While the economic landscape in 2023 remained challenging, 2024 will bring some of its own set of challenges and defining developments. Below, find some of our fintech predictions and key themes as we embark on this new year.

Consolidation and Partnering
Already a theme of 2023, we expect to see even more of this with established fintechs consolidating their position in the market and hitting their growth targets by being acquisitive; capitalising on opportunities in terms of their client base, data and product offerings.

Essentially, the big players will look to become bigger. We also expect the number of fintech-bank partnerships to increase.

Embedded Finance
Embedded finance and growth in untapped verticals. In other words, embedded finance is not just for shopping. It is, and can be, much broader than B2C BNPL solutions.

One reason for this is that the most successful fintech products solve problems and reduce friction, so the opportunities are not limited to a single sector or vertical. Embedded finance also gives firms the ability to cross sell products in other verticals if firms can establish a strong customer base or already have an existing loyal customer base, for example Apple and Amazon.

The application of embedded finance in e-commerce was a starting point since the customer journey was already online. This is not the case in other industries.

And, even if it may not be true to say that all companies are or will be fintechs, most or, more cautiously, many, businesses are now or need to be online businesses in some shape or form.

As such, we expect an increase in B2B BNPL which is generally considered less saturated than its B2C counterpart.

Payments
With the strong likelihood of a general election this year and the possibility of a change in government, fintech firms may find the announced repeal of the Payment Services Regulations 2017 and the implementation of the ‘Smarter Regulatory Framework’ loses momentum, leaving the future of UK payments regulation and the associated operational expectations somewhat uncertain.

This uncertainty may be further complicated by the ongoing development of PSD3 within the EU (which is expected to continue in 2024), bringing a greater contrast in regulatory requirements for those entities that operate in both the UK and Europe.

Firms may, therefore, find they need to develop distinct operational regimes in the interim to comply with distinct expectations under the two regulatory sources.

Firms that understand the scope and impact of the proposed changes on their business model from an early stage and begin projects to implement any required changes promptly will be at a significant advantage.

Tokenisation
Is 2024 set to be the year of tokenisation? The benefits to be unlocked in harnessing the power of blockchain technology and the tokenisation of real-world assets are well established now, and projects are moving beyond the proof-of-concept stage.

For example, late last year, the UK Investment Association published a report outlining a baseline model that establishes the infrastructure for fund tokenisation in the UK.

However, competition from other jurisdictions remains strong. From a Scottish perspective, the work continues in terms of examining the flexibility of Scots law when it comes to digital assets.

In December 2023, a team from the University of Aberdeen’s Centre for Commercial Law received an RSE Research Workshop grant for a year long project called ‘Digital Assets in Scots Private Law: Innovating for the Future’.

AI
“We have to make this an AI first firm” – David Hudson, co-head of digital and platform services at JP
Morgan’s Corporate and Investment Bank.

Artificial Intelligence will continue to be the hot topic. From a fintech perspective, we expect the focus will be on using AI as part of firms’ back-office and other administrative functions. Considering the challenging economic climate and cost of borrowing, reducing operational costs and streamlining and automating processes will be at the top of the agenda for firms.

Scotland
Looking closer to home in Scotland, the fintech sector goes from strength to strength with recent FinTech Scotland figures showing a 24% rise in the number of jobs in Scotland’s fintech sector in the last two years.

As Scotland continues to increase its reputation in the global fintech market, Scotland’s world leading universities will continue to attract talent to these shores which we expect will give rise to more opportunities within the sector, both in terms of budding entrepreneurs looking to startup their own ‘next generation’ fintechs and in talented individuals being placed in larger organisations in the sector with the ambition of becoming the next fintech executives.

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Looking to industry trends more generally, as mentioned above, we anticipate industry heavyweights such as banks and other financial institutions will continue to look for partnerships or collaborations this year with younger, nimbler fintech businesses.

These partnerships and collaborations, along with a healthy investor appetite in Scotland’s angel and venture capital community and the UK generally (noting the UK retained second place for global fintech funding in 2023 despite an overall downturn), will continue to create opportunities for new startups and other businesses looking to accelerate their growth.

There is, however, a possibility that the uncertain political environment, with general elections in Westminster and the US and a Holyrood election not far behind, will lead to stagnated investment and M&A activity. That being said, for now, we remain optimistic that Scotland’s fintech sector is in for a very active and highly successful 2024!