The FinTech Year in Stories: August

By Louis Thompsett

December 31, 2024

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We look at the articles that made the news in fintech in 2024. Today, it is August…

Moody’s: Fintech Industry Set for Costly Encryption Overhaul

The fintech industry is facing a significant challenge as the threat of quantum computing looms on the horizon, potentially rendering current encryption methods obsolete.

A recent report from Moody's Ratings highlights the urgent need for a transition to Post-Quantum Cryptography (PQC), a process that promises to be both lengthy and expensive.

The US National Institute of Standards and Technology (NIST) has recently unveiled finalised data encryption standards designed to withstand the power of quantum computers.

These new standards are crucial for protecting intellectual property and classified government documents from the exponentially faster calculations made possible by quantum mechanics.

Quantum computing: Positive advancements but a costly reality

While quantum advancements are set to revolutionise computing, with McKinsey estimating gains of up to US$1.3tn in value through 2035 for just four of the earliest affected industries, they also pose a significant threat to current encryption techniques.

The crux of the issue lies in the vulnerability of asymmetric encryption, also known as public-key cryptography, which has been a computing standard since the 1970s. This form of encryption is widely used in instant messaging, emails, file transfers, credit card point-of-sale systems and device communication through the Internet of Things.

“Quantum computing's threat to asymmetric encryption is currently mitigated by challenges in error correction, scalability, talent shortages and limited computing power,” the report states.

However, experts believe that quantum computers will be able to break asymmetric encryption within five to 30 years.

The potential consequences of this breakthrough are far-reaching. The US International Trade Administration projects that global e-commerce will grow to US$41.7tn a year by 2027.

If trust in online transactions is compromised, these flows would be at risk. Moreover, air traffic systems and GPS signals could be manipulated, potentially endangering lives.

Deloitte: Credit Surge Reshaping Corporate Lending Landscape

The marked rise of private credit in the United States has fundamentally altered the corporate lending ecosystem, challenging traditional banks and offering new opportunities for fintech players.

A recent Deloitte report highlights this seismic shift, revealing that nonbank lending to corporates has outpaced bank lending since 2002, with the gap widening significantly in recent years.

Nonbank lending witnessing significant growth

The report indicates that bank lending as a proportion of all corporate borrowing plummeted from 44% in 2020 to a mere 35% in 2023, while nonbank lending experienced tremendous growth.

This trend has been particularly pronounced in the realm of private credit, which has evolved from niche strategies like distressed debt to become a dominant force in direct lending.

Per the report, private credit has reached a staggering US$1.6tn globally in assets under management in 2023, rivalling the US$1.4tn US leveraged loan market and the US$1.3tn US high-yield market.

Even more remarkably, BlackRock projects the private credit market to balloon to US$3.5tn globally by 2028, potentially surpassing the combined value of today's US leveraged loan and high-yield markets.

The impact of this shift is perhaps most evident in the leveraged buyout market.

Since 2020, private credit has financed more leveraged buyouts than the syndicated loan market, traditionally a multibillion-dollar revenue stream for large banks.

This displacement represents a significant loss of potential revenue for banks, as they typically collect a 1% fee for syndicating debt.

As private credit firms increasingly collaborate, they are poised to finance ever-larger deals. A notable example is Thoma Bravo's 2021 US$6.6bn takeover of Stamps.com, backed by Ares Management Corporation, Blackstone and PSP Investments.