Top trends in fintech and financial services in 2023

In India, the financial and fintech sectors witnessed significant growth during the pandemic. While there was sustained growth across the board, the exponential growth in digital payments is an example of how the industry adapts quickly to disruption. As the situation normalizes for many sectors, growth in the financial services and fintech industries has seen an upward trajectory showing that the trend is not just a passing phase. It is well known that the deepening of the financial industry contributes to the general development of the economy. Building on this momentum, India has emerged as one of the fastest growing fintech markets in the world with a market size estimated at $150 billion by 2025.

As we see the growth of the financial services and fintech space, I see the following trends for 2023:

Embedded Fintech: Many digital-first firms are now embedding banking and payment channels as a measure to improve the customer experience. This strategy not only provides a disruptive customer-centric approach on the front end, but also eliminates the complexity associated with involving third-party websites in the payment process. It also enables organizations to build tailored solutions to make customer interactions even more seamless. An API-first, platform-based approach will help technology players differentiate themselves.

Blockchain Technology: With the launch of the central bank digital currency (CBDC), blockchain-enabled payments are predicted to become mainstream. While the e-Rupee initiative will go through the normal adoption curve, I think, in the next two to three years, we will see a fair amount of adoption in the retail payments space. The cryptocurrencies will be in the area of ​​speculation.

Cashless economy: Until a couple of years ago, it was hard to imagine that buying virtually anything without using cash would become a common practice in India. With the ease of use, increased awareness and higher internet penetration, digital payments have seen a rapid rise in recent years. India’s digital payment volume has grown at an average annual rate of around 50% over the past five years. That in itself is one of the world’s fastest growth rates, but growth has been even faster – about 160% annually – in India’s unique, real-time, mobile-enabled system, the Unified Payments Interface (UPI). There is likely to be higher growth in digital payments led by UPI as India moves further by linking credit cards to UPI and integrating international payment options. As per Reserve Bank of India (RBI)’s ‘Payment Vision 2025’, the central bank aims to increase the number of digital payment transactions by more than 3X by 2025.

Neo banks: According to an Inc42 report, neo-banking in India will grow by 281% and account for 9% of India’s total fintech market size. While the regulator and the authorities are closely watching the area and Niti Aayog is working on coming out with its recommendations for digital banks, I think many of the players will still try to find the right business model, considering the reliance on banks until the regulations are eased. There also seems to be some lull on the SME side of new banking platforms, and this is the biggest opportunity area for players to offer end-to-end solutions that encompass banking, payments and other connected financial aspects of an organization.

The government’s initiative: Over the past couple of years, we have witnessed continuous efforts by the Government of India to drive financial inclusion through initiatives such as setting up DBUs, setting up the fintech department of RBI and introduction of e-RUPI among others.

Ecosystem Bank: By providing a single solution to customers who previously relied on complex and disjointed processes across a variety of applications, ecosystem banks help banks deliver a better customer experience and generate long-term value for customers. The lines are blurring between banking and payments, and banks are realizing the importance of not only integrating with many ecosystem players to help customers purchase goods and services, but also partnering with fintech firms to give customers greater choice.

Increased focus on security: As more financial services move online, the focus on security becomes more relevant. With increased online offers, cyber attacks such as phishing are likely to increase in volume and intensity. In the midst of this, players in the industry will invest even more in security tools and services to secure transactions and ensure the privacy of customer data. Furthermore, training for various stakeholders is critical, so it is recommended to use a gamified approach to deal with these challenges.

Despite the significant achievements, a significant opportunity awaits the industry in the coming years, mainly driven by the new technology, changing cultural trends and a favorable regulatory landscape. Thus, in 2023 we will have a better picture of what the new normal looks like and how fintech shapes tomorrow’s financial services.

This article was written by Srinivas Nidugondi, Head of Growth and Transformation, Comviva)