact in the sector, and according to new research from Boku, the global network for localised payment solutions, there has been a continued decline in the market share of traditional card payments.

Produced in collaboration with Juniper Research, the Boku report, titled 2024 Global Ecommerce Report: The Changing World of Payments surveyed 10,500 consumers. It analysed data from 37 major markets across the globe to identify global, regional and country specific trends. The findings highlight significant and rapid consumer shifts in e-commerce payments away from the traditional card networks (and in emerging economies cash on delivery) towards local payment methods such as digital wallets.

Nick Maynard, VP of fintech market research, at Juniper Research said: “Our research for this report from Boku highlights that against a backdrop of continued strong growth in e-commerce, the global card schemes (credit, debit and card-linked wallets) continue to lose share to regional and local payment methods. This is a trend seen at an aggregate global level but also repeated in every region across the world.”

Emergence of A2A payments

Further findings revealed that account-to-account (A2A) payments (instant payments and bank transfers) such as PIX in Brazil, UPI in India, or iDEAL in the Netherlands are revealed as the fastest-growing payment method within e-commerce. A2A payments are forecast to more than double and become the fastest growing local payment method within e-commerce. This accounts for 18 per cent of all e-commerce transactions by volume by 2028 globally (up from eight per cent in 2023).

Furthermore, instant A2A and non-card-linked wallets will account for over 50 per cent of e-commerce transaction value globally by 2028.

Declining card transactions and growing local payment methods.

The report also found that card values will decline to 19 per cent of transaction value by 2028 (down from 31 per cent in 2023). By volume, card payments will account for just 30 per cent of e-commerce transactions in 2028 ( down from 41 per cent in 2023).

By 2028, local payment methods will account for 58% of ecommerce transaction values (up from 47 per cent in 2023), accounting for a majority of transaction value online for the first time. Boku also estimated that in four years 37 per cent of all individuals globally will actively use local payment methods.

Younger generations are paving the way

Payment choice is key for consumers around the world. Today’s mobile-first generations – with whom access to and affinity with card networks is low – prioritise the convenience and seamless nature of paying with digital wallets, direct carrier billing and Instant A2A payments. As with the adoption of many new technologies, the adoption of localised payment solutions by younger generations and populations is paving the way for adoption by older consumers.

Stuart Neal, CEO of Boku said, “Our research shows the way the world transacts online is changing fast, and that change is being driven in the main by a consumer preference for convenient, seamless payment methods like digital wallets, direct carrier billing and Account to Account transfers.

“Merchants now realise that the key to their future global growth and success lies in their ability to offer consumers more payment choice. At Boku, we’re excited to provide the world’s largest merchants with access to our global network of localised payment solutions so their customers can more easily pay for the things they love, the way they want – no matter where they are in the world.”

Regional takeaways include:

Africa & Middle East

Africa & Middle East is in many ways already a local payments and mobile money success story, with the region’s services such as M-PESA and MoMo seeing strong adoption. As such, merchants require highly localised payments strategies in these markets to ensure continued results.

Asia Pacific

Asia Pacific payment requirements are changing quickly. While card payments will continue to account for a significant amount of payments – around a third of e-commerce payments by volume by 2028 – local payment methods are fast gaining traction, winning market share from card payments.

Europe

Europe, in particular, will see a dramatic shift away from cards, with the proportion of e-commerce transaction volume featuring cards dropping from 53 per cent in 2023 to just 30 per cent in 2028. A2A payments will experience massive growth from 16 per cent volume of transactions in 2023 to 25 per cent in 2028, due to the ability it provides in moving money without additional intermediaries.

Far East and China

Far East and China is a mobile wallet-dominated market, with great emphasis on ‘super apps’ such as WeChat and Alipay. E-commerce payment methods are anticipated to stay somewhat consistent with this over the forecast period with little shift in the payment methods used, due to how well-established the market already is.

LatAm

LatAm is a market in motion – e-commerce payment methods are changing rapidly, which means merchants must alter their acceptance strategies, or they will fail to take advantage of e-commerce growth. PIX is the obvious early success story, but CoDi in Mexico, as well as PSE in Colombia are also winners.

North America

North America is a heavily-developed market in regards to e-commerce, with the majority of consumers having access to bank accounts and plastic cards. One of the greatest concerns for e-commerce consumers across North America is the ability to checkout seamlessly, as well as having the ability to pay in installments resulting in growth of lower friction payment methods such as; Buy Now Pay Later (BNPL), A2A payments and non-card-linked wallets.

The Indian Subcontinent

The Indian Subcontinent is seeing an increasing shift towards local payment methods, with A2A payments in particular gathering momentum. Local payment methods are anticipated to have a sizable share of payment methods by 2028, equating to 72 per cent of e-commerce transactions by value, an increase from 58 per cent in 2023.

India is the largest driver of both volume and value within the Indian Subcontinent, therefore it is unsurprising that the highly successful UPI scheme is driving local payments forward, providing a template for future growth.

The global sporting goods industry will grow at a compound rate of 7% through 2027. That’s according to “Time to move: Sporting goods 2024,” a January 2024 report by McKinsey & Company.

The report foresees optimism by sporting goods industry leaders in 2024, coming off an uneven, inflationary 2023. McKinsey suggests caution, however, owing to shifting consumer preferences and sustainability concerns.

–

–

The study addresses shifting consumer preferences from traditional organized sports to individual varieties such as pickleball (159% growth from 2019 to 2022) and off-course golf (57% growth during the same period).

–

Challenges to the global supply chain continue. The McKinsey study included the results of its 2023 survey of worldwide supply chain leaders. Most are implementing renewed planning and resilience measures to counter supply uncertainties.

Payments are arguably the face of fintech. When you think about financial technology, it is easy to think about solutions which are making payments faster, easier and more accessible.

Having already explored the biggest upcoming trends in the world of paytech, it is clear that progress in payments becomes drastically different depending on which region of the world you look at. To find out how payment trends differ across the world, we reached out to industry experts and asked them how these trends differ in emerging markets, compared to the most established ones.

Differing financial landscapes 

For Jeremy Baber, CEO of Lanistar, the payment card provider, emerging markets are less reliant on traditional banking, creating more opportunity for fintech growth in those regions: “When it comes to established versus emerging markets, there remains a distinct gap between the two in terms of financial landscapes.

“Established markets are dominated by traditional banking meaning the opportunities for newer fintechs to deliver significant change are much more restricted. There simply isn’t as much room to upset traditional players and carve a path. But for emerging markets, new technology and an appetite for embracing change has provided an advantage for not just fintech growth, but also for those governments and markets.

“Currently, emerging markets find themselves at a sweet spot, where their dominant population demographic of under 30 favours online transactions. This has allowed the growth of methods that support such payments, stimulating economic growth through providing standardised practices in an otherwise neglected market.

“Brazil, for example, has been the site of the development and roll-out of bank transfer methods such as PIX and QR-code-driven payments. This has been seen as a game-changer, especially in comparison to more established markets which are years behind. Without emerging markets wholeheartedly embracing cryptocurrency technology and development, many fintechs would not be seeing a significant lead against traditional competitors and even a lead in their future financial service development.”

Varying banking usage

James Simcox, chief product officer at Equals Money, a money movement solution provider, explains how varying amounts of different populations with bank accounts change the payments landscape in each region: “In established markets, a substantial portion of the population already have bank accounts.

“This means there’s often a greater understanding of banking and well-established payment systems, creating an easier and faster route for innovation. Trust in banks is generally established, which means they can focus on maintaining infrastructure and engaging stakeholders.

“In emerging markets, the challenge is educating merchants and addressing infrastructure gaps. For example, in Mexico, despite having instant payments, there’s still low banking usage. Kenya, however, skipped traditional banking and moved straight to mobile payments.

“Unlike in established markets, the absence of existing systems and infrastructure allows the chance to start from scratch with payment technology.”

Financial infrastructure impacting trends

Gabriel Le Roux, CEO and co-founder of Primer, the unified infrastructure for global payments and commerce, discusses how differing levels of financial infrastructure are the main cause of differing trends between emerging and established markets: “While digital commerce is becoming more common in both emerging and established markets, there is a clear difference between the two.

“Established markets have a much more advanced financial infrastructure, including online banking services. Typically, consumers in these markets prefer electronic payments over cash due to better convenience and security.

“Yet, the idea of a cashless society in emerging markets is extremely unlikely. Although innovation in mobile payments has grown over the last decade, emerging markets often face infrastructure challenges, including limited access to banking services and inadequate point-of-sale systems.

“In both markets, however, there is a growing shift towards ‘nationalised payments’ due to concerns about national payment sovereignty and rising international fees. Several countries, such as the United Kingdom or Brazil with its Pix payment network have already taken steps to launch or suggest their own domestic card schemes. It’s likely that we will see more countries try to establish their own card network, reducing dependency on the likes of Visa and Mastercard.”

Banking penetration and smartphone adoption

Amal Ahmed, director of financial services and EMEA marketing at Signifyd, the e-commerce fraud protection platform, said: “While cash and mobile money continue to dominate the landscape in emerging e-commerce markets, fueled by lower banking penetration and higher smartphone adoption, established markets see credit and debit cards taking centre stage.

“Contactless payments and digital wallets are rapidly gaining ground, pushing cash aside, and as this becomes the norm globally, emerging markets present unique challenges and opportunities.

“Local payment methods like M-Pesa in Kenya or AliPay in China are crucial for success, and mobile-first optimisation is essential. Limited access to traditional banking necessitates creative solutions like micro-loans. Conversely, rising internet and smartphone use, alongside government initiatives and fintech innovation, are accelerating the digitisation of payments in these regions.

“Despite these differences, a trend towards convergence is undeniable. Mobile wallets, digital currencies, and buy now, pay later options are finding favour in both established and emerging markets.

“Ultimately, security and user experience remain paramount across the board, but navigating local regulations, data privacy laws, and cultural preferences is equally crucial for tailoring a winning payment strategy in any market. Building trust and ensuring secure digital transactions will be key for unlocking the full potential of e-commerce in emerging markets.”

Are payments in emerging markets overtaking the Western world?

Craig Ramsay, managing director and business development head at payments solution provider Episode Six, also comments: “Emerging markets are in the process of moving from cash directly to faster digital payment methods, like QR codes and wallets.

“In these markets, cheaper transaction fees hold great appeal – the use of UPI in India, PIX in Brazil and Dimo in Mexico are all instances of digital-first propositions that offer seamless and secure payments to the unbanked and underserved.

“Governments in emerging markets are focused on payment solutions that are affordable, safe, and accessible to everyone. That means creating instant payment solutions that don’t require sensitive financial information. They’ve been a rousing success and propelled the adoption of digital payments in these countries.

“Overall, there’s a huge institutional investment in real-time payments within emerging markets, the Middle East is already the fastest-growing market globally. They’re speeding past card payments, a step that we relied on for so long in the Western world.”

The payments experience

Arnaud Crouzet, VP of Fime Consulting, the advisory service provider, discusses how the issue of financial inclusion changes based on the market: “For merchants, the payment experience has become business critical, and vital to their relationships with customers. They need frictionless payments integrated into the customer buying journey.

“However, this expected buyer journey can vary significantly between emerging and established markets. As a result, domestic schemes are uniquely positioned to offer the bespoke payment framework required while bringing enhanced payment sovereignty to a nation. By providing localised support, domestic schemes are best positioned to meet the specific needs of the nations they serve.

“In emerging markets, the challenges of financial inclusion are far more prevalent than in established markets. In regions where smartphone penetration is far lower or a significant percentage of the population is unbanked, merchants need a way by which to offer enhanced yet still affordable payment experiences. This is essential to avoid excluding the unbanked or those without a compatible smartphone. New schemes such as that of Bangladesh Bank helping create an accessible, secure economic platform that meets the needs of the emerging market.”

Marca Wosoba, GM of global reach and head of payments at the Royal Bank of Scotland, also explains how emerging markets actually have an upper hand: “Emerging markets outpace their developed counterparts when it comes to the growth of real-time or instant payments.

“This is because emerging markets are less constrained and more willing to embrace new technologies and systems, making them a hotbed for innovation. Some of the most exciting innovations are happening in Africa with the mass adoption of digital payments, such as with M-Pesa in East Africa.”

The National Federation of Independent Business, an association of roughly 300,000 small U.S. businesses, publishes a monthly “Small Business Economic Trends” report (PDF). One component is an “optimism index,” wherein a sample of members are surveyed on their outlook, such as “plans to increase employment,” “plans to make capital outlays,” and “expect economy to improve.”

The results are then weighted and compiled into the “Small Business Optimism Index,” where 100 is the most optimistic.

In January 2024, the index decreased two points to 89.9 from December 2023 — marking the 25th consecutive month below the 50-year average of 98, indicating ongoing economic concerns among small business owners.

–

Twenty-one percent of owner-respondents reported that quality of labor was their most important problem in operating their business, followed by inflation at 20%.

–

Moreover, in January 2024, 14% of surveyed U.S. small business owners planned to increase employment in the coming three months, down two points from December.

–

The NFIB survey asks members whether net profits in the prior three months were higher or lower than the same period in the previous year. The difference — the number of “higher” minus “lower” — is then compiled in an index. In January, the number of “lower” respondents was 30% more than “higher.”

New cybersecurity measures do not completely stop crime – they only slow it down. This is because cybercriminals are always adapting to overcome companies’ defences, meaning firms need to constantly stay two steps ahead. Exploring what moves will take place this year, Experian, the financial information and services company has released its ’11th annual Data Breach Industry Forecast’.

Experian has identified six ways that cybercriminals are expected to act following a relatively ‘successful’ 2023. Speaking on the findings, Michael Bruemmer, vice president, global data breach resolution at Experian said: “Cybercriminals are continually working smarter, not harder. They are leveraging new technologies like artificial intelligence. Furthermore, they are applying their talents in different ways to be more strategic and stay a step ahead.

“Organisations should not ignore even the slightest security abnormalities. They must be more aware of what global interests may make them a target.”

Six degrees of separation

There’s no question third-party data breaches have made headlines. With increased data collection, storage and movement there are plenty of partners down the supply chain that could be targeted. Experian predicts attacks on systems four, five or six degrees from the original source. Especially as vendors outsource data and technology solutions who outsource to other experts and so on.

Little by little becomes a lot

When trying to achieve a goal, it’s said that taking small steps can lead to big results. Hackers could apply that same rule. Instead of making drastic moves and trying to reap instant reward such as with ransomware, bad actors may just manipulate or alter the tiniest bits of data to stay under the radar such as changing a currency rate or adjusting the coordinates for transportation, which can have a major impact.

Not a third-wheel

It’s widely known who the major players are globally that sponsor attacks and a new country in South Asia may join the international stage with their large population of engineers and programmers. While reportedly having been in the game focusing on cyberattacks regionally due to political tensions, this country may broaden their sights in the future.

No, not Mother Earth!

Plutonium, terbium, silicon wafers — these rare earth materials that are the building blocks for today’s hardware are rapidly becoming the most sought-after resources on the planet. Any disruption to an already strained supply chain could send the industry (and the economy that relies on these materials) spinning. This presents an intriguing opportunity for hackers, or nation-states wanting to corner a market or disrupt an enemy’s economy.

The scarface effect

Like drug cartels, cybergangs are forming sophisticated organisations as joining like-minded actors can be incredibly advantageous. This spans globally with countries potentially helping each other to advance common goals and interests. We’ll see more hackers for trade, crews looking to expand their monopolies, and cyberwarfare alliances.

Winning from the inside

In 2024, we may see enterprising threat actors target more publicly traded companies. In doing so they will gain insights to cheat the stock market. Or alternatively, plan their attacks and sell their stash before value nosedives. Rather than breach an organisation and play in the underground with stolen data, threat actors could leverage data extraction and their talents in plain sight as everyday investors.

“Today, perpetrators can come from anywhere in the world and bring with them robust resources and expertise,” added Jim Steven, head of crisis and data response services at Experian Global Data Breach Resolution in the United Kingdom. “There are many global crime syndicates and nation-backed operations. Therefore, companies need to invest in sophisticated prevention and response methods to protect themselves.”

Over the past decade, a wave of innovation has swept through all corners of the payments landscape. As a result, the needs of market participants have evolved and they continue to do so at a substantial pace.

Edward Metzger, vice president, market planning payments efficiency at LexisNexis® Risk Solutions, shares his predictions for the key payments trends to watch as 2024 unfurls.

1. Account-to-account payments soar 

Account-to-account (A2A) payments bypass intermediaries such as credit card and payment processors, enabling money to be transferred directly from one party’s account to another account instantly. That makes them faster, more convenient and less costly than traditional bank transfers.

Although A2A payments are not new, API technology and the move to open banking have provided the payment rails for A2A payments to take off. We expect rapid growth to continue in step with further adoption worldwide of instant digital payment solutions for retail and corporate use.

2. Payment fraud explodes

With payments moving online and real-time payment systems becoming the norm, authorised push payment (APP) fraud is more prevalent than ever. In fact, it is the number one fraud threat globally, surpassing card fraud and identity theft.⁴

APP fraud is perpetrated when fraudsters use social engineering techniques such as impersonation scams to trick unwary consumers into sending a payment to them. Combatting APP fraud remains a challenge because it happens in real time and cannot be reversed. We expect wider adoption of confirmation of payee (CoP) and similar controls to temper APP fraud going forward.

3. Reducing the cost of payments becomes imperative

A confluence of factors from high interest rates to volatile credit markets are driving up the cost of payments and making liquidity management ever more challenging. Compliance controls, which are especially high for international payments, further increase costs. Automating payments processes to speed processing, reduce failed payments and prevent fraud will remain a top focus for businesses looking to reduce costs in 2024.

4. Corporates drive for efficiency

Corporates are increasingly bringing payments operations in-house to gain greater control and deliver a better customer experience. This has fuelled the growth of corporate treasury management systems that are able to manage liquidity and deliver efficiency gains by offering a centralised hub for all payments activity, including payment routing. With the faster processing and real-time visibility these systems offer, we expect the number of companies who manage their own payment operations to increase significantly.

5. Banking as a service (BaaS) gains momentum

Banks are transforming their payment service operations and diversifying revenue by offering real-time payments capabilities to corporate and other customers through APIs.

This BaaS approach enables banks to become a channel partner and resell payment routing solutions to end customers, providing companies with a holistic solution to manage the growing complexity of payments routing. With a CAGR of more than 15 per cent ¹⁸ BaaS is expected to gain even wider adoption over the next few years.

To find out more about the ways in which the payments landscape is rapidly changing and the potential impact on your business in 2024, download our latest infographic.

What’s next?

Companies that consider payments processes in relation to the overall customer experience will find themselves ahead of the competition and ahead of the curve. LexisNexis® Risk Solutions can help. Our payment validation tools and data intelligence enable organisations to reduce failed payments, mitigate fraud, improve straight-through processing rates and deliver a better overall customer experience.

LexisNexis® Risk Solutions harnesses the power of data and advanced analytics to provide insights that help businesses and governmental entities reduce risk and improve decisions to benefit people around the globe.

References

1. https://www.mckinsey.com/industries/financial-services/our-insights/the-2023-mckinsey-global-payments-report
2. https://www.fisglobal.com/en/global-payments-report
3. https://www.pwc.com/gx/en/industries/financial-services/publications/financial-services-in-2025/payments-in-2025.html
4. https://investor.aciworldwide.com/news-releases/news-release-details/app-scams-emerge-top-payments-fraud-threat-fraudsters-changing
5. https://www.paymentsdive.com/news/fraud-losses-realtime-payments-banks-aci-push-payment-scams/653219/
6. https://www.ukfinance.org.uk/news-and-insight/press-release/over-ps12-billion-stolen-through-fraud-in-2022-nearly-80-cent-app
7. https://www.paymentsdive.com/news/fraud-losses-realtime-payments-banks-aci-push-payment-scams/653219/
8. State,opportunities%20related%20to%20risk%20management
9. https://www.computerweekly.com/news/252527286/APP-fraud-volumes-expected-to-double-by-2026-says-report
10. https://www.paystand.com/blog/benefits-automated-payment-solutions
11. https://risk.lexisnexis.com/insights-resources/research/true-impact-of-failed-payments
12. https://risk.lexisnexis.com/insights-resources/research/true-cost-of-financial-crime-compliance-study-global-report
13. https://risk.lexisnexis.com/insights-resources/research/us-ca-true-cost-of-fraud-study#:~:text=Every%20%241%20of%20fraud%20now,was%20 conducted%20during%20the%20pandemic.
14. State,opportunities%20related%20to%20risk%20management.
15. https://www.businesswire.com/news/home/20230921857012/en/Nine-of-10-Companies-Face-Problems-with-Payment-Operations-39-Still-ManualNew-Modern-Treasury-Research-Reveals
16. https://www.pwc.com/gx/en/issues/c-suite-insights/ceo-survey-2023.htmll
17. https://assets.ctfassets.net/h83dujey17us/59MRqbPnl4xJU0UufqxrhS/e84dc98d4d671e163a03b5489c202e35/2022_AFP_Payments_Cost_Survey_Final_ Report__u1_.pdf
18. https://www.globenewswire.com/en/news-release/2023/03/30/2637634/0/en/Banking-As-A-Service-Market-Worth-USD-65-95-Billion-at-a-15-1-CAGRby-2030-Report-by-Market-Research-Future-MRFR.html
19. https://www.globenewswire.com/en/news-release/2023/03/30/2637634/0/en/Banking-As-A-Service-Market-Worth-USD-65-95-Billion-at-a-15-1-CAGRby-2030-Report-by-Market-Research-Future-MRFR.html
20. https://www.mordorintelligence.com/industry-reports/global-banking-as-a-service-market

This document is for informational purposes only. LexisNexis® Risk Solutions does not warrant this document is complete or error-free. If written by a third party, the opinions may not represent the opinions of LexisNexis® Risk Solutions. LexisNexis and the Knowledge Burst logo are registered trademarks of RELX Inc.

The world of artificial intelligence (AI), particularly generative AI, exploded in 2023 – following the hype and interest in OpenAI‘s ChatGPT. But as we foray into 2024, what does the future hold for the space? We turn to the experts to find out.

Off the back of a year dominated by discussion about AI, it is easy to wonder what trends lie in store for us in 2024. With all types of possibilities for all types of industries, it appears as though AI could impact absolutely every aspect of business, finance and beyond.

In 2023, a McKinsey Global Survey covering the ‘State of AI‘ found that 40 per cent of respondents believed their organisations would increase investment in AI overall because of advances in gen AI. Released in August, these findings are likely even more true now. We’ve seen a rapidly increasing number of firms embracing AI technology and exploring how it can be used in every facet of their operations.

“The rise of certain technologies like generative AI in 2023 has heralded a great deal of transformative change that will shape how the payments industry develops in 2024,” explains Tony Craddock, director general of The Payments Association.

To better understand just how much of an impact AI could have throughout the coming year, we hear from a range of experts in the industry to get their takes on the most important upcoming AI trends for 2024.

AI: The here and now

As Iain Armstrong, regulatory affairs practice lead for ComplyAdvantage, the AI-driven fraud and AML risk detection firm, explains, it’s no longer a question of ‘if’ for AI, more ‘when’ and ‘how’: “As we head into 2024, the question is no longer if companies invest in AI, but what kinds of skills their analysts need to ensure that the models they use are effective and that they can justify decisions that they make to auditors.

“Key skillsets such as data preprocessing, model performance monitoring and optimisation, and experience in automated decisioning strategies will be in demand. Staff in existing anti-financial crime roles will benefit massively from gaining a base-level understanding of machine learning and AI. Companies that invest in staff training in this area will reap the dividends.”

Michael Conway, executive partner of data, AI and technology transformation service line leader at IBM UK & Ireland, also expects 2024 to be a year of AI-related progress for firms.

Conway explains: “2023 was the year of experimentation with generative AI, but not many businesses were able to put new AI models into production. In 2024, it will be about ramping up the production of new generative AI use cases where the real commercial value lies.

“This in turn will drive a trend for AI platforms with built-in data and AI governance capabilities that help businesses comply with regulations, trace the lineage of their data and explain how the outputs of their AI models were generated.”

‘A fresh start for many organisations’

Continuing the theme of cautious optimism regarding what 2024 holds in store for AI, Eldar Tuvey, CEO and co-founder of spend management platform Vertice, explains: “Leaving behind a belt-tightening 2022 and 2023, the new year presents a fresh start for many organisations as they enter a period of lean, efficient growth.

“Automation is high on the list for executives, but I expect to see faster adoption of AI software amongst CFOs seeking efficiencies on everything from budgeting and invoicing to analysing contracts at speed. The finance function has often been described as the canary in the coal mine for new technology as teams are eager to unburden themselves from manual, time-consuming tasks and find time for strategic projects.

“The pressure to keep up with new software also presents a budgeting challenge for the modern CFO, who will need to devote more scrutiny and attention on software purchasing in general to keep tight control of spending.

“Legacy products will be under the spotlight as new players emerge, presenting a potential new dawn in lots of SaaS markets with companies less willing to stay loyal to the big software players if they can’t keep up with the AI arms race.”

2024: The year of AI feature rollouts?

Both Dave Tonge, CTO of Moneyhub, and Elliot Colquhoun, VP of Information Security and IT at Airwallex, suggest that most companies are readying themselves

Tonge explains his 2024 prediction: “We will continue to see the rollout of ‘AI features’ into a wide range of products. Some of this will be gimmicky, but some will be useful productivity boosters. There will continue to be hype and fear around AI, but this is a tech innovation that is already solving a wide range of problems (something crypto never managed!).

“There will also be an increase in ‘agent’ based tools. These are AI-powered systems that can solve complex problems by calling multiple tools. Rather than simple input-output chains, these agents will leverage advanced algorithms to orchestrate a variety of data sources and AI models. Agent-based AI systems will not only predict outcomes but also recommend and execute actions, leading to more autonomous and intelligent software.”

‘This year, we can expect AI to advance exponentially’

Colquhoun adds: “In 2024, I think we’ll see even greater adoption and rollout of AI-first features by almost every company. Similar to tech trends of the past, mass uptake will also lead to mass innovation. We’ve already seen widespread interest and adoption of generative AI for customer support, exploring data, writing code and performing increasingly complex tasks.

“This year, we can expect AI to advance exponentially in terms of the complexity and specificity of tasks it can perform. Entrepreneurs will go deeper, finding ways to apply AI to solve problems, particularly for non-technical users, supercharging their output.

“For example, the fintech and financial services industry must comply with strict regulatory and compliance guidelines that often heavily rely on manual human processes across information security, compliance support, know your customer (KYC) onboarding, transaction monitoring and more. Processes that are manual, error-prone, time-consuming, and hard to automate with legacy approaches – such as comparing a change management ticket to the actual changes, or reviewing a description of a business – are natural applications of AI that completely change our approach to solving problems.

“As with all emerging technologies, businesses need to take a pragmatic approach to integrating AI into their products and operations. Although there are new risks to address, there are also compelling new opportunities to reduce risks – new ways to prevent fraud, investigate alerts faster, and keep customers safe. If we can adopt AI thoughtfully, we can not only ensure we’re using AI safely but improve safety in other areas too, such as customer onboarding and fraud prevention.”

Regulation and responsible AI

The importance of regulation and using AI responsibility can also not be overstated. Michelle Moody, MD of management consulting firm Protiviti UK, explains: “Undoubtedly, additional foundational models will be released to help organisations adopt AI quickly and be better trained for specific industries.

“The pace of adoption in 2024 will be aligned with the pace of additional regulation and legislation, as well as the maturity of the organisations’ data estate and the advances in technology.

“I would also expect organisations will be looking at adopting AI safely so that it is transparent and explainable, especially with the first laws being introduced to manage risk.

“Data is another important area that may need to be discussed more. AI models are trained with vast amounts of data where patterns are identified, and models are coded to make decisions using that data. If the data is not fit for purpose, or the coding is biased in making decisions, then the model will not provide quality outputs. So, the old adage of garbage in-garbage out applies here,” continues Moody.

“If organisations do not have strong data governance and accountability for the data from C-level down to every employee, then they may find themselves falling foul of legislations and potential fines coming into effect. Organisations will need to collect data responsibly and ensure that the data is being used ethically and aligned with current privacy laws. Adopting AI without good-quality data to train the model will be difficult.”

Investors’ concerns regarding global macroeconomic volatility and inflation have diminished compared to the elevated levels last year. However, these risks still influence decision-making.

That’s according to PwC’s “Global Investor Survey 2023.” The study, conducted in September 2023, surveyed 345 investors and analysts across 30 countries and territories, including in-depth interviews with 15 investment professionals.

–

The study also uncovered that investors perceive substantial risk associated with adopting AI.

–

–

According to a February 2023 survey by Statista, 74.9% of businesses worldwide plan to invest in AI technologies from 2023 to 2027. Additionally, upwards of 64.5% of respondents said they would invest in some form of sustainability tech.

It’s a time of reflection and anticipation at The Fintech Times throughout December, as we look back at developments and trends over the last 12 months and forward to the year ahead.

We’re pleased to share the thoughts of fintech CEOs and industry leaders from across the globe to 2023’s key takeaways and what we should expect to be top of the agenda in 2024.

Today, we bring you insights from industry leaders regarding the changing dynamics of cybersecurity threats and trends in 2024. They predict that social engineering attacks will surpass ransomware in 2024 due to increased sophistication, AI tools and emerging techniques, leading organisations to bolster cybersecurity defences with AI, scenario testing and multi-factor authentication.

Social engineering attacks will outpace ransomware

The sad reality is, deceiving people today is easier than ever, suggests Matt Cullina, head of global cyber insurance at global information and insights company TransUnion.

“A never-ending stream of data breaches combined with highly sophisticated and technical attacks means the stolen personal information available on the dark web is continuously replenished. Cybercriminals use that information to impersonate people in positions of authority. Once in digital disguise, they can make all kinds of requests for access from unsuspecting people who are just trying to do their jobs or take care of their families.

“Ransomware attacks, which hit the globe hard in 2021-2022, are becoming more difficult to execute successfully. Governments worldwide have stepped up pursuit and punishment of ransomware gangs. Some have outlawed payment of ransom demands, and frankly, victims have become less inclined to pay a ransom.

“At the same time, insurance companies are covering fewer ransomware claims. Social engineering provides criminals with more anonymity than ransomware, and is being more easily facilitated with new AI tools. Our expectation is that social engineering attacks will only increase further in 2024.”

Rise in social engineering

Doriel Abrahams, head of risk at payment optimisation and fraud prevention platform Forter, also expects social engineering will “take a giant leap forward” in 2024.

“A lot of consumer technology (Apple Pay, for example) is prioritising highly secure and personalised experiences, relying on biometrics and specific device features. A few years ago, this would be a homerun for consumers and a major deterrent for fraudsters,” says Abrahams.

“But with the popularity of generative AI (shout out to ChatGPT and FraudGPT), fraudsters can now make their social engineering scams even more convincing at an unheard of scale. So, while consumer tech may be getting more secure, fraudsters are also getting more cunning.

“Another phenomenon I expect will surge in 2024 is the usage of remote desktop control (RDC) to commit fraud. This is where a fraudster takes over a victim’s device and operates as the victim – changing their passwords, purchasing airline tickets, applying for new credit cards. When you think about it, it’s the high-tech version of social engineering.  We’ve always seen RDC attacks, but they’ve popped up more regularly this year and I suspect it’s just the tip of the iceberg.

“A similarly damaging trend is account takeovers (ATOs) where a bad actor gains access and takes over an online account using stolen or hacked credentials. This is especially troubling for online merchants who then must discern a legitimate account used by a trustworthy customer from a legitimate account that’s been hijacked by a bad actor. Because they’re so tricky to catch, and because we’re already seeing an upward trend in ATOs this year, I predict we’ll see a rise in ATOs in 2024.

Engineering tricks will target large language models (LLMs)

Every new technology trend opens up new attack vectors for cybercriminals, warns Corey Nachreiner, chief security officer at cybersecurity company WatchGuard Technologies. 

“Companies and individuals are experimenting with LLMs to increase operational efficiency. But threat actors are learning how to exploit LLMs for their own malicious purposes as well. During 2024, the WatchGuard Threat Lab predicts that a smart prompt engineer ‒ whether a criminal attacker or researcher ‒ will crack the code and manipulate an LLM into leaking private data.

““In 2024, the emerging threats targeting companies and individuals will be even more intense, complicated, and difficult to manage. With an ongoing cybersecurity skills shortage, the need for MSPs, unified security, and automated platforms to bolster cybersecurity and protect organisations from the ever-evolving threat landscape have never been greater.”

Organisations will look to bolster their defences

Cybercriminals are always expanding their toolkits, and concerned executives will look for solutions to avoid the potentially disastrous consequences of a cyberattacks in 2024, predicts Rich Cooper, head of financial service go-to-market at US software company Fusion Risk Management. 

“In 2023, we saw more organisations focus on protecting their critical business operations from cyberattacks. In 2024, organisations will expand on that and significantly increase their scenario testing capabilities to attain a strengthened and proactive risk posture.

“Organisations will seek additional AI and machine learning-enabled technologies to drive efficiency in manual processes and protect business operations, specifically by scenario testing potential cyber threats. This will enable them to maintain continuity and resilience as well as ensure that the organisation can bend but not break when an inevitable attack or disruption occurs.”

Refining cybersecurity strategies

Andrew Shikiar, executive director and CMO at open industry association FIDO Alliance, also suggests enterprises will be under pressure to review and refine their cybersecurity strategies in response to the scale and sophistication of AI-driven social engineering, plus a general movement towards greater cyber-transparency.

“Approaches and practices that used to be relied upon will no longer pass muster. Take company-wide training to identify phishing attacks for example. How can employees be reasonably expected to identify and report phishing emails when they are increasing in both frequency and effectiveness? This, and other methods, will no longer be an acceptable cornerstone of a modern cybersecurity strategy.

“Similarly, passwords and other shareable credentials will be an increasingly visible source of vulnerability – and as such we’ll continue to see enterprises look to decrease and ultimately eliminate their dependence on knowledge-based forms of authentications.

“Many organisations will embrace the security and ease-of-use of passkeys as a replacement not just for passwords, but for legacy forms of 2FA – either as synced passkeys that are typically managed by an OS or independent credential provider and provide a familiar consumer experience, or as device-bound passkeys that are typically housed in a FIDO security key and can help address higher-assurance use cases.”

Deep fake threats

The year 2023 revealed an escalating challenge posed by the advancing realm of deep fake technology, says John Baird, co-founder and CEO of identity verification platform Vouched. 

“The lessons learned underscore the imminent threat to trust and security within digital financial transactions. Looking ahead to next year, we anticipate a continued evolution of deep fakes, accentuating the urgency for fintech entities to fortify their defence mechanisms against these sophisticated impersonations.

This means an increased emphasis on robust multi-factor authentication, continual learning in collaboration with identity verification experts, and proactive measures to educate stakeholders about deep fake risks.

“As we move into 2024, safeguarding the authenticity of financial interactions in the face of deep fake threats will remain a critical focus for the fintech industry.”