UK Fintech Investment led by Embedded Finance, Web3 and ESG; Find FIS

The last FIS Global Innovation report reveals fintech investment trends in 2023 among UK firms battling recessionary pressures.

Embedded finance, web3 and Environmental, Social and Governance (ESG) lead UK fintech investment in 2023 amid recessionary pressures, according to FIS’s Global Innovation report.

The payments technology provider’s latest study of 2,000 c-suite executives at firms across markets, including 375 in the UK, reveals these three areas as the primary recipients of investment this year. Elsewhere, attitudes towards decentralized finance and cryptocurrency also appeared optimistic.

Accordingly, the majority of executives surveyed expect these areas of the industry to have a “major or moderate” impact over the next year. Along these lines, 84 percent agree that ESG will be the area of ​​most poignant impact, with cryptocurrencies expected to be the least influential at 77 percent.

Among UK executives specifically, ESG retains the top spot for influence at 84 percent, while the data is again mirrored with cryptocurrency rated as having the least impact on business at 73 percent.

The UK is preparing for a future of digital assets and the next generation of the internet

Web3, also known as the next generation of the internet, revolves around the use of decentralized infrastructure such as blockchain technology and includes innovations such as cryptocurrency, decentralized finance (DeFi) and metaverse.

The research suggests that the UK is keeping pace with international investment in web3 as organizations worldwide seek to seize the next growth opportunity:

• Development of cryptocurrency

While a majority of 59 percent of respondents expressed no interest in developing cryptocurrency-related services, only 17 and four percent of non-financial and financial services, respectively, do not expect to offer such services within the next three years.

This on-the-fence behavior is largely driven by a lack of regulatory clarity; as cited in a quarter of financial services firms. Elsewhere, a lack of interoperability between platforms was cited as a barrier to wider adoption of cryptocurrency among 22 percent of organizations, while 21 percent see a lack of supporting ecosystem services as an additional barrier to adoption.

Non-financial services companies, on the other hand, shared similar concerns, with 24 percent noting a lack of cryptocurrency services from banks and other financial service providers as a barrier to adoption.

Metaverse and associated technologies have taken the fintech industry by storm, as the potential for customer engagement is increasingly realized.

This eagerness is evident in the report’s findings, according to which 55 percent of financial services firms are actively investigating potential opportunities in the metaverse.

Meanwhile, 58 percent of non-financial businesses say it will be strategically important to have a presence in the metaverse over the next three years.

DeFi is recognized as a major opportunity for growth by 51 percent of UK financial firms; according to the report. Despite its strong reputation for generating growth, barriers to its full use remain in place for now.

As such, 51 per cent of firms surveyed admit their risk management frameworks are currently incompatible with most digital assets, generating one of the most widely considered roadblocks to wider use of the technology in the UK.

Embedded finance to empower UK businesses in 2023

Embedded finance is when consumers have unique, tailored financial services delivered to them when they need it by non-financial companies.

The report finds that embedded payments are the most familiar to consumers, enabling the speed and convenience of paying for goods and services in an app. For this reason, new use cases are emerging across banking, lending and investing, and the drive to providing embedded financial services is increasing in the UK.

The report indicates that 84 per cent of UK companies see embedded finance as having an impact on their organization in the next 12 months in line with changing customer demands for convenient ways to pay, bank and invest.

To respond to this changing demand, 38 percent of financial services and fintech firms intend to invest in developing their embedded finance functions over the same time period.

Meanwhile, 55 percent of non-financial firms that see an impact from embedded finance on their business told FIS they will respond by increasing their technology or research and development budgets this year.

“While the macroeconomic environment in the UK and around the world poses a real challenge to businesses of all kinds, those who invest in developing their technological capability to serve tomorrow’s consumer will find ways to thrive,” comments Silvia Mensdorff-PouillySVP for banking and payments in Europe for FIS.

Mensdorff-Pouilly describes how the research indicates that a wide range of business managers see embedded finance, web3 and ESG as drivers of growth; despite the downside headwinds identified.

“At FIS, we see early adoption in these innovative areas as crucial for success over the next few years; the companies that invest now will be the ones that succeed in the years to come, she adds.

ESG and competitive advantage

Incorporating ESG into key offerings can generate a major competitive advantage for all types of companies; the report makes that clear.

ESG is the systematic assessment of environmental, social and governance factors together with economic factors when making decisions about investments, business practices and commercial relationships.

If supported by the right technology, the right application of ESG can align the UK market with new growth opportunities while encouraging wider competition.

On that note, three out of five UK financial services see ESG as an opportunity to improve their competitiveness in the market; according to the report. In addition, 41 percent of financial companies are actively developing new ESG products and services.

To address issues with accessing and analyzing ESG data, 56 percent of financial firms say they are investing in technology to improve reporting and disclosures, giving clients more transparency about ESG scores and/or providing more detailed ESG assessments of assets and securities.