2023 Informed: Five key trends in Fintech

1: Goodbye fintech, hello reg-tech

“After a decade of growth and record fundraising – with fintech companies accounting for 21 of the UK’s 44 unicorns today, in 2023 this will slow down to a more modest pace. Data from investment manager Finch Capital shows funding reached $6 billion in 2020 and $19bn in 2021, but we have witnessed a 25% drop in 2022 so far.

“The number of new fintech firms founded is down 85% since 2020. Market consolidation continues, and fintech M&A spiked in the first half of 2022, with 591 recorded deals. So, it’s possible we’re now on the other side of the fintech sector ‘boom.’

“The higher cost of capital coupled with a tougher business environment in general will force some fintech firms out of the market, as we have already seen, and create a smaller sector. Those who do make it through will emerge stronger and more resilient.”

“Before the pandemic, neo-banks and consumer-centric fintech businesses dominated the conversation. Now, as the financial landscape becomes increasingly digital, so too does the risk of fraud, cybercrime, money laundering, data breaches, and market manipulation. In response, the RegTech market will continue to grow and evolve to meet the challenges of an ever-more tech-driven economy. SteelEye’s 2022 State of Financial Services Compliance report showed that almost half of firms (44%) are planning to invest more in RegTech solutions in the next year.”

Matt Smith, CEO and co-founder of compliance technology and data analytics firm SteelEye

2: ESG and the path to net zero will continue to define banking

“Governments and world leaders are under increasing pressure to implement stronger regulation and legislation that will demonstrate real change and commitment. Governments see financial services as a vehicle to implement net zero policies, as well as to accelerate the path to net zero. We will see the cost of money become much higher for carbon damaging activity in the coming year, with more favourable rates provided to those implementing sustainable activities. To do so, banks will need granular information on a host of factors that determine the level of environmental impacts over time and risk across all sectors and all kinds of assets and investments.”

Simon Axon, EMEA industry consulting director, Teradata

3: Banking comes to the metaverse

“Technological developments and the creation of the experience economy are two factors driving the metaverse’s explosive growth. The gaming, media and entertainment industries are already heavily involved, and soon banking, retail and financial services will follow suit.

“Banks will be able to provide customers, who still want to visit a bank branch but don’t want to deal with the hassle of driving to one thirty minutes away, with an immersive 24-hour banking experience. For instance, voice-based contact centres may soon be replaced by bank executives’ metaverse avatars, allowing banks to give their clients more in-depth real-time information (statements and forms, for example) than they could over the phone.

“Banks will also use the metaverse for training purposes, giving their personnel the opportunity to generate clients and fictitious problems in order to better prepare them for a variety of customer scenarios.”

Rajashekara Visweswara Maiya, Infosys VP, global head-business consulting

4:  Virtual cards usurp plastic

“As the global shift to digital banks will continue to rise, so will the use of virtual cards. With an expected 80% of the population in the US to use digital services by 2025, banks are quickly recognising the demand and adjusting their services to online. Moreover, with consumers looking for ways to safely store their personal information and carry only mobile phones, the shift to digital banking and virtual cards will be a perfect alternative to help keep your money safe on the go.”

Elena Davidson, CEO Liberty Comms

5: Disruption becomes the ‘new normal’

“The repeated disruptions felt because of the Covid-19 pandemic, Brexit, war and political turmoil have, unsurprisingly, had a detrimental impact on the financial industry. We’re now seeing the ongoing rise of inflation and the increased cost of living. While ad-hoc crises are nothing new, these back-to-back and sometimes simultaneous crises is not something the industry has ever had to contend with.

“In 2023, the banking industry will need to further adapt as the definition of who is categorised as a ‘vulnerable’ customer change. Banks will need smarter analytics to identify these customers, with new factors calculating these scores, centred around reliability of income, as opposed to income versus expenditure.

“The data needed to understand your customer base, therefore will need to be more nuanced than it previously was.”

Simon Axon, EMEA industry consulting director, Teradata