Top Fintech Industry Trends to Watch for in 2023

The past couple of years have been the most turbulent times in recent memory. That’s saying something for a generation that has overcome one of the worst recessions in human history.

Even before the world could recover from the tragic deaths of millions of people due to the pandemic, the Russia-Ukraine war triggered a global supply chain crisis, a hunger crisis in the developing world, and a real threat of sucking the world into “another” global recession. Even the crypto world witnessed shock and awe as trillions worth of wealth were wiped out of the market.

As tragic as the circumstances are, they offer new opportunities for the world and shift the ground beneath us. The pandemic made work from home the new normal rather than a nice-to-have perk. The threat of a looming recession is compelling economies traditionally prone to knee-jerk reactions to?free trade agreements?into doubling down on them. Businesses, governments, communities, non-profit organizations, and individuals are now increasingly open to digital innovation and accepting its benefits, especially in finance. Here are 3 areas in finance that will witness a tremendous transformation in the coming year.

Embedded Finance

Embedded Finance refers to the integration of banking services into non-banking products, services, and platforms, ultimately making financial products and services more accessible to consumers. A classic example is the co-branded credit cards offered by retailers like Costco in partnership with financial institutions, or the payment plans by any e-commerce or delivery service for food, groceries, etc.

In recent years, the emergence of open banking and digital innovation have together revolutionized embedded finance. Digital payments and e-wallets are the poster child of this emerging trend. Embedded finance solutions transform banking from a complex, conventional system into uber-convenient services and offer them as banking-as-a-service (BaaS) integrations. Loyalty programs, rewards, in-app payments, cashback, international money transfers, conversion of purchases into monthly payments, and a variety of other solutions are made possible on the foundation of BaaS using APIs.

Indeed, the rising popularity of?“digital-only” banks, which seek to disrupt the incumbents, is evidence of the importance of embedded finance for consumers and businesses. Solutions like Stripe and digital banks allow small businesses to open bank accounts, get cards, and manage their finances without putting a foot inside a bank. As embedded finance becomes a natural aspect of their daily transactions, consumer trust in banking services increases, and they’ll also find them more accessible.

Blockchain-Based Solutions

It’s hard to make a case for blockchain-based solutions when bitcoin, the de facto torchbearer for the crypto world, just breached the?$16k support, a steep fall from its $65k high earlier this year. Even in the broader context, the failure of FTX and others has raised tough questions on future blockchain-based solutions’ viability. Nevertheless, failures notwithstanding, it would be premature to write off blockchain as a failed technology. These failures are minor setbacks and specific scenarios more like other banking and bankruptcy blowups over a decentralization revolution that is slowly taking over every aspect of our digital lives.

Today,?52% of consumers?view cryptocurrencies as valid alternatives to making overseas fund transfers, and 45% of them are already using them for that purpose. That’s hardly surprising because overseas transfers are usually settled on a T+2 basis, while blockchain-based payments are executed in real-time. Blockchain payments can be automated using smart contracts, do not require manual intervention, and offer superior reliability — features that make them attractive to both users and institutions.

Besides payments, blockchain technology has many other use cases, such as tokenizing physical assets, NFTs, Metaverse, GameFi, etc. Additionally, blockchain goes beyond banking with offerings like decentralized super-computer (Golem), decentralized cloud storage (Siacoin), decentralized alternatives to YouTube (Theta Network), and so on. Some of the customer-facing names and offerings are removing all of the blockchain, NFT, crypto and complex terminology and technology, and it seems to be working.

The verdict on the effectiveness of these platforms as viable alternatives to the incumbents is not out yet. 2023 will be an exciting year for blockchain- -yet we have not even finished 2022, where like many say, “a week in this world is like a quarter in others”.

Environmental, Social, and Governance Initiatives

While the discourse on corporate social responsibility became mainstream quite a while ago, the pandemic and the?worsening impact of climate change?have intensified it only further. Listed companies have lost billions on market caps in a single day just because of a misstep, mishap, or omission in their ESG reporting. Today, both governments and corporate organizations are under increasing scrutiny to do more on environmental, social, and governance fronts to create more equitable, sustainable, and ethical economies that benefit all participants, not just the for-profit businesses. Because banking, finance, and fintech solutions are the catalysts that drive ESG initiatives, they are expected to witness tremendous transformations in the coming months.

According to Bloomberg,?global ESG assets?will cross $53 trillion in three years. Although European Commission and United Nations have released ESG goals and objectives, there is a huge gulf between ESG data needs and ESG data availability.?Quality ESG data?is foundational for measuring the impact of climate risk on financial stability, fighting greenwashing, and catalyzing green and transition finance flows.

As corporations, governments, and ecosystems transition to a new economy that emphasizes people, society, and the environment, the current financial infrastructure will be forced to confront a new reality characterized by?climate adaptation, rising equality, changing work habits, additive manufacturing, and so on. These changes can produce system-wide shocks and create the perfect opportunities for innovative financial solutions that can take the global economy into the future.

The Ultimate Beneficiary

These emerging trends will dominate the fintech and finance industry and likely touch billions of people worldwide. The sweeping impact they usher into this industry will attract innovators who will disrupt incumbents while forcing traditional players to reorganize their businesses in response to them. It’s too early to declare who will come out winners in this high-stakes tug of war, but we can hope the customers will come out as its beneficiaries either way. And that’s how it should be.

— Christina shares candid insights and ideas based on her work, network and passion for mobile, payments and financial services. She focuses on the latest innovations from products and growth to people during the day while teaching students and mentoring entrepreneurs at night. Connect with her on?LinkedIn?or?Twitter. All views are my own. —