Ten Fintech Trends to Implement in 2023

On the one hand, startups raised $79 billion in 2022, down 38% from 2021, and reduced the amount of capital and the number of transactions. On the other hand, the Restive Ventures report showed that investors are still planning to fund the fintech sector, paying attention to RegTech, ESG initiatives, payment solutions, and other crucial technologies.

What’s the main reason for the fintech renaissance? According to Gallup’s forecast, 2023 will be fraught with economic, political, and social issues. And as revenue growth slows, savings and efficiency become a top priority. As a result, large and medium-sized companies will care more than ever about their results, investing in what is critical to the business. This opens up opportunities for fintech startups to help other companies increase their ROIs by reducing costs and improving customer experience.

So what should you focus on in 2023? What areas do investors consider the most promising and consumers examine as necessary? We at Devox Software have worked with fintech companies for many years, helping them develop innovative solutions. Our experience and expertise allow us to analyze the market and select ten fintech trends to follow in 2023.

Stay tuned to find out how you can apply new technologies to succeed.

Challenges to Solve in the Fintech Market

Fintech remains a dynamic and progressive sector with many challenges to solve. They include:

• High competition among both banking and non-banking institutions
• Data security with the constant development of cyber fraud
• Complex and constantly changing legal regulations
• Low retention rate and poor user experience
• Lack of mobile and technical expertise
• The need for service personalization

The good news is that businesses can solve all these challenges with the help of technological solutions from reliable IT companies.

Ten Key Fintech Industry Trends

Сonstant adaptation to changes is crucial for modern business. Fintech is no exception. And here are ten trends worth paying attention to in 2023:

1. Embedded Finance

Embedded finance is the integration of financial instruments for non-financial organizations. The fintech landscape spans services such as banking, credit, and investment. It also covers payment processing and insurance.

This trend is gaining popularity, so it is worth paying attention to. Over the past five years, interest in embedded finance has increased by more than 633%.

Embedded payments are a handy tool for many industries as consumers do not need to enter their card details every time. It speeds up transactions and thus improves the customer experience. Taxi and ride-sharing companies, such as Uber and Lyft, and coffee shops, like Starbucks, allow clients to pay for services through the app.

The same thing happens with insurance. For example, when buying a Tesla, a customer does not need to contact a broker to arrange insurance.

But the most popular type of embedded financing is the Buy Now, Pay Later (BNPL) model, trendy among millennials and member of Generation Z. It allows customers to get products and services now, right on the same platform, and pay later, dividing the amount into several payments. Previously, clients would have to go to the bank for a loan, fill out an application, and wait for approval.

BNPL and other embedded finance tools benefit all parties:

• It is easier for clients to manage their finances
• Businesses using BNPL can increase sales and build loyalty
• Companies offering BNPL can provide good payment terms and interest rates

Investors also appreciate this fintech trend. In 2021, venture investments in embedded financing were three times higher than in 2020 and reached $4.25 billion.

2. RegTech and RPA

The financial sector has always been tightly regulated, facing new and new requirements. Crucial data is too complex and cumbersome to process on its own. As a result, companies waste huge sums on lawyers or pay fines for non-compliance with all the rules.

32% of financial businesses spend more than 5% of their income to meet all requirements. And the cost of fighting financial crime in 2021 amounted to $213.9 billion.

Regtech uses cloud technologies, machine learning, and big data to solve this problem.

Robotic Process Automation (RPA) provides recommendations based on algorithms and data. It takes on routine tasks, allowing businesses to track the correctness and legality of operations automatically. 

In addition to regulatory functions, advisory robots collect information about clients, helping to provide a personalized investment experience. They consider factors such as investment objectives and risk tolerance.

According to Gartner’s statistics, 80% of fintech executives have already implemented RPA into their business processes or plan to do so. The main goal is to increase the team’s efficiency and reduce operational costs by 30%.

3. Blockchain Technology

Another trend fintech faces is the blockchain, created as the underlying technology for bitcoin. According to PwC forecasts, by 2030, the blockchain potential will reach 1.76 billion dollars, and countries such as China and the United States will benefit the most.

Blockchain eliminates the need for an intermediary for asset management, reducing transaction time from two or three days to a couple of minutes. The technology also guarantees transparency as all data is duplicated in each database copy and is publicly available. The records cannot be changed, so every party can track whether a transaction occurred.

Also, blockchain simplifies and reduces the cost of international fund transfers. Stellar’s survey shows that 52% of consumers consider cryptocurrency as a way to transfer money abroad, and 45% are already using it for this purpose. As of 2021, the number of users with blockchain wallets has reached 40 million.

What industries use blockchain the most? Logically, the banking industry ranks first (29.7%), followed by continuous (11.4%) and discrete manufacturing (10.9%), as well as professional services (6.6%).

As for regulators, they try to actively ensure the process instead of just reacting to it. Singapore, Australia, and the UK plan to set up sandboxes for scenario testing and problem-solving. And in the US, regulators are still watching, allowing market players to act.

One of the most sensitive blockchain challenges is data security. Growing threats affect the tightness of fintech regulation. Countries should create national standards that can regulate this issue at their own pace.

4. Neobanks

Neobanks are digital banks that do not have branches and other physical representations. They react to high industry competition, the need to reduce the cost of starting a business, and customer service. All communication and service take place digitally — through smartphones, tablets, and computers.

Banks that exist virtually have many advantages. Customers do not need to spend time visiting and queuing; any interaction excludes paperwork. Neobanks have been the main reason visitors to traditional bank branches have decreased by 36% over the past five years.

As a rule, such banks offer:

• High automation
• Service 24/7
• International payments
• P2P transfers
• Free cards with lower transaction fees
• The ability to buy and exchange cryptocurrencies
• Fast response time
• Cost management
• Real-time analytics

Neobanks also have some cons:

• They are an easy target for financial scammers
• If customers fail to resolve their issues online, there will be nowhere to turn

So, the solution lies in strengthening security and cooperating with traditional banks.

Digital transformation has yet to reach its peak. As a result, it is unclear whether neobanks will be a temporary phenomenon or a must-have for entire generations of clients.

New Galileo research shows that 62% of Americans are likely to use digital banks exclusively. Neobanks are attracting younger consumers — today, only 25% of Gen Zers use megabanks for their main account. At the same time, the number of users of traditional banks among millennials and generation X members has also halved since 2020.

Users love a seamless digital experience without cumbersome infrastructure, chatbot service, and social media integration. Neobanks also allow clients to create an account and start using it immediately.

Today there are about 350 neobanks in the world. According to Statista, the most popular of them are NuBank (Brazil, $45 billion), Revolut (UK, $33 billion), and Chime (US, $25 billion).

5. Advanced Cybersecurity

Cybersecurity has never been as relevant as today when neobanks are developing and all other financial institutions are plunging deeper into digital. Their data is confidential and, therefore, very attractive for cyberattacks. According to the UpGuard report, in the first quarter of 2021, 25% of all phishing attacks were linked to the financial institution.

It provokes equipment damage and information, revenues, and reputation loss. Each data breach costs a financial company an average of $4.2 million.

Cybercriminals are constantly developing new ways to circumvent the financial industry’s security. And here are the tactics they have chosen lately:

• Deep fake technologies using AI and ML to create a person’s likeness in image and voice. There are many cases of deep fake and vishing scams, the largest of which occurred in Hong Kong when a bank employee mistakenly transferred $35 million to scammers.
• A trojan called Fakecalls attacks South Korean banks. As soon as the user calls the helpdesk, the hackers break the connection and open the fake call screen. As a result, they control the conversation, pretending to support and extorting personal data from the bank client.
• And the most insidious is the penetration into the AI and ML systems used by banks. Since these technologies are relatively new, they are not yet fully protected, and cybercriminals can use them as a loophole.

Not surprisingly, the volume of “banking cybersecurity” queries has increased by 44% in the last five years. And the main popular tools are:

1. Authentication without a password by sending push messages to users with an authentication code. 90% of companies find this solution very effective, although evidence suggests otherwise.
2. Biometrics, which uses not only a fingerprint but also voice recognition systems, retinas, ears, vein patterns on the hands, and even DNA. Experts suggest introducing multi-factor biometric authentication for mobile banking. Grand View Research said the biometrics market was valued at $34.3 billion in 2022. Voice recognition systems analyze 1000 micro-characteristics, which makes them quite reliable. Pindrop, the voice printing platform, is already used by 11 of the largest US insurance companies, as well as by 8 of the top 10 banks in the country.

3. Behavioral biometrics that analyzes the user’s physical and cognitive activity to prevent fraudulent transactions. The top-5 credit card issuer has increased fraud detection by up to 90% using behavioral biometrics. Able to process more applications and reduce costs, companies increase ROI by 12 times.

6. Contactless Technology

Contactless technologies are also gaining momentum. They allow customers to pay for goods and services faster and more conveniently. There are also no problems with issuing change for small purchases. But what is driving the growth of these technologies?

The first stimulating factor is using cards with an EMV chip. These cards are more secure than traditional ones with a magnetic stripe. In Europe, cards with an EMV chip are widely used, and sellers even stimulate paying for goods with them.

But the real breakthrough came with the spread of smartphones with NFC technology. Today, many retailers have NFC terminals, so customers can pay using smartphones or smart watches. In the US, the leading market players are Google Pay, Apple Pay, and Samsung Pay.

NFC technology has the following features:

• The peer-to-peer mode allows two NFC-enabled devices to connect and exchange data by touch. This way, the user can send files or print documents (if the printer is also equipped with NFC)
• The reader/writer mode allows receiving data with a single NFC tag. It helps to “check-in” at the event.
• The emulation mode acts as a smart card, for example, when paying for services.

Comparing contactless cards and NFC, remember that smartphone users get all the card benefits and do not have restrictions on the payment type or transaction amounts.

The pandemic has also significantly contributed to contactless payment popularization. Sellers were required to maintain social distancing and increase safety measures at work. 

A cashless society has many benefits for all parties. For example, buyers make impulsive purchases more easily and do not afraid to lose money if their wallet is stolen. And regulators can track payments to find individuals involved in illegal activities.

7. Super App

The super app is a modern, comprehensive solution with a wide range of services, allowing companies to meet the needs of a large number of users. 

So, what features do super apps have that make them a trend in the coming years? We highlight the following:

1. Users want to access all fintech products and services in one place
2. Such applications focus on smartphones and other mobile devices, so their use is becoming increasingly popular
3. Super apps are built on existing platforms such as social networks and instant messengers, which makes them easier for users. It also provides a lower barrier to entry for companies
4. They are more flexible than traditional fintech solutions and adapt faster to market needs.

To provide users with access to numerous services, super apps bring partners together. And this is another fintech trend associated with cooperation instead of competition.

Startups focused solely on innovation are bound to face consumer distrust. And reputable banks do not always have time to modernize their outdated solutions, losing the young audience. The way out is to cooperate, maintaining the loyalty of existing customers and attracting new ones.

For example, the American bank CBW provides customers with real-time information through a partnership with fintech provider Moven. And the Visa and Ingo collaboration has helped companies move away from paper checks.

Another option for cooperation is the investment of prominent financial players in promising digital startups.

PwC predicts that 82% of financial firms will expand their partnerships over the next five years.

8. ESG Initiatives

Today, environmental, social, and corporate governance, also known as ESG, is attracting more and more attention. The global fintech sector has been showing more attention to social responsibility. No wonder many companies’ business models already include financial inclusion, sustainable investment, or green fintech. 

With ESG, financial companies want to meet the expectations of all stakeholders. Investors are increasingly funding businesses that have an environmental and social impact. For example, in the US, investors with more than $17 trillion in assets (a third of all US investments) have already adopted a sustainable investment strategy.

Consumers and employees also support fintech companies with the right missions and choose those willing to back up their claims with transparent financial statements.

The Securities and Exchange Commission (SEC) has already published the requirement for ESG reporting. According to it, companies must disclose information on greenhouse gas emissions, specific financial reporting data, and qualitative and management data in their reports.

What does implementing ESG standards give a company besides reputation and higher investment chances? Deloitte research shows that ESG strategies implemented at the corporate level can positively impact financial performance through innovation, high operational activity, and effective risk management.

Also, in the ESG survey, 21% of fintech CEOs said they already have a formal ESG board or working group, and 57% of CEOs are in the process of creating one.

Factors that stop companies from implementing ESG standards include:

• Implementation cost, including recruitment, controls, reporting, and assurance. At the same time, ESG execution at the stage of company formation will cost much less than integration into an already established ecosystem.
• Lack of understanding of why they should officially adopt the ESG strategy if it is already embedded in the business model of fintech companies. However, for fear of greenwashing, many investors, consumers, and employees demand proof that vendors are meeting their ESG goals.

9. Big data and AI

Financial institutions were the first to implement AI technology. According to McKinsey, by 2030, AI will be able to reduce the costs of banks by 22%, which equals $1 trillion.

There are three main areas of AI application for the financial sector:

• Fighting cybercrime, including financial fraud threats
• Chatbots and other intelligent systems for customer service
• Underwriting — business analysis and evaluation to issue final approval for a loan

As a result, it reduces financial companies’ costs and improves customer experience. Banks can also use AI to better understand customer needs and expectations and predict how long their buying life cycle will be.

For example, the Gila digital platform allows banks to interact with customers through social networks, text and video chats, SMS, and telephone. The company has already built a library of 800 interactive user intents, and its clients only need to customize the responses to deliver a first-class customer experience.

In the context of AI, it is impossible not to consider big data analytics separately. And the most exciting type of information is alternative data, usually not used in classical financial analysis. It includes social media data, satellite images, weather data, etc.

Alternative data is used to understand client behavior, economic trends, and political risks. It affects investment decisions and works with the alpha consumer — the target audience segment that first tries the product and approves it for the rest of the world.

10. Alternative Financing

The effects of Covid-19 have affected many industries, including banking. And while 79% of CEOs do not reduce capital availability, interest in alternative finance has only strengthened.

Alternative financing covers the following proposals:

• Bank-type lending by a non-bank organization
• Venture debt that involves supporting high-growth enterprises in the early stages with the saving of venture capital. Many venture capital funds raise venture debt from specialized banks such as Silicon Valley Bank
• Debt financing, including mortgage loans, regular income loans, etc
• Structured equity products, such as bonds and other debt securities

Revenue-based funding (RBF) assumes debt repayment not in fixed parts according to the schedule but as a percentage of the monthly business income.

Another type of alternative financing is invoice factoring. Its essence lies in the fact that the company can sell its unpaid invoices at a discount in exchange for immediate cash.

Also, in fintech 2022, the trend of P2P lending has emerged. We are talking about special online platforms that bring together borrowers and investors interested in entering new markets.

Alternative financing is not new, but it has not been so popular. And now, during the start-up boom, banks consider young companies high-risk and refuse to lend. In 2021, this market was estimated at $6.62 billion.

When it comes to the financial relationships between companies and their employees, there is a noticeable interest in pay-on-demand. This means that employees get access to their earned salary. And here, fintech companies are creating cloud solutions that workers can log into, check balances, and withdraw money anytime.

Such a solution not only reduces the stress of employees who need to repay their financial obligations between payments but also increases loyalty to the company. According to ADP, 81% of workers admitted that they are more likely to work for a company that practices pay-on-demand than one that does not.

DailyPay is a significant vendor, providing access to earned payroll for 80% of the Fortune 200 companies that use the service. At the same time, the company charges employees $2.99 for each such transaction. This is why fintech companies call it payday lending.

Devox Helps FinTech Companies Make Data-Driven Decisions

Devox Software is an international IT outsourcing company with extensive development experience and flexible terms. We provide full-cycle fintech creation, from market analysis to product launch and maintenance.

Working with Devox, you can create progressive solutions or upgrade existing fintech developments. We use the latest technologies, such as blockchain, NFT, machine learning, NLP, IoT, penetration and security, and artificial intelligence.

Function4 is an excellent confirmation of our professionalism. For this project, we created software for managing financial events with data-based decision-making. A single dashboard for attendees, organizers, and sponsors helps them identify suitable events. 

Based on the ticketing website, we have developed a platform that collects, integrates, and analyzes event data. Also, it allows users to plan their events based on metrics and behavioral information. The software contains rich functionality for three user groups, including pricing and payment, and allows them to download and analyze data in real-time.

Final Words

The financial sector reacts very sharply to any global shocks or qualitative changes. To succeed, fintech companies must remain flexible and open to technology. Contactless payment, blockchain, advanced security, reduced regulatory costs, partnerships with other market players, and other financial technology trends should be your priority for 2023.

Devox will be happy to help you implement the innovations in your fintech product effectively. Contact us to get expert advice and make a qualitative breakthrough in your business.