As we make our first steps into 2023, it’s worth looking at some of the trends and technologies that are shaping the fintech industry. While the future is difficult to predict (as history has demonstrated in the past years), there are a few key developments that seem likely to continue in the coming years, to gather more steam, and to change the face of fintech as we know it. Let’s dive in.
1. An increased adoption of cryptocurrencies and blockchain
Cryptocurrencies like Bitcoin and Ethereum have been around for over a decade, but they have yet to achieve mainstream adoption. However, this could change in the next few years, as more people become familiar with digital assets and their potential uses. Stablecoins, for example, are projected to gain in popularity, as they are pegged to the value of a real-world asset like the US dollar and are therefore less volatile than traditional cryptocurrencies.
According to Paul Davis from Strategic Resource Management, “there will be more mainstream adoption of cryptocurrency and other digital assets tied to the blockchain. Expect regulation and/or legislation to create ‘rules of the road’ that financial institutions and investors can follow. Over time, crypto can allow faster transactions and bring more underserved groups into the financial system.”
With regards to blockchain, according to a report by Precedence Research, it is estimated that market will grow 143 times before 2030 with a total volume of USD 1,5 trillion. Main financial services, such Visa, Mastercard and PayPal, have already started to use cryptographic assets and allow others to make cryptographic payments.
2. Widespread use of digital banks
Digital banks, which offer online-only banking services and often have lower fees than traditional banks, have already gained a foothold in some markets. In the next few years, they could become more widespread, particularly as people become more comfortable with conducting financial transactions online.
Digital banks can offer a wide range of services, including checking and savings accounts, loans, and credit cards, and they often use advanced technology like artificial intelligence (AI) and machine learning to improve the accuracy of credit scoring and to detect fraud.
There are already digital banks like Revolut that provide many 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 utilize digital-only banks globally by 2024, according to a report by Finder.
3. Greater use of AI and machine learning
AI and machine learning are already being used in the fintech industry to improve the accuracy of credit scoring, detect fraud, and streamline processes. As these technologies become more advanced and less expensive, they could be adopted by a wider range of financial institutions. For example, AI could be used to analyze large amounts of data and identify patterns that might indicate fraudulent activity, or to assess the creditworthiness of loan applicants more quickly and accurately than a human could.
A study from Mordor Intelligence predicts that the worldwide market for AI in fintech is expected to reach an astounding USD 26.67 billion by 2026 while maintaining a CAGR of 23.17% from 2021 to 2026.
4. More personalized financial products and services
As companies gather more data about their customers’ financial habits and preferences, they could use this information to offer more personalized financial products and services. This could include personalized investment portfolios, customized credit card rewards programs, and tailored financial planning services. For example, a financial planning app could use data about a customer’s income, expenses, and goals to create a customized budget and investment plan.
5. Continued growth of the gig economy
The gig economy, in which people work on a freelance or temporary basis, has already had a significant impact on the way people earn and manage their money. This trend is likely to continue in the next few years, with more people turning to gig work as a primary or supplementary source of income.
According to MBO Partners, 36% of US workers participate in the gig economy, either as their primary or secondary source of income. Upwork reports that in 2022, 57.3 million people in the US completed some sort of freelance work, whether that was as a side hustle or their main source of income, and that figure is predicted to reach 86.5 million by 2027.
Fintech companies could play a role in helping gig workers manage their finances and access financial services. For example, a gig worker might use a mobile app to track their earnings and expenses, or to apply for a loan specifically designed for people in the gig economy.
6. Enhanced cybersecurity measures
The hard truth behind digital transformation is that, as financial companies increase their reliance on cloud infrastructure, DevOps-driven application development and remote working, the risk of cyberattacks also increases. Fintech companies will need to continue to invest in enhanced cybersecurity measures to protect their customers’ data and assets. A global study by Trend Micro reveals that 75% of global financial services firms are concerned about this, with half (49%) arguing their attack surface is “spiralling out of control”.
Tackling these risks requires a multi-layered approach from the fintech industry, with measures like two-factor authentication, encryption, and regular security updates. And with new scamming trends making the news in 2022, enhancing user education to be able to spot phishing attacks is key.
7. Open Banking
It is estimated that by 2024, 63.8 million people will use open banking, as predicted by Statista. In comparison to 2020, this is almost five times more.
According to McKinsey, just 10% of open banking’s promise is realized. This financial technology shows promise. Users are slowly beginning to understand the advantages of working with open data since information interchange promotes scholarly investigation, software advancement, and enhancement of financial services.
Fintech and technology innovation will continue to play a significant role in shaping the financial landscape in the coming years. Whether it’s through the increased adoption of cryptocurrencies, the proliferation of digital banks, or the use of AI and machine learning to improve financial services, the industry is likely to see a range of exciting developments in the next few years.
On thing is for sure: the increased adoption of Fintech brings with it its own set of challenges, from cybersecurity threats to growth in business spend and focus on cost control. Effective spending in 2023, while investing in the top trends for 2023 to maintain a leadership position will be the key for this year.
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