The last 24 months were turbulent for the financial industry to say the least. After initially believing inflation was transitory, the Federal Reserve did a complete 180 and increased interest rates at the fastest pace in decades. Combined with international supply chains disrupted by a pandemic and wars in Europe and the Middle East, the whiplash was catastrophic for many banks and consumers. 

Needless to say, I’m walking a tightrope by making any predictions about tomorrow, yet alone the entirety of 2024. But given our vantage point working with the most forward-thinking leaders in fintech, we have unique insight into trends and challenges ahead.

The overarching theme I’m seeing is a relentless strategy to become what I call “All Weather Fintech.” Many fintechs developed business models under the presumption of a persistent zero interest rate policy (ZIRP) environment. Now they need to diversify revenues aggressively in order to thrive in any environment. To that end, here are my 5 predictions for 2024:

Prediction #1: LTV takes primacy over user growth

Under ZIRP, it was trivial to keep raising or borrowing capital. A grow-at-all-cost strategy made sense, since there were virtually no costs! But the market became  oversaturated (there are over 10K fintech startups in the US alone) with point solutions. As  the flow of funding slowed down, Customer Acquisition Costs (CAC) became  the  primary way to assess the viability of a business. 

In 2024, the best performing fintechs will prioritize customer lifetime value over new signups. Of course, nurturing and then commercializing loyalty is a strategy right out of the playbook of the largest financial services institutions (which, unsurprisingly, in hindsight, became noticeably larger during the banking crises of the past 2 years). 

Prioritizing LTV will likely mean churning unprofitable customers and coming to terms with the rate of conversion on lapsed users. Unit economics will take precedence over top-line growth metrics. We’ll soon see a lot more controversial decisions, like  Brex exiting the SMB market. Fintechs will also zero in on the highest potential segments of their customer base for which they’ll develop new solutions. That brings me to my second prediction.

Prediction #2: Vertical solutions will flourish

Having spent years investing in the industry across  R&D and go-to-market initiatives, the strongest product and marketing teams will narrow their focus and conduct thorough analyses. Investment  in R&D will go from being a transactional, point solution for diverse audiences  to a suite of solutions tailored for a specific audience. The cost of capital is too high, and fintechs need to act quickly to reduce risk, increase efficiency, and ultimately achieve differentiation.

I predict that we’re about to witness the emergence of a new cohort of exciting vertical solutions. Fintechs will reinvent themselves around target audiences, using partners and embedded software like april to deliver a cohesive experience across numerous financial needs. Whether it’s SMB, gig workers, families, or students, we’ll see fintechs that develop one-stop-shops for banking, payments, credit, investing, accounting, and tax specifically for their target audiences.

The key to facilitating the transition is my third prediction.

Prediction #3: Self-driving comes to fintech

Many fintech platforms already offer an increasing array of financial services, from mortgages to car loans, but they’re frequently hidden behind submenus.  If they’re even available digitally at all, you have to know where to find them.

In order to effectively deliver on vertical solutions, it’s absolutely critical to intelligently guide the consumer through the experience in a connected manner. Fintechs will develop 360º profiles of customers and leverage AI to suggest “next best” actions. We’re already seeing fintechs like payroll provider, Gusto, introduce smarter tax withholdings based on an employee’s unique situation.

In 2024, we’ll see innovations like this at scale. Fintechs will recommend 529 savings plans when customers have kids, car loans when families move from the city to the suburbs, and mortgage refinancing when rates drop.

If all of this sounds like automated budgeting, investing, and financial management, that’s because it is! Self-driving money explains why there won’t be another budgeting app like Mint, which is my next prediction.

Prediction #4: The race to personalized financial management is on

Intuit recently announced,  nearly 15 years after acquiring it, they’d be sunsetting Mint and migrating customers to their spending management product, Credit Karma. This decision acknowledges the reality that most people don’t want to do budgeting or financial management as a standalone activity in the future.

Rather, self-driving finance means that personalized financial management (PFM) will happen in the background across apps and activities. As Alex Johnson wrote in Fintech Takes: “PFM is about meeting consumers where they are and delivering them the best possible financial outcomes.”

That’s why I predict, despite many fintechs aspiring to power PFM for their customers, there will not be another budgeting app like Mint. Instead, in 2024 we’ll see PFM activities democratized across other functions and features within a fintech’s digital services (e.g. consumer credit cards with category-specific spending thresholds).

While AI will be the key to empowering such services and facilitating revenue growth for fintechs, the underlying breakthroughs in AI will also be the key to reducing expenses. That leads us to my fifth and final prediction.

Prediction #5: AI powers sustainable fintech

One of the central hypotheses for fintechs in the last decade was that being digital-first would disrupt the legacy brick-and-mortar incumbents. The thinking was that all banking services could be provided via digital channels and that in-person services were a costly relic of the past. 

However I predict that the circumstances for digital-first finance are about to improve dramatically thanks to large language models. Even in traditional retail banks, it’s not uncommon to have to escalate even seemingly basic issues multiple times to get a resolution. Fintechs and traditional providers will deploy AI-powered customer service trained on comprehensive datasets, which will outperform legacy models with data scattered across systems from decades of mergers. 

More importantly, AI will lead to significant cost reductions and efficiencies which will enable fintechs to invest more in other areas and grow faster.

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Those are my predictions for fintechs in 2024. Whether I’m right or wrong, I’m optimistic about what the future holds and am excited to see how the industry evolves and matures in the coming months.