Globally, the economic climate in 2022 has been tougher than expected. Particularly, the fintech industry has witnessed critical losses to the value of its top companies as well as a significant drop in VC investments in fintech. What does this mean for the fintech market in 2023 and beyond? Are investors losing faith in this particular market?
Far from the bleak economic conditions, the fintech industry can be said to have been consolidating its record-breaking gains in 2021, following a year of lockdowns and massive business disruptions.
The mark seems to be balancing out, in a trend that will continue into the next year.
So, the industry is still growing, and there is a lot to achieve. Therefore, it’s important to consider some trends that will serve as pillars of the fintech industry in the coming years.
AI Decision-Making
It is now the norm for AI to be used to make decisions on issuing loans, negotiating insurance packages, and detecting fraud. This has enhanced financial inclusion as well as hastened the provision of financial services to customers. AI algorithms are already a usual expectation for new fintech applications, starting from the startup MVP development stage.
However, the public is now raising questions concerning the ethical impacts of AI in such mission-critical decision-making. For instance, there was a public decry several months back over the algorithm of the Apple card, which gave men higher credit card limits than women.
In 2023, AI algorithms in financial software development will feature more heavily in determining who gets access to various financial services and how. Nevertheless, fintech companies must be able to balance the scale that these algorithms provide with impeccable ethics in their implementation by building robust systems that safeguard end users.
Financial Inclusion
According to the World Bank, 1.2 billion unbanked people started gaining access to financial services within the past ten years, a feat made possible by the introduction of innovations such as artificial intelligence that enabled fintech companies to deliver financial services at scale.
However, the journey to global financial inclusion through financial software development is still far ahead, as 1.7 billion more people remain unbanked, many of them living in developing and underdeveloped nations.
As such, we have witnessed the rise of VC investments in fintech pouring into the African and APAC regions. In what has been described as a ‘coming of age’, experts look forward to financial services revenues in Africa growing by 10% annually until 2025.
Similarly, despite the global economic meltdown, APAC fintech investment in 2022 H1 went up to $41.8 billion, more than doubling the $19.2 billion recorded in 2021 H1.
In terms of fintech investments, 2023 is going to be a critical year in enhancing global financial inclusion.
Contactless Payments
The payments sector is the biggest player in the fintech industry, having recorded the biggest strides over the past years. The latest major twist to this innovative sector is the rise of contactless payment, which is already on, and will continue as a major trend in the fintech market in 2023.
The rise in contactless payments began during the height of the pandemic, with a digital payments company discovering a dramatic increase in contactless transactions through its platform to 62% in October 2021, from 51% in January 2020.
In the same period, cash transactions decreased from 49% to 38%. Already, in Europe, 8 in 10 payments are contactless, signifying a major turnaround.
According to a 2021 report from Juniper Research, mobile contactless transactions are expected to grow by 92% in 2023, with global transaction volumes exceeding $49 billion. Contactless payments bring greater ease and convenience to accessing financial services, and this growth is hardly surprising.
Buy Now Pay Later
Buy Now Pay Later is an issue that generates mixed reactions from the public as well as stakeholders. Love or loathe it, though, BNPL has gone from being a niche financial service to a major driver of the fintech sector. There are entire fintech startups existing as BNPL companies. Whether as a source of concern or a viable sector to watch, BNPL will be an important payment trend in 2023.
BNPL, which democratizes installment payments for the retail industry, is a huge deal among Gen Zs and Millennials, which make up 44% and 37% respectively of its user base. More so, experts predict that BNPL will make up 25% of eCommerce transactions by 2026, up from 9% in 2021.
Amidst this sharp growth, BNPL offerings have been a critical source of concern for regulators, who face hurdles in trying to categorize and control how these services are dispensed. Too strict regulations might reverse the gains that BNPL services have recorded in 2023.
There are financial and operational benefits to BNPL services, but they also carry a measure of risk. Perhaps the market is not ready for it yet. Nevertheless, this sector is going to be critical to fintech and eCommerce next year and beyond.
Conclusion
2023 is going to be critical to the fate of many maturing fintech innovations and financial software development.
The industry is not fully developed yet, and several areas remain to explore. Fintech companies should be looking to add more robustness to their financial services in order to mitigate against shocks and disruption like 2022 has brought. Nevertheless, the potentials remain endless.
Image by Gerd Altmann from Pixabay.
