Navigating the Evolving Fintech Landscape in 2024

After years defined by explosive growth and disruption, the business environment for fintechs is shifting. Fintechs and financial institutions alike will need to chart a strategic course to navigate these headwinds. To succeed this year, firms must understand and adapt to the key trends that will reshape their markets. Looking ahead, three trends stand out that will define the 2024 trajectory of fintech:

1. Consolidation on the Horizon for Fintechs, Neobanks, and Credit Unions

The first major trend is continued, and possibly even increased, consolidation among fintech startups and neobanks. Prior to 2022, these emerging players proliferated rapidly as venture capital was easily accessible. But times have changed. With interest rates still high and global startup venture funding at its lowest rates in five years, growth is grinding to a halt for many smaller fintechs. The average consumer is inundated with a wallet full of different bank accounts’ debit and credit cards. In fact, Mercator Advisory Group reports the average U.S. customer already has 5.3 accounts, leaving little room for further fintech customer acquisition. 

With capital runways running short, and as profits remain elusive for many fintechs and neobanks, consolidation appears imminent, and is also predicted by some industry experts in the coming year. Even credit unions face the prospect of consolidation. Many have found they are stronger together than as individual entities: in fact, there were over 75 credit union merger and acquisition transactions in 2023, with this trend continuing in 2024 as the environment continues to be challenging.

2. Downward Pressure on Interchange Fees Will Be Driven by Competition

Another defining trend will be intensifying downward pressure on the interchange fees charged by incumbent payment networks. In the past, regulation / government intervention drove this dynamic; however, in 2024, competition poses a bigger threat. Disruptive new payment technologies are emerging that circumvent the major “payment rails” altogether. Retailers are looking to disintermediate the existing payment rails to reduce their costs, and many banks are developing their own payment systems and working directly with retailers to build these out. One good example of this is Chase’s Pay-By-Bank. As alternatives proliferate, the dominant payment networks will face serious challenges to their business models.

3. Retention and Loyalty Ascend Amid Flight to Big Banks

Finally, the consumer flight to safety and security at top tier national banks will continue. After the high-profile bank collapses of 2023, consumers flocked to the stability they felt they could get from large, trusted financial institutions. If the economy takes a negative turn this year, customers might still consider switching banks to derive as much value from their banking relationship as possible. As a result, customer retention will gain more prominence in 2024 across financial institutions of all sizes. 

To drive retention and combat churn, banks will be pressed to strengthen their account holders’ loyalty through compelling incentives such as rewards programs, convenience-enhancing features, lower fees, and superior customer service. Keeping customers happy and ensuring they are not looking around for a new bank will require a relentless focus by financial institutions on driving loyalty.

Charting the Course Ahead

While the unknowns in the year ahead will bring risks, the fintech industry is used to disruption. The persistent uncertain economic environment will force firms to continue adjusting strategies in 2024 to address consolidation, payment infrastructure, and customer retention and loyalty. Though the landscape is shifting, it also presents opportunities to companies with the vision and agility to keep moving forward.