Fintech Predictions and Opportunities for 2023 • TechCrunch
Which sectors have the greatest potential?
It has been quite an eventful year. Fintech has fallen far from its 2021 peaks, and while 2022 was largely about resetting the funding environment, 2023 will be a year of recalibration for fintech companies.
The good news is that large and mid-sized companies care more than ever about impact on the bottom line. As revenue growth slows, cost savings and efficiency have become essential. Larger companies are more likely to cut back on internal innovation efforts and non-core technology investments.
This opens the door for fintechs to deliver real improvements to the bottom line by eliminating manual processes and saving customers money.
First, let’s take a look at the sectors likely to be most challenging: lenders, neobanks and fintechs serving SMEs.
Online lenders
Lending will be hit hard. Lenders must manage three major tailwinds in today’s market:
- Increasing default rates and write-offs.
- Higher cost of capital for the debt they lend.
- Declining demand from customers due to higher interest rates.
Focus on how technology can solve hard problems, and don’t worry so much about finding what’s cutting edge in fintech.
The increase in default rates and installments from non-paying customers will be difficult to handle for newer fintechs that have been operating for less than five years. These younger companies do not have the models fully built to predict which customers are more likely to default.
Managing risk during a downturn can be brutal, and lenders will feel this most acutely.
Neobanks
Neobanks transformed the customer experience of traditional banks by offering better digital products and lower costs. While large players, such as Chime, which raised large amounts of capital will do well, expect to see consolidation among the smaller neobanks.
The reality is that many neobanks have customers with small average deposit balances, and deposits are crucial to banking business models in the long term. Neobanks will also be downstream victims of layoffs – if any of their customers are laid off, the banks will see their direct deposit flow decline.
Fintechs serving SMEs
Small businesses are more likely to close up shop during a recession. In turn, fintechs that serve SMBs are more likely than larger mid-market and enterprise customers to lose their SMB customers. This is why you’re already seeing companies like Brex move away from serving SMBs.
What is hot
The opportunities for fintech in 2023 lie in the “boring” areas such as fraud, compliance, payment operations, taxes and infrastructure. CFOs will be more focused than ever on bottom line impact. Fintechs that are able to demonstrate a measurable improvement in payment authorization and reconciliation rates or a reduction in fraud will be able to weather the downturn and grow.
