Fintech has been transforming the global financial sphere, the way businesses operate, and the payments space for over a decade as a combination of technology and financial services. Following the global financial crisis in 2008, when fintech companies first started to emerge as alternative financial services providers, they snuck into the traditional banking industry and started to take over areas like personal finance, banking, venture capital, insurance, loans, wealth management, etc.
As new financial players, they develop new services and financial products that disrupt the modern financial world and appeal to today's digitized society.
Nowadays, financial institutions must go with the flow or risk sinking. That is why modern brands enthusiastically embrace new fintech trends. J.P. Morgan, PayPal, Amazon, Apple, Samsung, and other companies, for example, became forerunners in the fintech sector.
To implement their innovations, such as digital currencies, blockchain technology, AML regulations, and many other things, all creative financial operators need top-notch software solutions. So, we'll go over the top fintech trends, but first, some statistics to back up our claim that fintech is the wave of the future.
According to a PwC poll of financial services organizations globally, 47% were likely to work with a fintech firm for development. During COVID-19, the fintech sector, like all others, underwent a change and encountered difficulties.
In 2020, interest in cryptocurrencies and blockchain soared dramatically as a result. Businesses began to investigate, test, and discover the new roles that cryptocurrency can play in the modern financial system. The introduction of various financial services such as embedded finance, and BNPL, has further extended the scope of their daily transactions.
By adopting embedded banking, financial goods, and insurance, several financial services have broadened the scope of their regular activities. In all three major regions—EMEA, the Americas, and Asia-Pacific—a record number of agreements were recorded in 2021, making it remarkable for the fintech sector.
The year 2022 saw amazing investments in the fintech sector. However as awareness of cryptocurrencies, blockchain, and cybersecurity increased, so did the sophistication of the investment-attractive solutions. As a result of various trends that encouraged both large firms and startups to reimagine the present financial services industry, there was a palpable feeling of rebirth in 2022
By 2030, the worldwide fintech industry is projected to develop at a CAGR of 18.5% and be worth around $851.1 billion. Fintech is the use of cutting-edge technological innovations like artificial intelligence, application programming interfaces, and blockchain for the enhancement and automation of financial goods and services.
Today's client expectations can only be met by the most cutting-edge technologies. We will thus talk about the main fintech developments for the upcoming year.
Green Finance
Sustainability is more than a slogan; it is a worldwide economic imperative. Green finance, which is concerned with the interplay between financial operations and the environment, is becoming more and more important in the world of finance. Words like responsible investment (RI), environmental, social, and governance (ESG), sustainable finance, and climate funding are used to describe green money.
Green finance recognizes that economic stability is based on environmental stability and that modern financial policy must attempt to minimize environmental damage for the sake of environmental health and economic development.
Green finance is also about managing environmental risks, planning for the future, and aligning products and services, such as loans and investments, with environmental sustainability.
Blockchain Technology
Blockchain is not a new trend, it is changing the face of financial transactions globally. It is sometimes referred to as an "electronic ledger" or "distributed database." where each transaction is recorded in a distinct block connected to prior blocks in the network. It is open to all participants. A highly secure method of preserving data that significantly reduces the danger of identity and data theft.
Before 2030, the global blockchain market will surge manifolds reaching a value of $1,5 tn.
It has the greatest potential net benefit in China ($440 bn) and the United States $407 bn. It is also predicted that five more nations—France, Germany, Japan, the UK, and India—will gain to the tune of about $50 bn in the future.
The major payment processors, such as Visa, Mastercard, and PayPal, have begun to leverage cryptographic assets and let others send payments using these methods. Currently, it acquires a huge time and effort to transmit money overseas. With Blockchain technology at hand, these challenges can be overpowered with increased speed, security for international payments, and lower costs.
If we look at the growth statistics sector-wise, the banking industry possesses the biggest distribution of blockchain market value - with a 29.7% stake that is projected to expand further as investors rush to enhance the reach of blockchain services and consumers increasingly utilize blockchain wallets (jumping from 11 mn globally in 2016 to 40 mn as of 2021).
The success of blockchain will depend on a favorable regulatory climate, a corporate ecosystem prepared to take advantage of the new opportunities the technology creates, and an appropriate sector mix.
Embedded Finance
The concept of Embedded Finance is enormous. It is expected to grow significantly as per the statistics by researchers global embedded finance industry is expected to grow at a CAGR of 23.9% over 2022-2030 to reach ~$7.2 tn by 2030. With embedded finance's adaptability and universality, there is a great deal of opportunity for new and developing fintech companies to transform established modes of commerce. Embedded Finance provides an Open - API framework to non-financial companies to seamlessly integrate their web and mobile applications with complimentary financial service offerings.
As mentioned above over $7 tn is predicted for the embedded finance sector in the next ten years, which is double the value of the top 30 banks in the world put together. The revenue generated by embedded finance in 2020 was estimated at 22.5 bn U.S. dollars.
Buy now pay later (BNPL) is a unique form of embedded finance that is rapidly expanding across the board. With this method of payment, customers can place an order today and pay for their purchases later, typically in a series of payments.
The promise of integrated finance is already obvious, as more stores offer short-term loans through apps like Klarna and digital wallets enabling immediate contactless payments. Additionally, this is only just the beginning.
Artificial Intelligence
The financial world has been revolutionized with the introduction of artificial intelligence. Automation of difficult and valuable tasks is made possible. Fintech companies can fight cybercrime, money laundering, and fraud by using AI to augment chatbot engagements, customize client care, and drive infrastructure choices.
AI algorithms in financial software development will play a larger role in selecting who has access to certain financial services. Its implementation in the fintech industry to make judgments on loan issuance, negotiation, and fraud detection will accelerate in 2023. The ethical implications of AI in such mission-critical decision-making are now being demanded by the public.
Banks are among the most profitable institutions to embrace this technology. Around 2030, AI technology will cut bank operational expenses by 22%. This might result in future savings of up to $1 tn.
Digital assistants and chatbots powered by AI are now able to respond to client inquiries, track expenditures, and suggest goods based on their interests, such as phone or travel insurance. Making payments and getting personalized guidance at any time are two further customized services made possible by the use of natural language processing.
A significant element of AI technology is its ability to correctly predict human behavior. As a result, AI and behavioral finance work together to help analysts see patterns in seemingly random human behavior.
In 2023, it will become more widely used in the fintech sector to make judgments on loan issuance, negotiation, and fraud detection. However, concerns about the ethical implications of AI in such crucial decision-making are now being voiced by the public.
“The commercial value of AI (Artificial Intelligence) in North American banking was valued at $14.7 bn in 2018, and it is anticipated to reach $79.0 bn in 2030, according to research from IHS Markit.”
Digital Banking
Consumers are increasingly using alternative financial services to handle their money as banks tighten their lending criteria. New digital-only banks that cater to a population of digital natives, including Monzo, Revolut, and Starling, now provide effective and economical alternatives to established institutions. Their customers are freed from any paperwork and the need to go to physical locations to create an account or receive a new card. They provide several useful services, including international payments, contactless MasterCards, P2P transfers, and tools for managing expenses and reviewing balances.
However, the ability to buy and trade cryptocurrencies rapidly caused a backlash in the banking sector. Digital banks are ahead of the curve and already provide crypto-friendly payment options. As a result, digital-only banking is becoming more popular and profitable globally.
As more and more digital applications enter the market, experts with experience in software development are in great demand.
RegTech
One of the industries that are subject to the greatest regulation is the financial industry. By offering cutting-edge technological solutions for compliance-related problems, RegTech is anticipated to revamp the regulatory structure. The introduction of alternative finance, blockchain technology, and AI will attract the attention of governments all over the world to the FinTech sector.
The continuous requirement for conventional financial services organizations to carry out crucial duties connected to regulatory concerns is a problem for the global fintech sector. Due to the outmoded regulatory environment, fintech companies must collaborate with traditional banks to advance, which fosters a deeper bond between innovation and tradition.
By "facilitating the delivery of regulatory obligations more efficiently and effectively than existing capabilities," regtech is assisting with some of the largest difficulties facing the sector.
RegTech has evolved to assist businesses in streamlining almost every step of the compliance process. It will advance its solutions to help financial institutions identify and mitigate risks in the upcoming years with the use of cloud technology, machine learning, and big data analytics.
Smart Contracts
Smart contracts are a notable FinTech innovation with several financial industry applications. It enables parties to sign documents that are represented in a computer language using digital signatures—more specifically, cryptographic keys. The execution of smart contracts is assured to be precise and predictable.
Smart contracts make the legitimacy of the contract breach impossible since several computing devices will get the same copy of the initial digital contract. It is known as a public blockchain, and it guarantees that the letter's contract will be fulfilled. This fintech movement will probably spread and transcend national boundaries, making smart contracts available to almost everyone.
Smart contracts standardization may be facilitated in the future through DeFi fintech apps. For example, consider that customer need a mortgage. Instead of traveling to a bank, customer may obtain a loan based on a smart contract and receive the funds in a few minutes or less.
Bottom Line
We are living in a golden period of financial innovation, driven by technological advancement and market influencer innovation.
Fintech, once a disruptive force, is now an enabler, and it is collaborating with conventional banking to build a long-lasting industry. Fintech future trends indicate that the financial industry will see considerable transformation in 2023 in a variety of ways, including by enhancing payment alternatives and broadening the breadth of financial services, as well as by promoting global trade and the swift and efficient implementation of no-fuzz transactions.
Embedded finance and Digital only Banking will stand out among the top fintech developments in 2023. AI technology will continue to upend the industry and assist companies in cutting expenses. SaaS platforms will also keep enhancing the user and consumer experience to thrive in the ever-evolving market.
