Markel's Rugg exposes challenges and opportunities for fintech in 2025

How will regulatory bodies react?

Markel's Rugg exposes challenges and opportunities for fintech in 2025

Technology

By Josh Recamara

As fintech companies prepare for 2025, they face a dynamic risk landscape shaped by economic conditions, regulatory changes and technological advancements. Nick Rugg (pictured), head of fintech and investment management insurance at Markel, provides an overview of the challenges and opportunities ahead.

Economic trends and investment outlook

According to Rugg, fintech investment experienced a slowdown in 2024 due to high capital costs, but the UK maintained its leadership in Europe, accounting for 65% of all deals in the first half of the year.

“Over the past 12-18 months, we’ve seen investors scrutinising the business plans of fintech companies and prioritising profit and sustainability over growth. This has led to fintech companies focusing on core revenue products in core markets as well as controlling costs,” Rugg explained.

He pointed to increased political stability following elections in the UK and the US, where Donald Trump will return to the presidency in January 2025, as a potential driver of investor confidence. Combined with expected interest rate cuts, these factors could create a more favourable environment for fintech investment.

Tackling fraud with the APP Reimbursement Scheme

The introduction of the Authorised Push Payment (APP) Reimbursement Scheme in October last year marks a significant development for payment service providers (PSPs). The scheme aims to address fraud, with figures from the Payment System Regulator showing £459.7 million lost to APP scams in 2023.

“PSPs will now be making significant changes to their fraud prevention systems as well as to their operating models to ensure that they are now complying with the new requirements. Investment in technology and educating their customers about this type of fraud will be key in the defence of this type of fraud,” Rugg stated.

The role and risks of AI

Rugg highlighted the growing role of artificial intelligence (AI) in the fintech sector. While AI offers operational efficiencies and enhanced fraud protection, its adoption also presents risks, including regulatory uncertainty, data privacy issues, and potential biases.

“The UK has so far adopted a light touch approach to regulating AI, which could potentially lead to compliance issues for adopters of AI down the line when there is a change in this approach to a more formalised regulatory oversight framework,” Rugg noted.

He contrasted this with the European Union’s AI Act, effective from August 2024, which provides a risk-based regulatory framework to promote safe and trustworthy AI while addressing its potential risks.

Rugg also warned of increasing criminal use of AI, such as deepfake technology, and urged companies to invest in awareness and mitigation strategies to address these threats.

Strengthening IT systems under DORA

The Digital Operational Resilience Act (DORA), which took effect this month, will require fintech companies within its scope to enhance IT security. Rugg explained that compliance will involve implementing robust governance, incident management processes, regulatory technology testing and managing third-party risks.

As fintech companies navigate 2025, Rugg emphasised the dual impact of regulatory changes and technological advancements. He pointed to ongoing scrutiny in areas such as Buy Now Pay Later and cryptocurrency regulations, advising firms to stay prepared for compliance to avoid sanctions.

“Regulatory scrutiny on the fintech sector will continue,” he said, highlighting the need for vigilance and adaptation in an evolving environment.

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