2022 was a rollercoaster for the fintech industry. Macroeconomic upheavals, intensifying competition, and regulatory headwinds contributed to the great fintech reset. However, with advances in technology innovation, increasing digital adoption, and improving public infrastructure, the industry overcame hurdles and emerged stronger. Swimming against the tide with turnaround strategies and course corrections, fintech businesses collaborated, consolidated, and diversified to enable sustainable and accessible financial solutions without compromising on people, compliance, and growth.
Now, the future of fintech is bright. Blurring boundaries and transforming the way people transact, fintech has been a beacon of hope to many. People across all walks of life and in remote corners without access to fancy smartphones and devices have been able to access digital banking and financial services just by using biometrics and other fintech-led payments. Fintech companies have played a phenomenal role in facilitating this financial inclusion without greater emphasis on security, speed, or convenience.
Valued at around $132 billion in 2022, the fintech industry is estimated to grow at 25% CAGR to reach $324 billion in 2027. The ability to improve accessibility, drive inclusion, enhance customer experience, and reduce costs are key drivers behind the growth projection. Core Banking, Digital Lending, Buy Now Pay Later (BNPL), Unified Payments Interface (UPI), Credit Cards, and other Cashless Payment modes dominated markets, while Blockchain emerged resilient with RBI adopting the technology for CBDC. Collaborations, consolidations, and platformizations last year set a great tone for 2023.
Trends we can expect in 2023
Consistent customer-centric innovations, partnerships between banks and fintechs, regulatory interventions, and better accessibility – all point towards a promising future for fintech.
Here are a few trends we can expect to see in 2023.
1 Embedded Finance
Embedded finance will see exponential growth in 2023 with emerging models that will help businesses thrive. Valued at over 7 trillion-dollar, embedded finance enables smooth integration of financial services into non-financial platforms or applications. Subsets of embedded finance viz., embedded credit, embedded payments, embedded insurance, and embedded banking will majorly benefit SMEs, MSMEs, and other app-based businesses by helping them scale product offerings and customer lifetime value while monetizing their customer base. As the embedded finance space grows, businesses will have the leeway to lower expenses, increase revenue streams, and innovate to deliver personalized, customer-centric products and services, while fintechs handle the heavy lifting on technology, compliance, and delivery.
2 Sustainable Fintech
As the world heads towards net-zero and decarbonization by 2030, fintechs need to take sustainability seriously. In 2023, financial health, sustainable practices, and environmental well-being will be deeply interconnected. A recent Eurogroup survey shows us that 67% of consumers demand sustainability engagement from their bank. And according to a study by Cornerstone Advisors, 70% of Gen-Z and Millennial consumers wanted to track their carbon footprint. Customers are eager to understand how their spending habits affect climate change and if their financial service provider invests in businesses that harm the environment. Being transparent with sustainability practices, incentivizing sustainable engagement, and introducing metrics to track climate impact, could be starting steps to transform businesses into green powerhouses.
3 Alternative Financing
There was a time when traditional financial players dominated the lending industry. But those times are changing now. Secure alternative financing options from non-banking fintech companies are emerging rapidly. In fact, the alternative financing industry is valued at $6.62 billion and is expected to grow at 20% in 2023. The lending industry is democratized with co-lending business models to serve versatile customers, SMEs, MSMEs, and businesses across size and scale. With more core lending players entering the game, evolving regulatory frameworks, and a vast consumer base in need and with access to equitable financial instruments, the alternative financing market is ripe for the taking.
4 Super Apps
2023 will the year for super apps. It will be the swiss army knife for businesses as it consolidates multiple applications and eliminates the need for customers and employees to toggle between disparate applications. Just one super app will be able to provide enhanced mobile-first experiences across an aggregated range of services for the growing digital-native generation. Gartner predicts that by 2027, more than 50% of the global population will be active users of super apps. So, it’s high time financial businesses leverage the first-mover advantage and develop super apps that fuses the beneficial attributes of an app, platform and digital ecosystem.
5 Artificial Intelligence (AI)
High on data and customer experience, fintech industry will rely heavily on AI for analytics, decision-making, and customer support. Facilitating seamless onboarding, compliance, product customizations, and payments, AI will be the game changer that reduces overhead cost and operational risk along with improving security, and sorting legacy issues. Valued at $9.4 bn, AI in fintech holds a 16.5% growth potential. And Machine Learning (ML)-based models have been adopted by companies in the financial space to ace real-time target marketing and risk management.
But here’s the billion-dollar question. Will AI ever replace humans in fintech?
We don’t think so. Complement yes. But not replace.
6 Contactless Payments
The pandemic made contactless payments and shopping the new norm. And there’s no turning back from there. Offering immense speed, security, hygiene, and convenience, technologies like NFC, RFID, and QR codes have simplified checkouts and have taken the payments industry by storm. Valued at $2.2 bn, the contactless payments market is expected to grow at 20% CAGR to reach $12 bn by 2030. As research firms predict exponential growth in wearables, smart devices and contactless cards, fintechs must keep up with the demand for contactless payments.
The future of blockchain is solid despite setbacks like the crypto crash. Its inherent strength in security, transparency, speed, cost efficiency, and efficient storage will play out as Web3 and CBDC adoption increases. Blockchain-based data sharing, smart contracts, payment tracking, peer-to-peer lending, encryptions, decentralized architectures and ecosystems, and cybersecurity will be key emerging trends in 2023. The fintech blockchain market size is expected to hit $6.2 mn by the end of 2023. So, it’s high time fintechs give blockchain some mindspace.
Sparking some of the hottest tech discussions, metaverse shook the world with its decentralized, community-owned, virtual utopia. Though in the early developmental stages, metaverse is considered to be the next big evolution in the world of fintech, with the potential to transform how people work, shop, live, and transact. According to a recent Goldman Sachs research, metaverse could give rise to a $12 trillion virtual economy with intense activity around cross-border payments, financial assets creation, safekeeping and trading. Leveraging Virtual Reality (VR) and Augmented Reality (AR), this virtual phenomenon enables fun and personalized banking and transactions. But the flipside of metaverse is the security concerns that may arise, which if addressed will hold massive promises for the fintech industry.
With this we conclude our fintech trends for 2023. While it is challenging to predict exactly how fintech will unfold, we can say with reasonable certainty that 2023 will be an interesting one for the industry, India, and the world.
What do you think of these trends? Let us know in the comments!
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