The end of fintech (as we know it)
This is a big moment for fintech. Never before has it had to face down a recession and the industry is struggling. Valuations have nose-dived, fintechs are laying off large swathes of their workforce to cut costs and investment has curtailed.
The door is open in 2023 for the more stable legacy financial services firms and tech companies to gobble up tech on the cheap. They now feel that the industry is mature enough to justify stepping into it, and knowing they don’t have the capability to build modern tech stacks from scratch, they’re using the golden opportunity to acquire companies that already have this technology set up. Fintechs will be bought, broken down and rebundled by legacy institutions looking to obtain specific features and functionality, rather than whole platforms.
The fintechs that are still independent will be much more mature. They will have better thought-through propositions that can adapt to the market. Innovation and entrepreneurship will continue to be central to the culture of the fintech ecosystem, but the way people go about building companies will change. It’s not about growing as much as possible and hoping you will eventually be profitable anymore. Now it’s about how do you innovate and grow, while ensuring you have a path to profitability.
More deeply embedded finance
Many believed that 2022 would be the year embedded finance entered prime time. It did, just not in the way most expected. It isn’t powering hundreds of consumer-facing applications, but it is revolutionising core payments operations. At a time when fintechs and brands are looking for ways to cut costs, improving efficiency of back-end processes to deliver significant savings is where embedded finance shines. The savviest brands will be taking another look at their infrastructure and payment rails and trying to nudge customers onto rails with lower fees.
BNPL is out, pre-paid is in
BNPL’s time in the limelight is fading. The super star of new payments methods in 2023 is going to be pre-paid cards. As belts tighten amid the cost of living crisis, pre-paid will give consumers a better way to manage their finances and mitigate against runaway debt. Pre-paid debit cards allow consumers to restrict and keep track of their outgoings, making financial management easier.
Pre-paid will be a big hit particularly with younger consumers. Younger consumers are the most hungry for more credit options but struggle with access due to low scores. Pre-paid cards are a great way to help them build up good credit responsibly and combined with the benefits of convenience and control will incentivise them to adopt pre-paid in a big way in 2023.
Crypto momentum
Last year was a case study in how impossible it is to predict what will happen in the world of crypto. FTX’s collapse put the world on guard and revealed that there are some key concerns that need to be addressed for crypto to be accepted by consumers, institutions and regulators. This year needs to be about building back trust in crypto. Out of the ashes of 2022, we’ll see crypto’s third coming in 2023. We know it will happen because although there is a decrease in consumer confidence and retail trade, on the institutional side we’re seeing massive growth in the volume of institutional money being converted into cryptocurrencies.
While it’s become clear that not every project is worth the investment, the demand for well-designed digital assets and stablecoins will increase, with the better managed projects emerging as the winners. The big focus in discussions amongst crypto leaders will be proof-of-reserve audits so they never again find themselves in a similar insolvency situation as FTX.
Insurtech is a surprise hit
Analytics and automation technologies are becoming increasingly impactful across the insurance sector which will build throughout 2023. AI is increasing the volume and type of data insurers can analyse enabling targeted insurance products, improving the speed of underwriting and other services. We’re seeing many new startups take on the $3.7 trillion embedded insurance market, pioneering new approaches to customer engagement that will make taking out insurance at the point of purchase just as easy as it is to take out lending today.
Commerce gets social
Live commerce through social media platforms such as TikTok Live, Twitch, YouTube, Facebook Live and Instagram Live is set to play a key role in commerce in 2023.
We’re seeing the adoption of video sharing platforms, such as TikTok rise for those over the age of 30. This comes as mobile continues to rise as the preferred device to browse and purchase goods, and cross-device experiences are increasingly valued. As a result, TikTok will become more appealing to first time marketers, compared to the likes of Facebook.
All in, the live commerce market is predicted to reach £2.4bn within the year, as more and more big vendors utilise the tool to reach new audiences and unlock an entirely new way of shopping.
Looking ahead
Fintech has experienced one of the most unpredictable years in recent memory but there is much to look forward to in 2023. Confidence in crypto is likely to rebound and embedded finance will continue revolutionising core payments operations. There’s an emerging opportunity to give consumers real value in the new ways they like to pay and shop. Insurance is being reshaped for the better. Growth opportunities are everywhere for the fintechs that know where to look.
