encouraging fintech trends in 2023

The post-pandemic year 2022 was arguably one of the most challenging for fintech. The economic downturn has hit the industry hard, changing the motivation of investors, consumers and start-ups. But every crisis always opens up new opportunities. Despite the current depressing pessimism on many sides, the fintech industry is not at the ‘end of history’ at all. To add some sunshine to this discussion, I’ve rounded up some encouraging trends that our credolab team believes will define the industry in the coming year.

Pursuit of customers, not investors

Investors have actually become more reluctant to spend money, and fundraising is now taking longer. Bridge rounds and convertible notes have become more common as startups have grown less confident in their ability to attract a sizeable round amid investor wariness. “Extend the runway” is a common refrain now. According to Dealroom, $1.6 billion worth of convertible notes have been issued this year, with the vast majority in rounds of more than $250 million. This means that startups must be less focused on “growth at all costs” and rather prioritize developing the product, delivering impeccable customer service and retaining the existing customer base. While investors are closing their wallets, consumers and business customers are still very eager for transformative technology that makes their lives better and easier.

The purchasing power of the middle class

With increased inflation, consumers are likely to favor brands and payment providers that enable them to save. The focus will not be on convenience and transaction speed, but due to a tighter purchasing power it will instead translate into increased use of various online payments and BNPL enabling consumers to save and plan large purchases respectively. For example, according to the latest McKinsey’s 2022 Digital Payments Consumer Survey, nearly nine out of ten Americans now use some form of digital payments, and they are engaging with these rapidly evolving solutions in an increasing number of ways. In-app and peer-to-peer (P2P) purchases show the biggest gains, in many cases based on existing use of online payments. More than two-thirds of Americans expect to have a digital wallet within two years, and are likely to have multiple wallets to take advantage of opportunities with little regard for brand loyalty.

Greater engagement (and use) of digital wallets means huge potential for marketing and purchasing departments that will be more in the spotlight. A more robust engagement, likely correlated with a positive customer experience, will create a flywheel effect involving higher retention and more net new acquisitions (through word of mouth) that will keep the wallet alive.

Internet “cleansing” era

We are on the verge of the Internet’s “cleansing” era after two decades in which huge volumes of social and commercial activity have migrated online, giving rise to various harmful, risky, unethical and illegal phenomena. Regulators, consumers and the media are putting pressure on internet companies to ensure the integrity of their platforms, the safety of users and the reliability of transactions and interactions. Similarly, fraud, security, trust and privacy are increasingly becoming board-level topics for financial institutions, and compliance and brand reputation budgets are growing.

Fintech providers leveraging data and cloud automation are quickly becoming the new security standard bearers in various verticals. It is a fundamental and radical improvement of the available tools for assessing risk and fraud. Unfortunately, many large financial institutions, which are inherently slow to change but embrace innovation with curiosity, still operate with a more limited set of tools.

AI and machine learning will be a must

By 2023, AI and machine learning algorithms in fintech that support transactions in banking, lending and credit risk assessment will definitely have a more significant impact on who accesses financial services and to what extent. Over the past decade, fintech innovation has enabled 1.2 billion unbanked people to access financial services, according to the World Bank. However, nearly 3.5 billion people in the world are still excluded from the formal financial sector. Most of them are unbanked, meaning they are unable to obtain a bank account, forcing them to obtain credit through informal, and often very expensive, moneylenders or loan sharks. Therefore, the market for this area is significant.

On the other hand, by leveraging AI technology to their advantage, banks can increase their revenue, provide a unique multi-channel experience and accelerate innovation cycles. As the impact of Web3 technology becomes clearer, the need for regulation will increase.

People always matter

And the last but not least trend, which is essentially evergreen and yet paradoxical as new technologies increase in importance, is the human factor. No matter how extensive the growth of AI, machine learning or metaverses may be, people are the very factor that will drive your business forward, or conversely, will put it out of business. That’s why it’s more important than ever to find your A-Team and put them to work. These people don’t have to be Ivy League graduates or have super high IQs. They need to understand business, fit in well with the culture you’ve created and be agents of change.

Otherwise, horizontal networking is also crucial against an apparent crisis and the inertia of official institutions in the post-pandemic. Being involved in a large community of founders and entrepreneurs means constantly learning and helping each other build sustainable businesses.