AI’s Crucial Role in Fintech Development Until 2029: Insights from Davos 2024

In a groundbreaking study presented at Davos 2024, Bryan Zhang, executive director and co-founder of the Cambridge Centre for Alternative Finance at The University of Cambridge Judge Business School, shed light on the future of global fintech, according to Finextra. Conducted in partnership with the World Economic Forum, this research gathered data from 227 fintech companies across five industry verticals and six regions, offering invaluable insights into the fintech landscape.

The study delved into various aspects of fintech, including business demographics, market performance, growth factors, regulatory perceptions, customer engagement, and societal and economic benefits. Titled «The Future of Global FinTech: Towards Resilient and Inclusive Growth,» the report unveiled some striking findings.

Artificial intelligence (AI) emerged as the most relevant and influential factor in fintech development over the next five years, according to a resounding 70% of respondents. Following closely behind, embedded finance, the digital economy, and open banking all hovered at approximately 53% to 54% in relevance.

Fintech companies highlighted a noticeable lack of incentives and mechanisms to contribute to environmental and inclusion goals, with 41% stressing the importance of sustainable finance schemes. Another 31% found existing schemes to be ineffective in this regard.

Consumer demand was identified as the primary growth driver by 51% of fintech firms, with Latin America and the Caribbean region leading the way with nearly 70% of surveyed fintechs citing it as a significant factor. Availability of a skilled workforce (39%) and a favorable regulatory environment (38%) were also crucial in supporting fintech growth.

However, macroeconomic factors were cited as the top hindrance to growth by 56% of respondents. Notably, Latin America and the Caribbean experienced a substantial drop in funding, with fintechs in this region disproportionately affected by funding challenges. In contrast, Sub-Saharan Africa fintechs found their funding environment conducive for growth, with 52% rating it as a supporting factor.

The development of digital regulatory and supervisory infrastructures was considered effective in supporting growth by 55% of those surveyed. Fintech’s growth is closely linked to financial services and products reaching underserved segments, with female (39%), low-income (40%), and rural or remotely located (27%) customers forming a significant portion of fintech customer bases.

Regional differences were apparent, with female customers in the Middle East and Northern Africa accounting for 54% of overall transaction values, while European fintechs reported the lowest proportion of female transaction values, at 28%.

Drew Propson, head of technology and innovation in financial services at the World Economic Forum, expressed optimism about fintech’s resilience post-pandemic, with global customer growth rates averaging above 50% from 2021 to 2022. However, he also acknowledged challenges such as a difficult macroeconomic climate and reduced fintech funding, emphasizing the need for data gathering and support from both the public and private sectors to realize sustained social and economic benefits from the fintech industry.

Bryan Zhang, executive director and co-founder of the Cambridge Centre for Alternative Finance, stressed the importance of regulatory innovation keeping pace with financial innovation. He highlighted the immense potential of digital financial services to widen access to finance for consumers and SMEs, offering more accessible, affordable, and personalized financial products and services.

Davos 2024 has spotlighted AI as the driving force behind fintech development until 2029, with embedded finance, the digital economy, and open banking also playing pivotal roles. Fintech’s potential for inclusive growth is substantial, but addressing challenges and fostering innovation will be vital to realizing its full potential in the coming years.

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