Could Fintech Investments Offer Added Value Following Wall Street’s Recent Struggles?

As much as 91% of fintech leaders believe that investments into the sector will grow into 2025, according to a recent Silverflow survey conducted at the Money 20/20 Europe show in Amsterdam. Could this renewed confidence suggest that fintech will become a low-risk bet on Wall Street following a challenging start to Q3 2024?

Fears over a prospective US economic slowdown saw the Dow Jones tumble more than 1,000 points as a selling spree hit global markets.

While Wall Street’s recent volatility has seen more speculative industries like generative AI draw investor uncertainty, as illustrated by Nvidia’s (NASDAQ:NVDA) 20% decline between July and the first week of August, investors may find more sustainable opportunities within the fintech landscape, which has offered steady growth prospects throughout the industry.

The global fintech market value is expected to grow from a value of $248.21 billion in 2022 to $792.5 billion by 2032, offering exponential growth in an industry that’s already reached its implementation phase.

While the industry has experienced some challenges in raising capital in 2024, investor sentiment is expected to improve as Wall Street anticipates further interest rate cuts on the horizon from the Federal Reserve.

Recapturing Investor Confidence

The fintech landscape has been far from calm in the wake of the pandemic, despite the sector experiencing strong growth amid mounting economic challenges.

Between 2021 and 2023, fintech funding dropped 71%, representing a major slump for the industry to overcome. However, data suggests that in spite of funding shortfalls, fintech income rose 14% over the same period.

An industry that can secure a steady income even as financing declines at a significant rate is a strong display of strength and indicates great potential for the industry should funding make its return in the coming months.

According to a Radobank survey conducted at Money20/20, 26% of industry leaders believe that the biggest impact on the fintech market at the moment is consolidation. Meanwhile, 17% suggest that access to funding is the leading influence on markets, ahead of AI and interest rates, both of which 13% of respondents suggest are the biggest influences.

These factors can pave the way for clear skies and growth in 2025, with investors seeking to embrace a sector that’s showing strong fundamentals even as wider markets are weakening.

With this in mind, many fintech firms are now seeking to maximize profitability in the face of weakening funding levels. The implementation of scalable cost structures to boost EBITDA margins will help to deliver a more attractive market for investors to buy into while the generative AI boom continues to work on achieving implementation beyond the initial Wall Street hype.

Working Alongside Generative AI

Although the generative AI boom has undoubtedly stolen investor interest away from the fintech landscape, the technology is also actively helping to grow the capabilities of fintech stocks.

For genAI solutions in fintech, we’re seeing more firms gain the ability towards delivering more focused customer support, rapid coding design, and new digital marketing capabilities to expand the industry.

We will also see generative AI pave the way for better product innovation throughout fintech, helping to improve profitability within fintech by as much as 25% while helping to pave the way for stronger risk and compliance among startups.

This intelligent technology can help fintech integrate more naturally with other industries like retail. The development of AI solutions means that near-field communication (NFC) payments can be made using a number of alternative payment methods, like contactless and cryptocurrency capabilities.

In the future, NFC payments can be guided through AI-driven open finance programs that automatically use user behavior and analytics to suggest the cheapest, fastest payment option for faster payments.

Financial Wellbeing to Drive Innovation

The fintech sector will also see growth stemming from the emergence of financial wellbeing. By adopting a more holistic approach to financial overviews, users will be able to access unbiased advice based on their spending patterns and perceived risk appetite.

This can help to build financial inclusivity when it comes to investing while also helping to offer a level of healthcare by attempting to remove the worry from personal finances for millions of open banking users.

With a recent University College London (UCL) study suggesting that financial stress is the most detrimental to biological health, we can see fintech growth drives fresh resonance throughout different sectors and offers a more positive wellness experience for users.

Could Fintech Have a Generative AI Rally?

The hype surrounding the future growth of fintech isn’t the same in scale as the generative AI boom that’s captivated Wall Street for the past 18 months. However, this isn’t to say that fintech investing can’t offer a more sustainable long-term proposition in comparison to the more unpredictable future of generative AI.

We’re likely to see the implementation phase of generative AI deliver new opportunities in the world of fintech, making the two technological innovations complementary to one another. With this in mind, it could certainly be worth building exposure to fintech stocks in Q3 2024.

With profitability soaring at a time when funding has been lagging, the return of investor interest in the sector could see a series of market rallies, making fintech a market that’s full of opportunity on Wall Street.