Key Trends Shaping the Future of Fintech

The fintech industry is constantly evolving and improving, and this trend is set to continue in 2023.

The banking industry has recently witnessed a huge surge in the adoption of fintech solutions as users are becoming more tech-savvy. There are several tech trends that are poised to shape the fintech landscape in 2023, including artificial intelligence, embedded finance, open banking, SaaS services, IoT and blockchain.

In this article, we will take a look at the six top trends that will define the future of the fintech industry in 2023 and beyond.

Recent trends in the fintech industry

During Q2 of 2022, fintech funding experienced a significant decline, dropping 39% from its high in Q4 2021 and marking the lowest in the past five quarters. Nevertheless, fintech still remains the most heavily invested industry globally. In the United States, about 90% of people now use fintech services, as digital financial processes have become more customer-focused due to global quarantines and lockdowns. This has spurred fintech companies to develop cutting-edge technologies to provide the expected level of services and maintain high satisfaction rates.

Artificial Intelligence and Machine Learning

More than 90% of international fintech businesses heavily rely on artificial intelligence (AI) and machine learning. These technologies allow financial institutions to gather and analyse data on customers’ cash accounts, credit accounts, and investments. AI enables them to monitor their client’s financial health and provide them with more relevant and personalised services.  Companies can enhance their smart banking services with cognitive automation, data analysis, and insight capabilities. In addition, AI can interact with clients directly via chatbots and self-learning apps.

Embedded Finance

Embedded finance is a rising trend in the fintech industry and is expected to become the dominant trend in 2023.

Embedded finance refers to financial services and products that can be used within a specific platform or framework, enabling users to conveniently manage their finances without the need to switch between multiple apps or websites.

This trend simplifies financial processes for consumers, as they can make purchases and get credit in one place. Well-known examples of embedded finance include Amazon’s Klarna and Afterpay options.

According to experts, the market for embedded financial services will increase by 40.4% annually in the coming years.

SaaS

SaaS (software as a service) is anticipated to be a hot trend in 2023. The SaaS sector is projected to hit the $623 billion milestone in 2023 at an annual growth rate of 18%.

SaaS allows businesses to access and pay for software applications that are hosted in the cloud, without the need to install them on their servers or computers. This eliminates many associated overhead costs, allowing organisations to focus on enhancing customer experiences.

Additionally, SaaS provides access to robust tools with enhanced security protocols for data storage and management that individual firms would find expensive to implement themselves. 

Open banking

Open banking, a financial technology that allows customers to share their financial information with third parties, is gaining significant momentum. According to Statista, by 2024 approximately 63.8 million people will use this technology. This will be almost five times more than in 2020.

Open banking offers several benefits, such as enhancing customer convenience and providing opportunities for businesses to explore new markets, create innovative products and services and improve their efficiency through data exchange.

It creates a range of opportunities for banks, payment companies and other fintech firms looking to harness the potential of customer data. Through open banking, customers have greater control over their financial data while they can also make transfers between different organisations or allow third-party providers access to their data when necessary.

IoT

The Internet of Things (IoT) enables internet-connected devices to gather data, analyse it and then act on it without human intervention. The implications for fintech are vast as IoT has enhanced the security, efficiency and convenience of banking.

Financial institutions can use sensors integrated into their products to monitor customer activity and automate responses based on pre-set preferences or behaviours—such as fraud detection algorithms or automatic payments triggered by shifts in customer spending patterns.

Moreover, voice recognition technology is being utilised for authentication purposes, streamlining login processes and improving security by making accounts more difficult to hack.

Blockchain

By 2030, the global blockchain technology market is projected to reach a staggering $1.5 trillion, marking a growth of 143 times.

This exponential growth is being driven by key financial services, including Visa, Mastercard and PayPal, who have already started to use cryptographic assets and enabled their users to make cryptographic payments.

The world of fintech is rapidly evolving, and blockchain is one of the most promising trends. Essentially, blockchain is a digital ledger that records and verifies different types of transactions. Its decentralised nature enables individuals, organisations and machines to transfer digital assets securely without the need for a central authority or third-party intermediary. This decentralisation also makes blockchain technology suitable for various financial applications, such as payments, transfers and trading.

In addition to its security benefits, blockchain has the potential to generate significant cost savings by eliminating the need for expensive intermediaries like banks and brokers in international financial transactions.

Furthermore, since all transactions are stored on an immutable public ledger that cannot be altered, blockchain technology provides enhanced transparency which could help improve trust in financial systems worldwide by minimising fraud and reducing delays in settlement times.

Fintech will remain a major driving force in the future

Fintech will remain a major driving force shaping the future of financial transactions. The years 2023-2024 are expected to see a surge in the adoption of blockchain, AI and IoT in the fintech space. The global fintech market is predicted to grow gradually and reach a market value of approximately $324 billion by 2026.

Despite the uncertain economic environment inherited from a disruptive 2022, fintech remains a global gateway for businesses, and technology will continue to play a fundamental role.

The various factors responsible for causing major global disruptions, such as the war in Ukraine, inflation, job market and supply chain disruptions, environmental pressures, regional socio-political tensions and more, will continue to impact the year ahead.

While most of the fintech technologies are not new to the game, what makes this year different is the level of maturity that companies have achieved. While markets may fluctuate, consumer trends may shift and regulations and standards may increase, but top fintech firms will continue to leverage technology to find solutions and new opportunities even amidst crises.

Automation and integration will become increasingly sophisticated, enabling consumers to access more personalised services that better suit their individual needs. As technology continues to transform the financial industry, companies must remain at the forefront of innovation or risk being left behind.

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