Recent advancements in technologies like generative artificial intelligence (AI), coupled with the large number of people worldwide who remain unbanked or underbanked, present significant opportunities for the global fintech sector.

By 2030, the sector is expected to reach a market size of US$1.5 trillion in revenue, a value that’s equivalent to five times the market’s current size, a new report by the Boston Consulting Group and QED Investors says.

The report, titled “Global Fintech 2024: Prudence, Profits, and Growth”, provides an overview of the sector’s evolution, drawing insights from industry leaders and investors. It discusses future developments in fintech, mentioning the potential of technologies like genAI, and outlines trends shaping the sector, including embedded finance, open banking and connected commerce.

Embedded finance to become pervasive by 2030

The first major theme highlighted in the report is the rise of embedded finance where financial services are integrated into non-financial interactions to eliminate friction and enable highly tailored customer experiences.

Initially, embedded finance use cases mainly focused on payments, lending, and insurance across both business-to-business (B2B) and business-to-consumer (B2C) contexts, but key players including Stripe and Adyen are expanding these use cases into areas such as pay by bank, cryptocurrency payments and digital assets. These two leading embedded finance firms crossed the trillion-dollar mark in overall payments volume in 2023, showcasing substantial growth in embedded payments.

Embedded lending has also seen robust growth, with buy now, pay later (BNPL) leaders Klarna and Affirm processing significant transaction volumes of US$90 billion and US$20 billion, respectively. Similarly, embedded insurance has shown rapid expansion, with premiums reaching roughly US$8 billion in Europe last year.

Looking ahead, the global embedded finance market is anticipated to exceed US$320 billion in revenue by 2030, with the small and medium-size business (SMB) segment accounting for about half (US$150 billion) of that sum. This growth will be driven by increased adoption of vertical and horizontal software solutions that address SMB’s needs in payments and lending.

The consumer segment is also expected to contribute substantially to the rise of embedded finance, projected to reach US$120 billion in revenue by 2030 as adoption of BNPL, point-of-sale (POS) lending and embedded insurance increases.

Finally, the enterprise vertical is anticipated to account for US$50 billion of embedded finance revenue. This growth will be driven by the integration of payment, lending, and trade functionalities into horizontal software solutions, aimed at addressing pain points in accounts payable and receivable.

Connected commerce poised to take off

Connected commerce, which refers to the integration of online and offline shopping experiences into a seamless, unified customer journey, represents a significant opportunity for traditional banks to capitalize on their customer data. The approach enables new revenue streams and enhanced customer loyalty through personalized marketing. Furthermore, it allows incumbents to serve as a platform for SMBs and enterprises.

Major banks and some fintech companies are already investing in connected commerce. Examples include initiatives like JPMorgan’s Chase Media Solutions, Capital One Shopping, and Citi Shop. Some fintech companies, including Klarna, are also entering the connected commerce space, while others like Revolut and PayPal are launching advertising businesses.

The adoption of connected commerce is expected to increase, emerging as a key application for banking incumbents. As core revenue streams continue to come under pressure, and as deposits risk becoming commoditized in a higher-yield environment, connected commerce offers a promising future model for traditional financial institutions.

Open banking to continue to expand

Open banking will continue to expand as more countries implement customer-permissioned access to their financial data, enabled by application programming interfaces (APIs). So far, over 65 countries have instituted open banking, and more are expected to follow suit.

However, the report notes that while open banking will drive innovation and increase financial access, it is unlikely to change the basis of competition in banking. In fact, in countries where open banking has had a decade or more to mature, no killer use case has emerged, and impact has been modest.

In the UK, open banking has been live for six years, and yet, consumer adoption has plateaued at 12% monthly active users. In the Nordics, a region that’s traditionally in the vanguard of digital adoption, open banking user penetration is well below 50%, standing at roughly 30% in Sweden and 25% in Norway.

Moving forward, open banking will remain relevant but won’t revolutionize consumer and SMB financial services and fintech, the report says.

GenAI emerges as game-changer

Finally, genAI is already proving its worth in the realm of financial services, delivering tangible productivity gains in customer service and support; software coding, testing, and documentation; in the regulatory arena; as well as for targeted, automated digital marketing.

Looking ahead, genAI applications and impact will only grow. Across cost of goods sold (COGS), genAI will increase productivity for developer and service operations. In sales and marketing, the technology will increase speed to output for content creation and improve salesforce effectiveness. And in general administrative expenses, it will optimize third-party spending, simplify the tech stack, and automate support functions.

GenAI is expected to have a much greater impact on fintech companies than on traditional banks in the near future. This is because fintech companies have “digital first” cost structures which are heavily weighted toward areas where genAI is delivering huge gains, such as coding, customer support, and digital marketing.

Fintech revenues grow despite falling funding

Global fintech funding dropped significantly in 2023, plunging 71% from an all-time high of US$144 billion in 2021 to US$42 billion. Despite funding challenges, global fintech revenues continued to grow at a robust rate, increasing by 14% annually over the past two years to reach US$320 billion in 2023, according to the report.

In particular, challenger banks were star performers in 2023. Brazil’s Nubank, for example, crossed the 100-million-user milestone in May 2024 and achieved record 2023 financial results with over US$1 billion in net profit and over US$8 billion in revenues. In Europe, Monzo reached operational profitability in the first half of 2023 and received GBP 340 million (US$430 million) in additional funding to fuel its global growth plans. In the US, Chime achieved profitability in Q1 2024 and is now preparing for a possible initial public offering in 2025, Bloomberg reported in March.

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