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1、Transition:finance Fintech gears up for a new eraFintech&Advanced Payments Report 2024Global Experts inFintech ConsultingFRANKFURT DUBAI LONDON PARIS SAN FRANCISCO SYDNEYEdgar,Dunn&Company(EDC)is an independent global financial services and payments consultancy.Founded in 1978,the firm is widely reg
2、arded as a trusted advisor to its clients,providing a full range of strategy consulting services,expertise,market insights,and M&A support.From offices in San Francisco,London,Paris,Frankfurt,Dubai,and Sydney,EDC delivers actionable strategies,measurable results and a unique global perspective for c
3、lients in more than 45 countries on six continents.For more information contactSamee ZafarDTue ToHead of Advanced Payments and Fintech for North A3 Transition:finance|Fintech gears up for a new era3ContentsIntroduction 4Executive summary 5Transition to a new era:Back to earth with a bump 6High impac
4、t:How is fintech reshaping the economy?16Moving on:Accelerating the great(fin)tech transfer 26Conclusion 33 Findexable assisted Edgar,Dunn&Company in the preparation of this report.4 Transition:finance|Fintech gears up for a new era2023 was undeniably eventful and characterized by shifting global la
5、ndscapesamong them the receding impact of COVID-19,political conflict,natural disasters,and a banking crisis that led to the collapse of multiple regional banks in the United States.At the same time,the continued rise of generative AI models added to this whirlwind of surprises.While the current tec
6、hnological evolution brings forth exciting possibilities,striking a balance between innovation and responsibility towards consumers and the environment while maintaining a viable business is now more important than ever.In this years report,we explore fintechs responses to the post-pandemic world,it
7、s dedication to environmental and social responsibility,and its leverage of technologies like Artificial Intelligence and Machine Learning to drive efficiency and scale.The report covers three key themes:Operational Efficiency This section explores how fintech companies are strategically gearing up
8、for a new economic era,leveraging technological advancements and innovative strategies to enhance operational efficiency.Climate and Impact This section highlights the rise and potential impact of climate and impact fintechs,shedding light on their efforts to integrate sustainability into the financ
9、ial landscape.Technology Transfer Here,we delve into the horizon of promising opportunities and potential risks entwined with AI and ML advancements in the payments industry.We discuss how these technologies are reshaping the future of financial services,heralding a new era of possibilities.Despite
10、market pullback,fintech is poised to maintain its robustness in the coming years,brimming with abundant opportunities for innovation,especially with the recent leap forward in Generative AI.Success however will favour the disciplined;and those who can adeptly harness technology to streamline operati
11、ons and expand through strategic product adjacencies.Staying agile,responding proactively to financial challenges,prioritizing sustainability,embracing social responsibility,and safeguarding customers against potential fraud and data breaches will be crucial aspects of thriving in this latest tech-d
12、riven(transition)era.Welcome to the 2024 edition of our Fintech report!Here,you will find insights from discussions with thought leaders and practitioners,and findings from an industry-wide survey,to capture the perspectives of payments professionals on current market dynamics.Introduction A year of
13、 transition?1235 Transition:finance|Fintech gears up for a new eraExecutive summary Transition:finance Fintech gears up for a new eraIn that sense,the post-pandemic market pullback is to fintech what the 2008 financial crisis was to global banking:both events forced scale players to rethink how they
14、 operate and adapt to a new reality to stay relevant.If its still too early to explain the full impact of the downturn on fintech and financial markets,theres little doubt that 2023 will mark a turning point.It may even become the jumping off point for the great(fin)tech transition:where the imperat
15、ives of operational efficiency,technological advancement in the form of generative AI and data,and managing the impact of climate change started to come together.These three themes are the focus of this review of fintech and advanced payments into 2024.This year we talked to innovators,investors and
16、 incumbents at yet another time of upheaval.In the wake of the downturn and the market pullback in venture funding weve included the results from an industry-wide survey to identify market priorities for the year ahead.Although challenges remain after a year of correction with firms urgently reasses
17、sing their path to profit,fintechs fundamentals are as solid as ever.Despite the slowdown,fintech investment in 2022 was still markedly higher than 2019-the last year before the pandemic1.For firms that can blend a sense of mission with excellence in orchestration while using data and AI to drive ef
18、ficiencies or create new scalable services the new era is wide open.Money supply-or the lack of it-is a great accelerator of change.Just as the 2008 Global Financial Crisis pushed the fintech agenda,todays post-pandemic pullback is forcing a hard reset on fintech firms everywhere.The themes driving
19、fintech in 2024Climate&ImpactOperational efficiencyTech transfer6 Transition:finance|Fintech gears up for a new eraFintechs GFC moment If 2021 was the year fintech took off,2023 felt very much like the year it fell back to earth.In some ways 2023 was fintechs Global Financial Crisis moment.At least
20、psychologically.The end of the heady days of the digital finance boom of the pandemic,after a decade of seemingly endless venture growth has sharpened minds,forcing firms to double down on operational efficiency and a path to profitability.Something that for many firms(much like the internet boom of
21、 the early 2000s)seemed a remote prospect,much less a priority.Where all lights were flashing green during and in the immediate aftermath of the pandemic,in a sharp about turn the last year has been characterized by warning signs everywhere.Venture funding across all stages and geographies crashed.B
22、y up to 75%in Europe,Middle East and Africa and 85%in Latin America(see chart,Fintech funding 2022-23).Not surprisingly this has impacted fintech firms across the spectrum.With hiring scaled back and some of fintechs biggest successes from Klarna and Pleo in Europe to Chime and Stripe in the US anno
23、uncing hiring freezes or revenue warnings.Transition to a new era Back to earth with a bump Global mobile wallet market size by 2028Source:Edgar Dunn&Company$87 trillionThe pandemic was a catalyst for fintech innovation-accelerating adoption of digital technologies and making funding available for e
24、xperimentation on an unprecedented scale.One year on and with the prospect of a recession how are fintech firms adapting to the new market dynamics?And how are they getting ready for a new economic era?Drop in venture investment is refocusing priorities for scaling and startup fintech firmsOrchestra
25、tion is becoming a key capability on the path to profitabilityDespite the pullback significant opportunities remain to digitise the full stack of financial servicesIn this section7 Transition:finance|Fintech gears up for a new eraNorth AmericaAmount raised($B)EMEAH122H123APACLatin AmericaBack to bas
26、icsWhile the taming of the fintech lion has been a wake up call,in some circles it has also drawn a certain amount of schadenfreude-often with a degree of moralising about a long overdue end to the growth-at-any-cost model of fintech growth and a much-needed return to building businesses with a clea
27、r path to profitability.On the surface it feels like a switch has been flicked-from a world of capital abundance to one of capital scarcity-and the beginning of a new era potentially more closely aligned to the pre-2008 economic reality than that of the last decade.While elements of this are true,th
28、e reality is less binary.The slowdown in venture markets accelerated by changing macroeconomic conditions might have contributed to a sea-change,and a move away from consumer-facing financial services,but the fundamentals for fintech remain.Despite the downturn total fintech funding in 2022 was stil
29、l almost double what it was before the pandemic3.Opportunities to fill gaps in provision or automate operations across the full stack of financial services-from cash flow management to lending,wealth and payments(see box:Opportunities knock)-can be found everywhere for firms with the right approach
30、or ability to orchestrate.Chart 1:Going the wrong way:Fintech funding 2022-23Source:S&P Global2Opportunities knock Potential to digitise the full stack of financial services means theres no shortage of opportunities for innovation despite the market pullback.Employee&spend management A fragmented ma
31、rket for HR and employee management means firms often use multiple services creating a need for providers that can orchestrate integration of employee rewards,spending and staff management.Examples:Ceridian,Coverflex,GustoOrchestration&B2B SaaS The move away from consumer focused fintech is benefiti
32、ng firms focused on payments and operations automation for enterprise and business customers with rising valuations for fintechs that can demonstrate subscription revenue streams.Examples:Integiro,Ramp,StripeAccounting&finance operations As belts tighten businesses everywhere are looking for ways to
33、 improve efficiencies and reduce costs,while accounts integration is filling funding gaps for SMEs.Examples:Mimo,MamoPay,PayableAutomating the full finance stack AI and the trend to embedded finance is making end-to-end process automation a reality.The software-isation of the full finance stack is l
34、ikely to be an enduring theme in fintechs next era.Examples:Numarics,Trillion,Vic.ai17.04.32.90.57.05.717.612.48 Transition:finance|Fintech gears up for a new eraAnd as might be expected from a sector that has matured over the last decade not all fintech firms are equal.As a result,the fallout from
35、the downturn is not evenly distributed.The impact on fintech firms is now more correlated to their stage of development,their segment or business model than simply their membership of the fintech sector(see box:Directions,please?).Despite the downturn total fintech funding in 2022 was still almost d
36、ouble what it was before the pandemic.Fintech 2022 recap,DealroomDirections,please?How firms at different stages and business models are responding to the downturnStageEarly stage Growth or Late stageScaled Business model BankingPayments Infrastructure Response Focus on profitability Offer subscript
37、ion services Examples:Monzo,Starling Target enterprise,merchant customers Focus on customer experience&product set Examples:Klarna,Nubank Focus on orchestration Expand BaaS offering Examples:OakNorth,StripeImpactIncreased investor interest in firms with a focus on path to profitLower valuations,focu
38、s on cost discipline&path to profitabilityCost discipline,focus on profitability,slow exit or IPO plansSource:findexable9 Transition:finance|Fintech gears up for a new eraHow firms are responding to the changing climate is similarly nuanced.With fintech firms large and small adjusting their strategy
39、,refocusing priorities,or identifying cost efficiencies and product adjacencies accordingly.Some are more equalThe transition year is easier for some firms to adjust to than others.For fintechs with a model predicated on getting to profitability through low margin transactions at scale,planning how
40、to layer on services such as lending or insurance as volumes grow-and how to ensure customers know what youre offering-could make the difference between success and failure.Pandemic push From the explosion in contactless payments,to reduction in the use of cash and the forced digitisation of paper o
41、r in-person processes,the list of services and business models pushed forward by the pandemic is almost too long to believe(see box:Pandemic push,below).Indeed the acceleration in adoption of digital financial services created by the pandemic is probably best viewed as a once-in-a-generation opportu
42、nity to experiment and prove demand for new services.Massive growth doesnt guarantee its any easier to build profitable businesses.“Its been the case for a long time in the payments industry that you need to start with the fundamentals.Get the foundations and the strategy right-you cant just compete
43、 on price,”says Gary Prince,payments entrepreneur and chief executive officer of The Payment Firm,based in the UK.“Whats different today is that payment transactions have become a commodity-the opportunity is in getting the data so that you can offer more services aligned directly with what your cus
44、tomers or counterparties need,”adds Mr Prince.Think firstAs the market for innovation and finding gaps in provision gets tighter,todays founders and innovators also need to think about the structural direction of the market-especially given the recent leap forward in Generative AI.“Applying a clear
45、thesis to the kind of business model were looking for means segments like money transfer-where revenues are fairly consistent-less interesting for us.In areas like wealth management however the“Layering additional services onto a simpler,scalable transaction product will continue to bean important r
46、oute to building scaled fintect businesses,but fintech firms need to make sure they have the capabilities training in place so customers understand how to use these new products what you offer to stay relevant.”In South East Asia we worked with women garmentfactory workers that were given a digital
47、walletwhere their salary was paid.The wallet offered lots of functionality the customers werent aware of.”Mary-Ellen Iskenderian,Womens World Banking10 Transition:finance|Fintech gears up for a new erapotential is dramatically different.Not only can you take a position on the assets under your manag
48、ement but you also take a fee for delivering the service-usually over multiple years for firms that are trusted and are great relationship managers,”says Ale Vigilante,former head of innovation at fund manager Fidelity in the United States,and founding partner of Novirian,a Silicon Valley-based vent
49、ure fund.“Were really looking for founders building businesses where the marginal cost to serve falls to zero once the platform or service is up and running while revenues grow continuously,”adds Mr Vigilante.Big but less boldIf the changing economic tide has sharpened or shifted focus for early or
50、ideation-stage firms,it has re-set priorities for growth and later stage firms even more urgently.Opportunities or hiring plans that sounded realistic just a year ago have been shelved or a different perspective applied before deciding to go ahead.“In this market we need to be very disciplined in de
51、ciding which opportunities to go for,”says Iana Dimitrova,chief executive of OpenPayd,a UK-based embedded finance provider,“we take time to size the market for the opportunity and assess time to revenue before taking the leap,”Ms Dimitrova adds.Increasingly,its also about identifying safe-harbour cu
52、stomer opportunities in a climate that has made consumer propositions riskier and much less attractive to investors.As a result,firms focused on business-to-business activities-from embedded finance to payment orchestration or financial services infrastructure and enablement -are finding themselves
53、ahead of the curve,in terms of both investor attractiveness and customer viability.Not that thats putting them beyond risk.“Our impact focus,selling crop-protection insurance and our distribution model selling to insurance aggregators instead of direct to farmers,is definitely helping us attract inv
54、estor interest for follow-on finance should we need it,”says Rose Goslinga,Co-founder and President of Pula,a scaling insurtech based in East Africa.“Nevertheless its a highly challenging environment so you have to fight hard to build and maintain the relationships so that we continue to meet our re
55、venue targets,”she adds.As the first full year after the pandemic,2023 is proving to be another pivotal year for fintech globally,one that will simultaneously herald the next cohort of fintech successes,and highlight the direction of financial innovation over the next decade.“In this market we need
56、to be very disciplined in deciding which opportunities to go for.We take time to size the market for the opportunityand assess time to revenue before taking the leap.”Iana Dimitrova,OpenPayd11 Transition:finance|Fintech gears up for a new eraContactless Payments&ServicesTo avoid unnecessary contact
57、with people and cash,digital payments soared during the pandemic.Many businesses introduced or expanded contactless services to minimise physical interactions including contactless delivery options,curbside pickup,and mobile payments-a trend that has outlived the pandemic.Over 90%of survey responden
58、ts think mobile payments and contactless payments will continue to increase in a post COVID world.The majority believe mobile payments is an essential winning solution in todays market.EDC estimates global mobile wallet market size will grow at a CAGR of 11%from 2023 to 2028 reaching$87T by the end
59、of 2028.Business models:A pandemic push The two years of the pandemic accelerated fintech in a way that is now hard to comprehend.Below are some areas of innovation that accelerated at scale during the pandemic.E-commerce Expansion As an increased number of traditional brick-and-mortar businesses sh
60、ifted or expanded their online services during the two years of the pandemic.Businesses use online marketplaces or developed their own e-commerce platforms and optimised logistics to meet the surge in online shopping.A trend that is expected to continue in the rest of the decade.Over half of survey
61、respondents believe in-store shopping will continue to shift online.EDC estimates global e-commerce market size will grow at a CAGR of 9%from 2023 to 2028 reaching$10T by the end of 2028.About two thirds of online spend is expected to occur via digital marketplaces with around 20%of all purchases in
62、volving cross border transactions.12 Transition:finance|Fintech gears up for a new erabrands,to name a few are just some of the sectors that have transitioned to subscription-based business models.Outsourcing&collaborative partnershipsService outsourcing,especially of non-core activities,has experie
63、nced significant growth in recent years.External service providers often have expertise and experience in specific domains,allowing companies to allocate resources more efficiently,improve productivity,enter new markets more easily,and more easily scale their operations according to changing market
64、demand.As a result partner selection and management has become an essential competency for fintech innovators to ensure the quality of service and experience is maintained.Software as a Service comes of ageThe pandemic accelerated the adoption of digital technologies and contactless payments-trainin
65、g consumers to use their devices for authentication and getting them used to the convenience of mobile wallets,contactless cards,and digital payment platforms.The outcome has been a generation of customers that expects payment flexibility wherever they shop,and which inadvertently has put pressure o
66、n smaller businesses who were not ready for the digital switch-as a result creating a large opportunity for Software as a Service(SaaS)platforms to offer one-stop shop payment and finance solutions for small&medium size businesses.Business models:A pandemic push ContinuedDigital TransformationBusine
67、sses digitised their operations to reduce costs,improve efficiency,and respond to shifts in demand.For example,physical retail stores implemented online ordering systems and e-commerce platforms,restaurants introduced online ordering and delivery services,service-oriented businesses transitioned to
68、virtual consultations or teleconferencing,manufacturers implemented automation and robotics to reduce the reliance on human labour,businesses leveraged chatbots and AI-powered customer service tools to handle customer inquiries,financial institutions enhanced online banking and mobile app services a
69、mong other areas.Subscription-based modelsThe rise of subscription-based businesses has been significant in recent years,transforming how companies monetize their products and services,offering benefits such as predictable revenue,improved customer relationships,and opportunities for growth and inno
70、vation.With enhanced data analytics,businesses can offer personalised pricing or subscription tiers tailored to individual needs.Personalization plays a key role in driving customer satisfaction and retention.Dynamic pricing and subscription plans-once reserved for gym memberships,streaming services
71、 and the travel industry have proliferated also-businesses ranging from software companies to healthcare and luxury car 13 Transition:finance|Fintech gears up for a new eraConserving cashManaging cash flow and financial risk(62%of survey respondents).Businesses need to maintain adequate liquidity to
72、 cover operational expenses,debt obligations,and other financial commitments to ensure their survival during challenging times.By carefully managing financial risks,businesses can maintain stakeholder confidence putting them in a better position to secure follow-on funding,lines of credit,or other f
73、orms of support.Cutting costsUnsurprisingly reducing operating costs(at 61%)came second highest in this years survey.Businesses are taking action to preserve financial stability and maintain sufficient cash flow to cover essential expenses to keep the lights on in uncertain times.The post-pandemic i
74、mperative How are fintech and payment firms adjusting to the new environment?Keep changingIn a bid to identify new revenue streams,fintechs are actively addressing changes in customer behaviour(56%of those surveyed).As customers adjust their spending priorities during the downturn,fintech providers,
75、and the merchants they support,need to adapt in ways that meet emerging needs.A process that in the long term can help stay relevant and build loyalty and reduce customer churn.In an uncertain climate the agile survive.And so do those that take an active response to their financial management.This y
76、ears survey highlights the actions fintech leaders are taking to adjust.14 Transition:finance|Fintech gears up for a new eraFintech Survey 2024Question:The payments industry has undergone significant changes as a result of the COVID-19 pandemic.Do you think the following activities will increase,sta
77、y the same,or decrease in a post COVID world?Question:Which technologies are the essential winning payment solutions in todays market?Mobile paymentsContactless paymentsIntroduction of regulatory rules to ensure consumer protectionEmergence of new technologiesEmergence of climate/impact fintechsCros
78、s-border e-commerce transactionsFocus on customer centricityIn-store shopping shift towards e-commerceAdoption of cryptocurrenciesChart 2:Shifting sands of financeChart 3:Upwardly mobileMobile payments87%Open Banking66%AI and Machine Learning58%Banking as a Service48%AR management technology17%Inter
79、net of Things16%Blockchain13%IncreaseDecreaseStay the same94%92%77%72%70%69%65%53%41%21%4%7%22%27%28%29%33%37%35%10%222211115 Transition:finance|Fintech gears up for a new eraWomen excluded from financial system Source:Global Findex Database,World Bank 2021750 million6 16 Transition:finance|Fintech
80、gears up for a new eraHigh impactHow is fintech reshaping the economy?Social and environmental impact-focused fintech is not a new phenomenon.Mohammad Yunus Grameen Bank that first drew global attention to the commercial potential for serving poor and low income customers turned 40 this year.The com
81、bination of the climate emergency,accelerated digitalisation from the pandemic and widening gaps between rich and poor across the advanced and emerging world however have put financial services with societal or environmental goals firmly on top of the pile in the last year.Indeed climate and impact
82、fintech is one of the few areas-alongside the investment boom in AI-where venture investment grew over the last year.“Our impact focus means were still very much of interest to investors and able to attract fresh investment if we need it,”says Rose Goslinga at Kenya-based insurtech firm Pula.Climate
83、 and sustainability are increasingly top of the list of priorities for customers.But is impact fintech a standalone segment?Or is it simply a question of values that fintechs need to bake in to their strategy?Data:DealroomNumber of deals Funding(m)xChart 4:European climate fintech investment(to May
84、2023)United Kingdom64mGermanyDenmark45mBelgium14mSwitzerland6m3m61512Mission-driven finance gaining importanceClimate fintech at an early stage but growing quicklyEfficient orchestration key to serving customers at scale and building scaled fintech firmsIn this section17 Transition:finance|Fintech g
85、ears up for a new eraRightly so.Gaps in funding and provision of financial services to low-income consumers,access to finance for SMEs,nearly a billion women still excluded from the formal financial system and a financing shortfall for the energy transition in emerging regions are just some of the p
86、roblem areas that fintech should be able to help solve.Defining green fintech taxonomyClimate-focused fintech is in the early stages with a wide range of applicationsSource:findexable 2022Annual funding gap for SMEs4 Source:International Finance Corporation$5.2 trillion Green digital payment and acc
87、ount solutionsTechnology using payment data to calculate the carbon footprint of purchases or help make purchase decisions with lower carbon impactRobo advisors focussing on investments that prioritise ESG and sustainability goalsData and analytics focusing on ESG metrics and company ratingsDigital
88、platforms connecting funds and funders to finance green ventures or projectsInsurance for climate-related risks using sensors or data capturing technologySavings accounts investing in environmentally friendly projects or lending linked to green behaviourTokens such as green utility tokens that rewar
89、d companies for lowering emissions of offsettingCategoryWhat the green meansGreen digital investment solutionsDigital ESG-data and analytics solutionsGreen digital crowdfunding and syndication platformsGreen digital risk analysis and insuretechGreen digital deposit and lending solutionsGreen digital
90、 asset solutions18 Transition:finance|Fintech gears up for a new eraCarbon offsetting When consumers deposit funds,make purchases,or complete other financial tasks,their financial services providers donate to carbon offsetting projects(e.g.,tree-planting,carbon capture,or alternative energy infrastr
91、ucture development)on their customers behalf.ESG investingFinancial services providers use capital deposited by customers to provide loans for various projects.Fintech companies strategically invest in initiatives prioritizing environmental,social,or governance(ESG)responsibility.Carbon footprint mo
92、nitoring Fintech companies monitor consumers purchases to determine the environmental impact of their transactions.Defying definitionDespite the clear need for it however impact fintech remains a segment that defies a clear definition,tending instead to be carved up between traditional financial ser
93、vices segments including lending or banking or bracketed loosely within the ESG investing arena.Does this matter?Maybe not.But the old clich that you cant mend what you cant measure holds true.Lack of a clear definition also opens the door to impact or greenwashing-put simply,does offering a credit
94、card made of recycled bamboo make me a climate-friendly fintech?And should it?Building clear categorisation would also help channel funds and investment in the right direction.Shortening the time to fix some of the bigger societal or environmental challenges in the process.Race to the bottomHow is f
95、inancial services redirecting consumer behaviour to lower emissions?Climate finance funding gap5 Source:Boston Consulting Group 2022$3.8 trillion19 Transition:finance|Fintech gears up for a new eraClearer categorisation would certainly help the climate fintech sector where around three quarters of a
96、ll firms in the space are early stage firms7.Organisations like the Green Digital Finance Alliance,findexable and Womens World Banking are trying to build consensus around definitions for climate fintech(see Race to the bottom)or close data gaps around the role of women in fintech or their access to
97、 financial services.Its not just about good sense or doing the right thing.Its also good business,“because theres nothing micro about a billion women,”says Mary-Ellen Iskenderian,president and chief executive of Womens World Banking,a US-based gender lens investor not for profit organisation-also th
98、e title of her book highlighting why womens financial exclusion needs to be taken seriously at all levels and not consigned to a microfinance footnote8.It takes a villageAny financial product is only as good as the ecosystem that supports it.What good is a payment account if I cant use it to make da
99、ily payments for essential services?Its a similar dilemma in the climate fintech space where most startup activity so far is focused on data and analytics-to inform or redirect customer buying decisions or support policy change.While gaps in data availability to track spending habits or monitor ener
100、gy efficiency are slowly being plugged,particularly in Europe,the infrastructure to adapt pricing according to carbon emissions or incentivise energy efficient buying decisions still feels a long way off.“Over 240 million women were brought into thefinancial system during the pandemic,the challenge
101、post pandemic is to make sure we have the proper tools in place to keep these new accounts relevant to the women that hold them.”Mary-Ellen Iskenderian,Womens World BankingClosing the data gap The fintech diversity scorecard-collecting data on women in fintechSource:findexable,Womens World Banking&M
102、oney 202020 Transition:finance|Fintech gears up for a new era“Data is the most important asset for transparent sustainability management.ESG data helps financial institutions and companies to identify and mitigate potential risks associated with unsustainable business practices.But its also our bigg
103、est concern because of its availability,especially related to emissions or energy sources used by property,”says Nikoletta Kovacs,leader of sustainability business strategy at Raiffeisen Bank International in Austria.Its also a layered problem:“The EU has made good progress on agreeing definitions f
104、or essentials of green financing,and developed a very precious EU taxonomy.Yet,the taxonomy for social loans is still to come and there is no clear definition of them at an EU-wide level.Retrieving data to track certain economic behaviours of customers is also limited due to data protection regulati
105、ons,meaning some solutions,like carbon emissions trackers can only be used where robust data regulation is in place,”adds Ms Kovacs.But there are some green shoots of progress.Particularly in Europe,the region that currently dominates the climate fintech sector by funding and number of startups9 and
106、 where an ecosystem is gradually falling into place.“Energy performance certificates have become a standard across the EU providing the basis of understanding energy performance and emissions from property.At Raiffeisen weve launched green mortgage loans group-wide for retail customers based on well
107、 defined frameworks,and EU support for the green transition is incentivising customers and banks.Participation in state-subsidized programs also means we can stay competitive by offering lower long-term interest rates,including mortgages in selected markets,”says Ms Kovacs.While progress is good.It
108、will need to accelerate during the year ahead to meet what customers are coming to expect of their financial providers(see chart 7 from survey).Sizing,seizing the prize Significantly,a focus on sustainability is not just about meeting existing customer demand.Many fintech firms also feel environment
109、 goals present an opportunity to win market share-or serve customers in new ways.In much the same way as its making impact fintech firms more appealing to investors.Over a third of respondents were confident enough to say that customers would switch providers to companies that are committed to envir
110、onmental goals.Given the scale of market potential for closing funding gaps-whether for small businesses,financially excluded customers or the climate transition(see flag above)and rapidly expanding customer demand for financial services with impact goals,its hard to believe the opportunities are st
111、ill there for the taking.“We estimate that around$700 billion in annual revenue is being left on the table by the financial services industry.And not because of the excluded population,but because women and men are not being served at parity,”says Ms Iskenderian.And heres the biggest obstacle to acc
112、elerating progress at pace.The transition era is challenging not just because firms need to adapt but because it requires whole ecosystems to come together with the mindset to solve-or incentivise solutions to-common problems.“This includes governments at national,and sometimes regional or global le
113、vels in the case“Energy performance certificates have become astandard across the EU providing the basis ofunderstanding energy performance and emissionsfrom property.”Nikoletta Kovacs,Raiffeisen Bank21 Transition:finance|Fintech gears up for a new eraImage:Raiffeisens“carbon calculator”Source:Raiff
114、eisen Bank Internationalof climate change.Member states must be behind the green transition to help create win-win scenarios,”says Raiffeisens Ms Kovacs.“With rising costs for small businesses due to the energy crisis in 2022,we have created ecosystems to help our customers.For example,in Romania we
115、 developed a one-stop solution where we pictured an overview of governmental subsidies for small businesses,photovoltaic partners and our green loan solutions.Our aim was to support customers through their green transition and at the same time to help the businesses reduce their operating costs,”she
116、 adds.Increasingly,as the global economy moves into its next phase no fintech is an island.Despite the potential goldmine,unlocking the transition finance prize will need a web of policies,products and agreement on best practice to accelerate the switch to a more sustainable,inclusive economy.22 Tra
117、nsition:finance|Fintech gears up for a new eraClimate fintech firmsStill a new segment-with the majority of firms founded in the last five years-investment in climate fintech doubled in 2022 to$2.9 billion.Aspiration Offers customers the ability to track their carbon footprint and offset their emiss
118、ions and invests in clean energy projects and sustainable companies.DoconomyCarbon calculators for consumers and businesses.The company has expanded to provide digital tools to educate and drive behaviour change.Bought Sweden-based Dreams technology in 2023 to offer wealth and financial wellness sol
119、utions.MioTechAI to solve climate change and social responsibility issues.MioTech provides ESG data to financial institutions,to help them make decisions on ESG reporting and energy efficiency.CNote Impact investment opportunities for individuals and institutions.Invests in community development fin
120、ancial institutions that provide financing to underserved communities and promote economic development.LendahandCrowdfunding for sustainable projects in emerging markets.Connects investors with SMEs in developing countries that are working on sustainable solutions including renewable energy and clea
121、n water.MirisCreated the Green Finance Framework-a method for selecting,tracking,and reporting the flows of funds in various financial projects.The framework is built around components of the Green Bond Principles from the International Capital Market Association.The platform locates funds and inves
122、ts in them.23 Transition:finance|Fintech gears up for a new era PowerledgerBlockchain-enabled energy and environmental commodity trading platform.Powerledger helps to transact energy,trade environmental commodities and invest in renewables.The firm has also created software that enables peer-to-peer
123、(P2P)energy trading from solar rooftop panels.TomorrowA sustainable banking app that allows customers to track their spending and carbon footprint,and invests in sustainable companies and projects.Tomorrow also offers a debit card made from recycled plastic.Stripe ClimateA new service launched by gl
124、obal payments firm Stripe where businesses can finance projects dedicated to carbon removal.Customers commit a fraction of their revenue to the cause with the money used to fund climate neutral technologies and Contributing companies get a green badge to highlight to their clients.TreeCardA wooden c
125、redit card aimed at eliminating plastic and reforestation.The project is based on fees that merchants pay for accepting card payments.80%of the fee goes to tree-planting initiatives.Users can track spending and see how many trees were planted through their spending.Climate fintech firms24 Transition
126、:finance|Fintech gears up for a new eraFintech Survey 2024Chart 5:Green is good(business)Chart 6:ESG gains importanceQuestion:In your opinion,are ESG and climate change-related features important to your commercial,business or product development strategy?Very importantNeutralSomewhat importantNot i
127、mportant now but were thinking seriously about itNot at all important30%17%13%27%12%Question:In your opinion,do payment services that prioritise environmental sustainability or reducing carbon footprint represent significant commercial opportunity?Very significantNeutralSomewhat significantNot very
128、significantNot at all significant32%15%27%21%5%Source:Edgar Dunn&Company 2023Source:Edgar Dunn&Company 202325 Transition:finance|Fintech gears up for a new eraChart 7:Customers leading the way Question:Do you think consumers or businesses would switch service providers that are committed to environm
129、ental sustainability and reducing carbon footprint?Source:Edgar Dunn&Company 202337%Not sure26%No36%Yes26 Transition:finance|Fintech gears up for a new eraMoving on Accelerating the great (fin)tech transfer The jurys out though on whether the gains stop there-or if AI technologies can be anything mo
130、re than a driver of operational efficiencies for financial firms.While payment firms operating at scale have managed to capitalise on the datasets created by building large transaction businesses(such as Klarna or Stripes moves into new product areas from lending to banking as a service),so far uses
131、 of AI have been confined to more mundane operational processes such as fraud detection and risk management(see:Thinking inside the box,below).Supporting castInvestors have certainly woken up to the hype AI has had on firms and valuations.“AI is central to the core business in some companies,and in
132、others it is simply a supporting character,”remarked Hans Tung,managing partner of GGV Capital,a silicon valley-based AI investor speaking to Tech Crunch in August.Adding:“We value domain knowledge and information on how to best apply technical solutions to solve customer pain points,be it consumers
133、 or enterprises.”Something that survey respondents largely seem to agree with.More than 9 out of 10 respondents felt AI and machine learning is currently best applied to fraud detection(see chart 11,below).Not that the AIs role as a supporting actor should be dismissed.IBM,a technology company,think
134、s financial firms could reduce fraud losses by up to 50%over the next decade.Adyen,a payments firm,estimates that by using AI its Risk Engine service reduces transaction review time by up to a third11.A significant improvement as operational efficiency moves to the top of the boardroom agenda.“Where
135、 AI and machine learning could really come into their own is in helping fintech firms to speed up lending or credit decisioning,”says Gary Prince at The AI wave is about more than hypeAutomated financial services moves up a gearProductivity and efficiency savings in financial services dominate oppor
136、tunities for innovatorsIn this sectionIf the global economy and climate change have provoked some soul-searching or recalibration in the last year,the success of chatGPT has woken the fintech market up to the potential to automate the full stack of financial services operations-everything from custo
137、mer onboarding to lending and transaction monitoring.And in a neat twist,it could also be the defining element of the transition to the next generation of financial services.A perfect circleIf deployed effectively Generative AI has the potential to accelerate operational efficiency savings across fi
138、nancial services and,by enabling the analysis of massive datasets at scale,to support the zero-carbon transition.AI has been one of the few bright spots in an otherwise gloomy year for venture and startup investment.In the first 6 months of 2023,investment in AI firms was over five times higher than
139、 the whole of 2022 says CB Insights,a research firm,and birthed 18 unicorns.Investment growth can be expected to continue.80%of startups in the space are early stage firms,around a quarter of which have yet to raise any funding,adds the report10.If 2023 saw the sunset of fintechs first wave,it also
140、saw the dawn of AI.Advances in technology-particularly generative AI-and exponential increases in data availability will dictate the direction of financial services to 2030.27 Transition:finance|Fintech gears up for a new eraThe Payment Firm,“especially in the SME sector.If you can get that decision
141、 made in real time then you can start to build real value while creating a truly innovative proposition to customers,”he adds.Trillion dollar prizeWhichever way you cut it,the size of the AI in financial services pie is big.Research estimates savings from use of AI by the global financial services i
142、ndustry over the next decade could top$1 trillion12,driven by explosive growth in the number of smart computing devices(which already outnumber humans by three to one)as much by an accelerated need for operational efficiency.Its all very good news for startups building AI models or AI-powered softwa
143、re and cloud infrastructure-the areas that will attract the largest share of investment through 2030(see chart:Heating Up,below).An amount that could top$200 billion by 2025 says Goldman Sachs,an investment bank13.Source:Goldman Sachs,findexableEnterprise users Software Cloud infrastructure services
144、Hardware Model building Running AI queriesSoftware development AI-enabled toolsInfrastructure Data centres to run applications$Chart 8:Heating upInvestment in AI by financial services to 2030 “AI is central to the core business in some companies,and in others it is simply a supporting character.”Han
145、s Tung,GGV Capital$invested28 Transition:finance|Fintech gears up for a new eraThinking inside the boxGlobal uses of AI and deployments in financial servicesKlarnaPersonalised shopping recommendations powered by chatGPTBloombergGPTBuilding large language model for Natural Language Processing tasksGo
146、ogleSecurity AI Workbench-helping B2B cybersecurity firms use AIAlaan,BrexReal-time insights on corporate spending JPMorgan ChaseBuilding proprietary service to automate investment selectionDouugh,OnFinance,PlumFinancial literacy using chatGPT powered chatbots MicrosoftLaunched Security Copilot-AI p
147、owered cybersecurity and response“Once youve built your platform,if youre able tooffer services like those typically executed by a financial or a fund manager,the revenues from your service are correlated to the volume of assets under management,while your cost base can operate at near-zero marginal
148、 cost.”Venture fund,Silicon Valley29 Transition:finance|Fintech gears up for a new era“One of the advantages of AI powered investing isthe ability for investors to make tailored decisionsmuch more easily-and using a wider range of metrics perhaps than is now available as datasets get larger.”Venture
149、 fund,Silicon ValleySleeping giantsWhile opportunities for a giant leap in productivity might be taking up most of the AI oxygen at the moment,one area of financial services where the value chain could be completely transformed is wealth management.Wealth management provision as a segment is still r
150、elatively untouched by technology and dominated by incumbent giants employing large teams of(human)wealth managers despite the success of robo advisors focusing on mass affluent customers like Nutmeg or Wealthify in fintechs first wave.Its also growing rapidly.Growth in wealth(stock of liquid and fi
151、xed assets)was four times the size of global economic output between 2000 and 2020-with up to$100 trillion forecast to be added to the stock of global wealth by 203014.Ready to revolutioniseThe opportunity to revolutionise the wealth management industry has not gone unnoticed by incumbents or entrep
152、reneurs.While the concept of robo advisors is already old news,AI is waking up innovators and incumbents to the potential for AI to dramatically enhance capabilities and personalisation and to automate the entire wealth management value chain.Global banking firm JPMorgan Chase bought UK robo advisor
153、 Nutmeg during the height of the pandemic and announced plans to build a proprietary chatGPT service to automate investment decisions early in 2023.And research by findexable has identified more than 100 tech firms globally with a focus on automating everything from onboarding and KYC to custody and
154、 investment planning.“The reason were interested in wealth management is the opportunity to maintain a flat cost base at scale,”says the founder of a new fintech focused venture fund based in silicon valley.“Once youve built your platform,if youre able to offer services like those typically executed
155、 by a financial or a fund manager,then the revenues from your service are correlated to the volume of assets under management or the value of the task youre performing,while your cost base can operate at near-zero marginal cost.”Unresolved issuesAs with any new or unproven technology delivering on t
156、he potential will require the industry and innovators to wrestle with some thorny issues-from privacy and transparency to data availability and reliability.Potential for unforced bias and lack of transparency in AI models and the datasets theyre accessing are front of mind for the industry(see chart
157、 10,below).Its also caught the attention of regulators.The EUs AI Act is currently being debated in a bid to develop the worlds first AI law while financial regulators like the UKs FCA are expanding their sandbox programme to encourage innovation and identify undetected risks from new technology dep
158、loyment such as a heightened potential risk of asset bubbles.Despite the challenges,the future of AI in finance-turbocharged by ever-increasing availability of data as embedded financial services become the norm-seems assured.“One of the advantages of AI powered investing is the ability for investor
159、s to make tailored decisions much more easily-and using a wider range of metrics perhaps than is now available as datasets get larger,”says the fund manager.“Does it mean AI replaces the index for stock selection?I dont know but neither do I think an increase in AI use automatically means an increas
160、e in asset bubbles,”he adds.The transition to fully automated financial services is just getting started.30 Transition:finance|Fintech gears up for a new eraHow to save a trillionHow AI will save financial services$1 trillion by 2030Department Front office Middle office Back officePotential savings$
161、490 billion$350 billion$200 billion Examples Up to half of total from reductions in branch networks,cybersecurity and distribution staff Applying AI to compliance,KYC,authentication and data processing Underwriting,collections automation Source:AutonomousChart 9:Escalating investment Venture investm
162、ent in AI startups(2022)$52 billionGlobal AI investment (all sectors)$22 billionAI for smart devices$9.5 billion*AI in fintech*202131 Transition:finance|Fintech gears up for a new era PERSONALISATION Trade UpMerchants are using AI and ML to give customers a more personalised experience by offering t
163、ailored product recommendations and targeted promotions to build loyalty.Trade-off?Collection and analysis of customer data raises privacy and data security concerns.CUSTOMER SERVICE Trade UpAI tools for 24 hour customer support are being used by firms to reduce operational costs.Trade-off?May not b
164、e suitable for more complex situations where human empathy is required.Risk off(and on)How AI and ML is being used by payments firms-and what are the trade-offs?Growth in AI and machine learning is having a revolutionary impact on payments-from fraud detection,to customer experience,and optimising p
165、ayment processes.Despite the gains from trading up,though there are some trade-offs to the early-stage technology.FRAUD DETECTION Trade UpTraditional fraud detection systems rely on predefined rules,with AI,the system can learn from historical data and adapt to new fraud patterns as they emerge to a
166、ssess the risk of a transaction based on factors such as location or customer behaviour to identify anomalies and stop fraudulent transactions.Trade-off?Increased risk of false positives where genuine transactions are flagged as fraudulent.PAYMENT OPTIMIZATION Trade UpPayment processors are using AI
167、 and ML to optimize routing decisions,minimize transaction failures,and reduce processing times to save costs and provide a smoother experience.Trade-off?Over reliance on AI for payment processing could lead to system vulnerabilities meaning a cyberattack could disrupt payment services on a massive
168、scale.RISK MANAGEMENT&COMPLIANCE Trade UpAI driven analytics has empowered payment providers to assess credit risk,predicting the likelihood of default and enabling lenders to make faster lending decisions.Trade-off?Algorithms using smaller datasets could lead to undetected bias in decision-making.3
169、2 Transition:finance|Fintech gears up for a new eraChart 10:See-through technologySource:Edgar Dunn&Company,2023Lack of transparency or clarity on decision making processData privacyPotential risks to corporate identity/brand trustAlgorithmic biasReduction in human oversightAbility to assess uncerta
170、intyProgrammatic errors60%77%55%28%54%25%46%Question:What do you think are the risks associated with AI and machine learning adoption?Chart 11:AI:Whats the use case?Source:Edgar Dunn&Company,2023Improve fraud detectionChatbot and virtual assistantDebt collectionPersonalise customer serviceRisk manag
171、ement and complianceAutomate payment processing67%94%65%30%59%44%Question:In your opinion,what are the growing use cases of AI and machine learning in payments?33 Transition:finance|Fintech gears up for a new eraConclusion A time of transitionIf 2023 was a year of cleaning house,caused by a recalibr
172、ation in financial markets and venture capital investment that brought the first wave of fintech to a close,it doesnt mark the end of the fintech story.Or the range of challenges and opportunities that financial innovation still needs to tackle.As interviewees and survey respondents to this years su
173、rvey underline however,while theres no shortage of opportunity,the new market dynamics have raised the stakes.With the era of growth at any costs consigned to history-innovators and institutions need to take a back to basics approach:building businesses with a clear path to profitability and identif
174、ying how technology can improve efficiency and increase productivity.To that end,this years report explores three mutually-reinforcing themes that will direct and inform the development of financial services and innovation to the end of the decade.Collectively they form the defining themes of the tr
175、ansition finance era:Fundamentals support strategyInnovators and institutions need to balance needs for shorter-term financial performance or show a clear path to profitability against the potential for longer-term value creation.For example,while demand for payments will continue to grow,particular
176、ly in emerging regions,competitive pressure on margins means payment providers need to think of payments as a gateway to a broader product set rather than the end in itself.Mission mattersClimate and ESG expectations are increasingly important pull factors for consumers and business customers.And th
177、ey will force financial services organisations to remake themselves in their image.Although climate fintech and progress in embedding ESG metrics into the industry are at an early stage their importance should not be underestimated as better data and analytics and customer demand comes to dictate th
178、e terms of doing business.At the same time,opportunities for innovation-to close gaps in inclusion,access to climate finance or finance the energy transition-mean mission-powered financial services will dominate venture investment in the year ahead.Next tech,nowAI investment was one of the few,perha
179、ps only,investment bright spots of the year.And despite the hype,the potential for wholesale automation of the full stack of financial services moved closer in 2023.But while AI will dominate discussions in the boardroom,it wont be the only show in town in the year ahead.Accelerated digital adoption
180、 and the widening range of technologies and channels that financial services operators need to support means that those firms that can orchestrate,by deploying technology to improve the customer experience,integrate data and analytics to improve product lines or smooth process flows across and throu
181、gh the organisation stand the best chance of winning in the next era of financial innovation.12334 Transition:finance|Fintech gears up for a new eraFootnotes 1 Pulse of Fintech,KPMG 20192 Chart 1:Going the wrong way:Fintech funding 2022-233 Fintech 2022 recap,Dealroom4 IFC 20235 NDC 20236 Womens Wor
182、ld Banking 20237 New Energy Nexus Climate Fintech Report 20218 Theres Nothing Micro About a Billion Women,MIT 20239 Tenacity Climate Fintech Report,June 202310 The generative AI landscape,CB Insights 202311 Adyen CEO on AI for payments,Venture Beat12 AI and the banking industry,The Financial Brand 2
183、02313 AI investment forecast to reach$200 billion globally14 The$100trn prize,The Economist,August 202335 Transition:finance|Fintech gears up for a new eraEdgar,Dunn&Company(EDC)is an independent global financial services and payments consultancy.Founded in 1978,the firm is widely regarded as a trus
184、ted advisor to its clients,providing a full range of strategy consulting services,expertise,market insights,and M&A support.From offices in Frankfurt,Dubai,London,Paris,San Francisco and Sydney,EDC delivers actionable strategies,measurable results and a unique global perspective for clients in more
185、than 45 countries on six Findexable produces the worlds first real-time fintech index providing insight on fintech activity globally through real-time data gathering and proprietary algorithms to track,rank and benchmark fintech companies in 250+cities across 80 countries.To find out more about our
186、research and what we ContactSimon HContact Samee ZafarDTue ToHead of Advanced Payments and Fintech for North AResearch methodology This paper was developed by Edgar,Dunn&Company and Findexable using a combination of desk research,in-market experience and conversations with global fintech companies.S
187、urvey responses were collected between May and July 2023.IntervieweesFounding partner Venture fund,United StatesGary Prince Chief Executive Officer The Payment Firm,United KingdomIana Dimitrova Chief Executive Officer OpenPayd,United KingdomMary-Ellen Iskenderian President and Chief Executive Office
188、r,Womens World Banking,United StatesNikoletta Kovacs Leader,Retail Banking Sustainability Strategy Raiffeisen Bank International,AustriaRose Goslinga Co-founder and President Pula,KenyaTransition:finance|Fintech gears up for a new eraEdgar,Dunn&CompanyMergers&Acquisitions AdvisoryEdgar,Dunn and Company provides comprehensive support for merger and acquisition deals in the payments and digital financial services space including Buyside support (target selection,bid strategy)Sell-side support Due diligence Valuation Information MemorandumsLearn more at