What’s in store for fintech in 2023?
To paraphrase Niels Bohr, the father of the atomic model: ‘predictions are hard, especially when they are about the future’. That’s certainly true, but then again in the (paraphrased) words of another historical figure, Theodore Roosevelt: ‘nothing is worth doing if not difficult.’ With this in mind, I thought I would look at what the next twelve months might have on offer for the fintech sector and the companies operating in it.
Whether it’s the growth of hyper-personalization, or sustained macro-environment pressures, it looks set to be a busy year for our ever-evolving industry. While the sector is still working to overcome some of the difficulties it faced throughout 2022, it seems 2023 will thankfully be filled with as many opportunities as challenges. That’s why it’s so important for companies involved in the space to be ready to take advantage of what’s on the horizon.
So, without further ado, here are my seven top predictions for 2023:
Banking API technology infrastructure will drive down costs to entry even further
There’s been a significant unbundling of financial services in the past few years, as innovative fintech businesses disrupted the status quo of traditional financial institutions. This shift has brought about a lot of benefits, but has also created a fragmented development landscape, which often requires businesses to integrate and manage a high-volume of third-party technologies, which all ultimately feed into a single product.
That’s why we’re starting to see growing demand for bundled service providers, who can bring numerous services under one roof in a more convenient manner. These providers are doing this in part because of greater access to banking API technology. In many cases, these bundled services are incredibly cost-effective, and thus helping to drive down the costs to entry for businesses within fintech and beyond.
The demand for hyper-personalisation will be the driving force behind the next gen of neo-banks
The rise of neobanks has been clear for all to see across the past decade, but now as this market enters a new stage of maturation, we’re beginning to see some interesting developments, which could affect the future direction of travel for the industry. Simply put, it’s no longer enough to just be a neobank to find success. Newcomers to the market must now compete with stalwarts like Revolut, Monzo and Starling Bank, which have already amassed significant market caps and won’t be easy to replace.
However, I predict that new neobanks will see success by prioritizing hyper-personalized solutions, which solve niche, but long-standing issues across a wide-range of markets. Whether that’s a neobank designed specifically for students, or a one that’s more acutely aligned with the needs of small-to-medium sized businesses, there’s clear scope for success as long as these companies look to solve very specific obstacles.
All fintechs will become global by default
Globalization is bringing the world closer together, and having a massive impact on businesses in the process. While certain fields associated with fintech, such as eCommerce have felt the effects of this already, fintech itself is still catching up. I believe all that will change in 2023 as new technologies help all fintechs to become global by default. The technology is already there to support this shift, it just needs a push.
Finance will become more embedded
A few years ago, businesses and consumers were clearly excited about the idea of working with multiple, specialized vendors across projects. However, many hadn’t factored in that this switch would require a trade-off with convenience. That’s why we’re beginning to see a new push towards standalone solutions that can handle all aspects of a task in a quick and efficient manner, which will become more prominent in 2023.
One of the best ways to achieve this is to embed financial capabilities within traditionally non-financial environments, also known as embedded finance. This new wave of embedded finance solutions has been brewing for some time, but now appears set for a huge breakout. This trend brings advantages for businesses across several sectors and could soon help to streamline the process for startups of adding financial products to their services.
Risk and compliance will remain a challenge for all fintechs
Over the past decade, there’s a case to be made that innovation has outpaced regulation in the fintech sector. Thankfully, the industry has long been considered responsible enough to handle this situation effectively, but several recent high-profile stories have changed that perception. Across different aspects of the industry there’s now strong expectation that 2023 will be the year the regulators finally hit back and introduce new rules and regulations.
This in of itself shouldn’t be a problem for the responsible fintech companies that make up most of our sector. However, it will require these businesses to continue putting a strong emphasis on risk and compliancy. The good news is that this shift could help to weed out businesses who feel it’s acceptable to act in a careless manner, and if handled correctly should help to better protect customers against unscrupulous providers.
Open banking will begin to challenge the card schemes
Open banking has been one of the big financial innovations of the past decade, but in many ways, we’re only now beginning to see its true impact across the business landscape. As we enter 2023, new open banking solutions are coming to the fore that offer considerable real-world benefits over cards schemes. There’s still work to be done to ensure the technology is as accessible and efficient as it can be, but things are certainly heading in the right direction.
Macro-environment pressures will increase innovation and even might generate new revenue streams
After years of strong growth, the fintech sector experienced a small, but noticeable slowdown in 2022. Of course, last year was difficult for many sectors, with an array of macro-environment pressures offering challenges to business. It’s unlikely that many of these issues will be resolved in the next twelve months, but it’s clear that businesses in our sector are now far better equipped to overcome any of the problems they might cause.
Within this relative downturn, fintech businesses are being forced to return to core business fundamentals, and increasingly being required to think outside of the box to create new streams of revenue. Again, if managed correctly, these shifts could help the sector to become more resolute in the long-term and foster the creation of more innovative solutions that improve outcomes for users and generate money for investors.