Top Fintech Trends & Predictions for 2023

Technology and financial services are more intertwined than ever. Now it is time to focus on what is going out ahead. Our top 10 predictions for 2023 give you an exciting tour of the fintech sector and reveal. Be ready for ground-breaking innovations, life-altering discoveries, and breathtaking shifts that will affect how we bank, invest, and conduct business in the coming years. So strap in because top academics and business experts support these forecasts; this is not your typical crystal ball gazing. Get ready to witness firsthand how FinTech will radically change our way of life in ways we never imagined. What have you planned? Let us begin preparing for tomorrow right away!

Top 10 FinTech Predictions for 2023

1. Blockchain Innovation

Blockchain technology is currently used to speed up a variety of financial processes. It was created to move digital assets like stocks and bonds swiftly.  

Blockchain can potentially grow the world economy by $1.76 trillion over the next ten years, with China and the US witnessing the most growth ($440 billion and $ 407 billion, respectively). 

The banking industry now has the biggest distribution of blockchain market value, holding a 29.7% market share. This share is anticipated to rise as more people use blockchain wallets, totaling 40 million by 2021 from an estimated 11 million in 2016. 

Although it is a relatively new technology, blockchain has much room for growth. PwC estimates that 2025 will mark the year blockchain adoption spreads to all major economies.

2. Venture capital financing will change significantly.

Venture and growth investors have dramatically slowed down their investment pace in private companies due to large valuation declines in the public markets. Recall that in 2021, VCs made an astonishing $261.7 billion in FinTech investments across 2,923 acquisitions. In contrast, according to GlobalData, financial services innovators have only raised $81.4B in new capital over 1,798 deals as of 2022, when money is running out.

The fact that things have not been distributed fairly is intriguing. For instance, the total venture capital invested in European FinTech has only dropped by 24% since its peak in 2021. Even yet, there are still twice as many as in 2020.

However, despite record sums raised by VC firms in 2021 and 2022, I do not think we will soon return to 2021 levels (on a global scale). The funding process will take longer, and valuations and round sizes will decline due to VCs’ continued risk aversion and prudence.

3. Embedded Finance

The integration of financial services inside any firm without the need to direct clients to conventional financial institutions is known as embedded finance. 

With embedded financial systems, non-financial firms can carry out tasks like lending, processing payments, or insurance while adhering to legal requirements. 

As more stores provide short-term loans through apps like Klarna and digital wallets to enable immediate contactless payments, the potential of embedded finance is already evident.

The embedded finance industry is anticipated to expand to over $7 trillion over the next ten years, double the total value of the top 30 global banks. There is a large possibility for emerging fintech firms to change current business models because of embedded finance’s versatility and universality. 

4. AI-based Payments and Solutions

By adopting AI and machine learning for analytics, financial institutions have the potential to reduce worldwide operational expenses by up to 22% by 2030, resulting in estimated savings of almost $1 trillion. 

Digital assistants and AI-powered chatbots can now respond to client inquiries, track expenditures, and suggest goods based on their interests, such as phone or travel insurance. Making payments and getting customized guidance anytime are two more personalized services made possible using natural language processing. 

The capacity of AI technology to accurately predict human behavior is a key feature. AI and behavioral finance complement one another. As a result, enabling researchers to discover patterns in seemingly random human conduct.  

Some believe that behavioral finance will dominate the fintech industry in the future, helped by the advancement of data analytics and the accessibility of vast amounts of consumer data. When this data is combined with artificially intelligent algorithms, it is possible to forecast customer behavior more accurately and offer customized services based on these predictions.

A recognized academic specialty, the study of behavioral finance is taught as a stand-alone topic in the FinTech Management MSc.

5. Digital Exchange and Trading Platforms

Digital exchange platforms make it easier to transfer money internationally, and there is a good chance that financial institutions will prioritize these platforms in the future. There will be a huge demand for apps that swiftly and economically automate international transactions. A key element in securing those transactions is blockchain. 

While up until now, this capability has only been available to users of digital exchange platforms, in 2023, traditional financial institutions will begin to embrace digital exchange technology more widely, enhancing the speed and security of international trade. 

6. BNPL will keep Growing Strongly

With a CAGR of 85% from 2019 to 2021, the Buy Now, Pay Later (BNPL) industry soared to $120 billion in 2021. That is a lot! The BNPL pioneers Klarna and Affirm AFRM -1.16% had their valuations plummet due to regulatory worries, but the sector survived. According to the study, BNPL would expand at a CAGR of 32.5% for 2028, not only in 2023 (as per study and Markets). You cannot create a viable business on it alone, as was mentioned a few times, but you will undoubtedly lose out if you do not include a BNPL plan in your roadmap.

7. Hyperlocal Financial Services

Hyperlocal financial services are likewise becoming increasingly well-liked in a similar spirit. One example is the growth of neighborhood banks, which operate in rural areas and offer financial services to local communities. According to predictions, urbanization will increase demand for hyperlocal services in cities. 

The local development of emerging and developing economies depends on this resource. Inaccessibility to financial services still affects 1.7 billion people worldwide. For instance, in Bangladesh, just 50% of working-age adults have a bank account.   

Fintech can open up new markets while also contributing to creating a more equal world by enhancing financial inclusion in underdeveloped countries through hyperlocal services. 

8. Digital-only Banking

As banks tighten their lending criteria, consumers increasingly use alternative financial services to handle their money. New digital-only banks that cater to a population of digital natives, like Monzo, Revolut, and Starling, now provide effective and economical alternatives to established institutions.  

As more and more digital applications enter the market, experts with experience in software development are in high demand. 

9. RegTech Will Boom

We will witness heightened regulatory scrutiny and the adoption of new regulations aimed at ensuring fair competition as the fintech industry continues to develop and flourish. This became extremely important after the recent AML and compliance scandals in the FinTech and banking industries and the significant hacks in DeFi and cryptocurrency. RegTech will assist businesses to identify and prevent risks and remain in compliance with laws by leveraging cloud technology, machine learning, and big data analytics.

10. Payment Innovations

Fintech payment innovations come in a variety of forms. These include identity verification technologies, contactless payments, mobile wallets, smart speaker systems, artificial intelligence, and machine learning for security.

According to data from 2020, the rise of mobile payments is the biggest trend in payment innovations, particularly during the COVID-19 pandemic, when more transactions moved online (PaymentsJournal, 2020). However, mobile payments are not just for online transactions. Over 2.7 billion in-store transactions are predicted to occur by 2022, bringing the total value of worldwide e-commerce to over $5.4 trillion (Payvision, 2020).

The discussion of payment innovations will also focus heavily on Gen Zers, the first generation to be genuinely digital natives. They are currently the first generation to have experienced the advent of cashless transactions, making them more used to these advancements.

Conclusion

In conclusion, the FinTech industry will experience notable improvements and seismic shifts in 2023. Our top ten predictions for the coming year point to a move towards decentralized finance as DeFi applications reinvent financial services on platforms that are not bound by geographical boundaries or permissions. Digital currencies issued by central banks (CBDCs) are gaining popularity and can potentially change how individuals obtain credit and make payments radically. Using machine learning will enable the development of specialized financial solutions, improving client interactions and risk management. Blockchain technology will streamline traditional banking by enhancing the supply chain, identity verification, and commerce processes. These trends will influence the financial industry’s future as we look ahead to 2023, promoting innovation and opening up fresh opportunities for enterprises and consumers. For financial organizations and people looking to use the promise of FinTech to navigate the fascinating and dynamic world of finance in the coming years, keeping up with these advancements will be essential. To learn more about it, write us at contact@highenfintech.com or visit us at Highen FinTech.