The current year has been challenging for consumers and businesses on a variety of fronts.

 

The fintech industry is evolving with market trends to meet customer needs, business goals and regulatory requirements around the world. Powerful technological advancements will continue to shake up the sector in 2023, allowing it to improve client experiences, reinforce business propositions, and increase revenue.

 

Let's take a look at the fintech trends that will dominate the industry this year and how they will shape business, UX and government regulations around the world.

RegTech adoption is set to grow 

RegTech has recently been recognized as a cornerstone of the FinTech landscape. 

 

The financial sector is one of the most heavily regulated industries in the world. This year, we expect RegTech to disrupt the regulatory landscape by providing advanced tech solutions for compliance issues. 

 

Regulatory technology, as its name implies, is a subgroup of FinTech that employs technology to oversee regulatory procedures. RegTech businesses typically address issues with tracking, reporting, and compliance. Despite the fact that the phrase first appeared in 2008, the industry has recently experienced tremendous growth and is anticipated to continue to grow. The RegTech market is anticipated to grow to a staggering $44 billion by 2030. In comparison, it was only worth $8.2 billion in 2021.

 

The development of FinTech is a prerequisite for the expansion of RegTech. Although it’s fantastic that as more services are becoming digital, there are also increased risks. The unregulated digital financial landscape is a haven for fraud, hacking, data breaches, and other possible threats. Financial institutions are, therefore, under constant strain.

 

Beyond that with the entry of alternative finance and AI, the FinTech industry will raise attention from governments worldwide.   

 

RegTech has emerged to help businesses streamline nearly every part of the compliance process. With the help of cloud technology, machine learning, and big data analytics, RegTech will intensify its solutions to enable financial institutions to identify and prevent risks efficiently and accurately in the coming years.   

 

Juniper Research predicts the RegTech industry will experience 200% growth between 2022 and 2026.

Artificial intelligence will replace humans

AI in FinTech will grow by 25% over the next five years, according to an analysis. The use of artificial intelligence is expanding around the world. And the FinTech sector is poised to benefit from all it has to offer.

 

Banks are some of the most profitable institutions embracing this technology. AI technology will reduce bank operating costs by 22% around 2030. That could mean savings up to $1 trillion ahead.   

 

There are two main ways the FinTech sector will benefit in 2023.

 

• AI Decision-making 

Anyone who works in the financial industry is aware of the many important decisions that have to be made every day. Banks have always been a data-driven industry, and collecting, analyzing and using that information is labor intensive.

 

Today, businesses struggle to do all of these tasks while remaining competitive and lowering operating costs. In response, one FinTech development that is now gaining momentum is algorithmic decision-making with artificial intelligence. 

 

Artificially intelligent software constantly evaluates current facts and quickly draws conclusions. This is a tremendous help to any financial expert and greatly reduces the workload and saves time. It's becoming clear that financial AI is just around the corner.

 

• Conversational AI

AI can help banks do more than just make split-second decisions. Chatbots are slowly becoming an invaluable resource for customer service departments.

 

Financial institutions deal with numerous frequently asked questions. The customer usually has to hold the phone and wait to be connected to an operator. This poses two key problems. Banks have to hire a significant number of agents, and slow response times reduce customer satisfaction.

 

FinTech professionals are refining chatbots using NLP techniques to save operators from having to put a lot of effort. Customers get immediate help, and banks benefit from streamlining their support procedures. Operators can use the extra time to focus on more complex problems at the same time.

 

So, artificial intelligence (AI) enables the automation of complex and high-value processes. AI algorithms in financial software development will play a bigger role in determining who gets access to various financial services and how. Its adoption into the fintech industry to make decisions on issuing loans, negotiating, and detecting fraud will intensify in 2023. However, the public is now raising demands concerning the ethical impact of AI in such mission-critical decision-making.    

 

According to a recent Deloitte survey of IT and line-of-business executives, 86% of financial services AI adopters say that adopting this technology will be critical t to their business's success in the next two years

 

Contactless payments will accelerate

Fintech has long embraced contactless payments, but the real takeoff came after the Corona outbreak. According to research, the number of contactless, cashless transactions increased by 11% from 2020 to 2021.

 

And it looks like this trend will continue. According to the 2021 report, such transactions will grow 92% worldwide by 2023. As a security measure, contactless payments have gained popularity. However, consumers are now realizing how fast, easy and convenient their purchases are. As a result, they represent a FinTech trend that will continue to grow through 2023.

Digital-only banking will emerge

Digital banks are one of the FinTech sector trends that are growing the fastest, completely replacing traditional banking. It is logical. Popularity is fueled by convenience, and digital banking is redefining ease. The paperwork is easier than ever, and customers don’t have to waste any time going to a facility or standing in line.

 

However, that is merely the tip of the iceberg. Banks like Revolut provide a number of benefits in addition to all their accessibility offerings. Demand is rising as a result of cross-border transactions, minimal fees, immediate peer-to-peer transfers, and perhaps even investment options. In fact, 2.5 billion people are anticipated to utilise digital-only banks globally by 2024. Thus, FinTech’s shift toward digital banking will continue.

Embedded Finance will significantly grow

 

The embedded finance ecosystem is huge, and it is expected to grow significantly this year. Researchers estimate that the embedded payments industry will grow 40.4% per year. 

 

Embedded finance is the integration of financial services and products into traditional financial companies. This means adding payments to e-commerce platforms, without inviting the user to leave the website; a valuable tool for SMEs that lack the resources and know-how to develop their services.

 

It covers financial services such as banking, credit, investment, payment processing, credit or insurance. Imagine an e-commerce merchant providing insurance as part of a seamless, convenient and easy-to-use customer journey.  

 

“Embedded finance is the ace in the hole for traditional banks. They still have huge customer bases which will stop migrating to neobanks if they can get similar products and user experience from their current bank,” said Adrian Cighi — the Romanian co-founder of a tech startup PAGO.

 

On an estimated market of over €50B by 2026 in the U.S. alone, it’s no wonder many professionals are talking about it as the next financial frontier. 

 

“Banking systems are becoming more modular and brands are starting to realize the ability to integrate financial services into their offerings, thus expanding customer relationships,” said Vasilis Zoupas co-founder of Greek fintech Woli.

 

Notable among all forms of embedded finance is the "buy now pay later" (BNPL) sector. This payment option allows customers to purchase items now and pay later, usually by splitting the purchase amount into multiple installments.

 

Alternative Finance will be around

 

Alternative finance, also referred to as Alt Finance, has been around for many decades, but its popularity has increased until recent years. Today, the alternative financing sector has a promising outlook as it is valued at $6.62 billion and is expected to grow by 20 percent in 2023.

 

Alternative financing refers to financial services developed outside traditional banking. This industry has brought innovative products and new thinking methods to business borrowing. The non-bank providers use financial technology to offer and improve convenient means of finance — in categories such as equity finance, business loans, insurance, and much more.

 

SaaS platforms will revolutionize the world

 

SaaS solutions have completely revolutionized traditional software product licensing models. The global SaaS market is valued at over one hundred billion dollars and continues to grow significantly due to its popularity among SaaS providers and users.   

 

Software as a Service (or SaaS) is a way to deliver software applications using the Internet, freeing businesses from complex software and hardware management and installation. The platforms provide a better customer experience and faster product delivery, resulting in increased customer and user satisfaction.  Among all SaaS solutions, in 2023, we expect to see increasingly low-code or no-code solutions, white-labeled SaaS, and micro-SaaS products.   

 

The SaaS industry is expected to reach $623 billion, with an annual growth rate of 18%.

 

Know Your Customer (KYC) guidelines

With cashless solutions growing faster than ever, and more and more financial players evolving on the global market, there also comes a need for innovative regulations. Experts believe that KYC guidelines, which are regulations to protect financial institutions from corruption, will see major growth next year.

 

KYC guidelines outline the steps that businesses should follow to properly verify the identity of their customers. These include verifying personal information, such as name, address, and date of birth, as well as documentation, such as government-issued identification or proof of address.

 

They also require businesses to assess the risk level of their customers and monitor their financial activities for unusual behavior.

 

Personalized tools will be on the to-do list

Probably we’re going through one of the toughest economic periods of the last 50 years, ready-made solutions will be the go-to strategy at a fraction of the costs. Using off-the-shelf modules that fit well and complement their product stack to produce new revenue streams is something any company should tap into.

 

Although generalistic finance applications will always take part of the market, it is expecting custom-designed solutions that cater to specific audiences’ needs to be much more effective moving forward.

 

Andreas Rung shared that when it comes to design, next year we will see growth on the voice front. “KBC (ed. note. Belgian bank) launched in several countries its Kate assistant. Many banks are following them. As the inclusive design is getting more important, more and more banks should reconsider their accessibility strategy and include voice in their offering.”

 

This means the development of voice recognition technology and natural language processing (NLP) so users can access services through voice commands for seamless processes. “Siri? Alexa? Pay my internet bill” coming next.

 

Final word

Some market drivers, such as AI, have already been anticipated. Others, like DeFi, have lately had significant growth and may be more challenging to adapt to.

 

It's impossible to conclude how things will turn out this year. However, we know with certainty that 2023 will be a significant year for the financial industry, with lots of new regulations, market trends, and technological transformation.

 

Out of all the top fintech trends in 2023, embedded finance and alternative lending probably will be the most remarkable. AI technology will keep shaking the market and help businesses to reduce overhead costs. RegTech, contactless payments, and digital-only banking will continue to evolve and become even more intimate in our lives. In addition, SaaS platforms like OctoStrategy, for example, will continue to improve the customer and user experience. 

 

Ready to grow and change in the coming year?