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The digital financial services industry continues evolving at an unprecedented pace. From adopting cutting-edge technologies to changing consumer expectations, the FinTech landscape is set to undergo significant transformation this year. In this article, we’ll explore some of the key trends in FinTech that are expected to have a significant impact on the industry. We will also consider what they mean for financial institutions, FinTech startups, and consumers.
Whether you’re a seasoned industry professional or simply curious about the latest developments and trends in FinTech, this article will provide valuable insights into the tendencies shaping financial services’ future in 2023 and beyond.
Here are the FinTech trends to watch out for:
As the FinTech industry continues to grow and evolve, data security has become an increasingly critical concern. With more and more financial transactions occurring online and the unprecedented growth of sensitive financial data, FinTech companies are under more pressure than ever to ensure the security of their customers’ information.
A proactive approach to cybersecurity
In FinTech, there is a growing trend towards implementing a more proactive approach to cybersecurity rather than relying solely on reactive measures. This includes regular security assessments and penetration testing, as well as ongoing employee training and awareness programs to educate staff about the latest cybersecurity threats and best practices (including simulated phishing attacks).
Many FinTech companies recognize the importance of having a comprehensive incident response plan in place that includes processes for detecting, responding to, and recovering from cyber incidents. They are also investing in tools and technologies such as security information and event management (SIEM) systems, threat intelligence platforms, and security orchestration, automation, and response (SOAR) solutions to aid in incident response.
Stronger authentication and verification
One of the top FinTech trends we can expect to see in the industry in the upcoming months and years is stronger authentication and verification. FinTech companies are already using multi-factor and biometric authentication to protect customer data, but we can expect to see even more advanced solutions and verification methods emerging in the coming years, like voice recognition and behavioural biometrics. However, both are still relatively new technologies and are constantly evolving.
Voice recognition technology uses a person’s unique vocal characteristics, such as pitch, tone, and accent, to verify their identity. This technology has the advantage of being non-invasive and can be used remotely, which makes it a convenient option for many users. However, it can also be vulnerable to certain types of attacks, such as voice impersonation or recording and playback attacks.
Behavioural biometrics, on the other hand, involves analyzing a person’s unique patterns of behaviour, such as the way they type on a keyboard or use a mouse, to verify their identity which may be very useful in a fintech company. This technology is becoming increasingly popular in the financial industry because it can help detect financial fraud by identifying anomalies in a user’s behaviour. However, it can also be subject to false positives, where legitimate users are mistakenly identified as fraudulent due to random or situational changes in their regular patterns.
Increased use of encryption and tokenization
Another one of the trends in FinTech data security we can expect in 2023 is the increased use of encryption and tokenization. Currently, homomorphic encryption allows data to be processed and analyzed without ever being decrypted, providing an additional layer of protection for sensitive information. It’s highly probable that even more sophisticated encryption methods will emerge in the coming years.
Cloud computing is a rapidly growing trend in the FinTech industry as it results in increased security. Many cloud services providers offer advanced security features and certifications, which can help companies to protect their sensitive financial data against cyberattacks and data breaches.
However, there are also potential risks and challenges. One key challenge is ensuring compliance with regulations such as data protection laws and industry-specific regulations like PCI-DSS (Payment Card Industry Data Security Standard). Companies must ensure that they are complying with these FinTech regulations when storing and processing financial data in the cloud.
If you want to learn more about security solutions for the FinTech industry, I recommend you to read my article about threats, risks and mitigation in FinTech cybersecurity.
II Compliance with Government Regulations for the financial industry
Compliance with government regulations is an essential aspect of the financial sector. Regulations are put in place to protect consumers, prevent financial crimes, and ensure the stability of the financial system.
In recent years, data protection has become an increasingly important aspect of regulatory compliance, with the rise of data breaches and concerns over privacy. The Application of Data Protection by Design and by Default principles is one way that FinTechs can meet these regulatory requirements.
Application of Data Protection by Design and by Default Principles
Financial institutions must comply with a range of regulations, including anti-money laundering (AML) and know-your-customer (KYC) requirements, as well as regulations related to consumer protection, privacy, and data security. These regulations are designed to protect consumers and prevent financial crimes such as fraud, money laundering, and terrorist financing.
Data Protection by Design and by Default (DPbDD) is a set of principles that encourage the integration of data protection measures into the design and development of systems, products, and services. This approach aims to ensure that privacy and data protection are built into the core of a product or service rather than added as an afterthought. Therefore, DPbDD principles can help to ensure that FinTechs are in compliance with regulations.
Because of the sensitive financial data processing, we can expect sharpening the regulatory challenges and severe consequences of not following them. Therefore, incorporating DPbDD principles will be an indispensable part of building compliant solutions.
Regulatory Technology (Regtech)
Regulatory Technology, or Regtech, is a rapidly growing FinTech trend that is likely to continue to mark its presence in 2023. Regtech involves the use of technology to help financial institutions comply with regulatory requirements and improve their risk management processes.
One of the main drivers of the growth of Regtech is the increasing complexity and volume of regulations in the financial industry. As regulations become more numerous and complex, FinTechs are finding it increasingly difficult to comply with them manually. Regtech solutions can automate many of the compliance processes, making it easier for institutions to stay compliant.
In addition, Regtech can help financial institutions improve their risk management practices. By providing real-time monitoring and analysis of data, Regtech solutions can help institutions detect potential risks early on and take proactive measures to mitigate them.
Another factor driving the growth of Regtech is the increasing demand for transparency and accountability in the financial sector. Regtech solutions can help institutions improve their transparency and accountability by providing better reporting and audit trails.
As regulations continue to evolve and become more complex, financial institutions will need to rely more heavily on technology to stay compliant and manage their risks effectively.
III Artificial Intelligence & Machine Learning
Artificial Intelligence and Machine Learning have emerged as major FinTech trends in recent years, and this trend is expected to continue in 2023. FinTechs are using those technologies to improve the accuracy and speed of financial services, automate processes, and enhance customer experiences.
An important area where AI and ML are making significant strides is predictive analytics. By analyzing large amounts of data, including transaction history and customer behaviour, AI algorithms can predict future financial behaviours and trends. This can be used to inform investment decisions, create personalized financial plans, and offer more targeted financial products and services.
Fintech companies are also using predictive analytics to assess creditworthiness, allowing them to provide loans and credit to customers who may have been previously denied. By using AI-powered credit scoring models, FinTech companies can assess risk more accurately and provide credit to underserved populations.
Chatbots and Virtual Assistants
One of the most prominent applications of AI in FinTech is the use of chatbots and virtual assistants. These technologies use Natural Language Processing (NLP) and Machine Learning algorithms to interact with customers, answer their queries, and provide support. Chatbots and virtual assistants are being used to improve customer experience, increase engagement, and reduce the cost of customer service.
In 2023, we can expect to see chatbots and virtual assistants becoming even more sophisticated, with more advanced NLP algorithms and the ability to handle more complex tasks. These technologies will become an essential part of financial institutions’ customer service strategies, providing 24/7 support and personalized assistance to customers.
Robotic Process Automation (RPA)
Robotic Process Automation is another trend that is likely to continue in 2023. RPA involves using software robots to automate repetitive, time-consuming tasks, such as data entry, report generation, customer onboarding and compliance reporting.
By automating these tasks, fintech companies can reduce errors and increase efficiency, ultimately improving the customer experience.
Fraud Detection and Prevention
Another critical application of AI and ML in FinTech is fraud detection and prevention. FinTechs are increasingly using AI and ML algorithms to detect fraudulent transactions, identify suspicious patterns, and prevent fraud. These technologies can analyze vast amounts of data and identify anomalies in real time, helping to reduce the risk of financial crime.
For example, behaviour analysis can be used to identify transactions made from unusual locations at unusual times or using unusual payment methods. By analyzing these patterns, systems can identify potential cases of fraud and flag them for further investigation.
In 2023, we can expect these technologies will be able to identify and prevent new and emerging types of fraud, such as deep fake fraud and synthetic identity fraud.
AI and ML are also transforming investment management. Financial institutions are using these technologies to analyze data and make more accurate predictions about the stock market and other investment opportunities. AI and ML algorithms can analyze vast amounts of data from multiple sources, including social media, news articles, and financial reports to identify trends and make predictions.
In the upcoming years, we can expect these technologies will be even more intricate and able to provide more accurate predictions, analyze more complex data sets, and make more informed investment decisions.
Risk Assessment and Management
AI and ML algorithms are also being used to assess and manage risk in the FinTech industry. These technologies can analyze data from multiple sources, including market trends, customer behaviour, and economic indicators.
They can help financial institutions to identify potential risks, improve the accuracy of risk assessments, make more informed decisions and mitigate the risk of losses. This trend is expected to continue this year.
Personalized Financial Planning
Finally, AI and ML are being used to provide more personalized financial planning and advising helping users to achieve their financial objectives. By analyzing a customer’s financial history and behaviour, AI algorithms can provide tailored recommendations on everything from budgeting and creating personalized financial plans to investment decisions.
By providing more personalized financial advice, FinTechs can differentiate themselves from traditional financial institutions and build stronger relationships with customers.
IV Focusing on User Experience
User experience in the era of the growing popularity of FinTech solutions is becoming one of the key factors of company success. This is the reason why FinTech products are more and more focused on personalisation, usability, accessibility and comfort of usage (e.g. contactless payments).
As more people use mobile devices to access mobile banking and financial services, fintech companies are adopting a mobile-first approach to design and user experience. This means that user interfaces and interactions are optimized for small screens and touch gestures.
With the growing popularity of mobile devices and the focus on touchless experience, voice interfaces are becoming more and more common in FinTech. A voice interface allows users to interact with a FinTech product or service using natural language voice commands instead of using a keyboard, mouse, or touch screen. It’s not only more convenient but also improves accessibility for people with disabilities or limited mobility. It also reduces the need for users to enter sensitive information using a keyboard or touch screen and therefore helps prevent keystroke logging attacks and other forms of hacking.
Personalisation is a key trend in FinTech that is likely to continue to grow in importance in 2023. FinTech businesses are using data analytics and Machine Learning algorithms to personalize the user experience. They use data about user behaviour, preferences, and transaction history to provide not only customized recommendations but also products and services tailored to users’ needs.
User experience can be enriched by real-time notifications that provide customers with immediate updates on their accounts, transactions, and other financial activity. By doing so, notifications allow users, e.g. to take action quickly to prevent potential fraud or manage their finances more effectively.
During the upcoming years, we will observe higher and more tangled cooperation between different financial organisations, service providers, and other stakeholders to collaborate and innovate in a shared environment. Such collaborative ecosystems (partnerships, alliances, and consortia) will allow users to access a wider range of financial products and services from a single platform.
V Growing demand for digital banking
The banking industry has undergone a significant transformation in recent years due to the growing demand for digital transformation. With the rise of mobile technology, customers now expect banking services that are accessible anytime, anywhere, and on any device. It also allows for to reduce of bank operating costs and provides more affordable services.
Digital banking and neobanks
Digital banking refers to banking services that are provided through digital channels, such as mobile apps and online platforms. Neobanks, on the other hand, are digital banks that operate entirely online without any physical branches. They meet the evolving needs of customers in a rapidly changing banking industry.
Digital banking and neobanks are becoming more and more popular because they offer a more convenient and personalized way for customers to access financial services. They can perform transactions and access financial information anytime, anywhere, using their mobile devices or computers. Such solutions are also accessible to people who may not have access to traditional banking services, such as those in rural areas, and promotes financial inclusion all around the globe handling transactions worldwide.
However, there are also potential challenges with digital banking and neobanks, particularly around regulatory compliance and customer trust. Regulators are still catching up with the rapid pace of innovation in FinTech, and customers may be hesitant to trust digital institutions with their money.
Open banking refers to the practice of sharing financial data securely and easily between different financial organisations and third-party providers using open APIs. This practice allows for more personalized and tailored financial services and has become increasingly popular in recent years.
One of the key trends in this area is likely to be the further adoption of open APIs across the industry. This will lead to more seamless integration between different financial services and providers, making it easier for users to access and manage their finances.
However, with the increased sharing of financial data comes an increased risk of cyberattacks and data breaches. API security is, therefore, a critical consideration for any company operating in the Open banking space.
The social aspect of the financial technology
The finance industry has traditionally been focused on transactions, but in recent years, there has been a growing emphasis on community. In 2023, this trend is expected to expand as FinTech companies are expected to incorporate social networking features into their platforms.
A key area where we can expect to see social features is in the investment space. Social investing, also known as social trading, allows investors to follow and copy the trades of other investors, as well as share their own investment strategies and insights. This creates a community of investors who can learn from and support each other, making investing more accessible and less intimidating for newcomers.
Another aspect where social features will have an impact is in the lending space. Peer-to-peer lending platforms have been around for a while, but in 2023, we can expect them to become more community-oriented. For example, borrowers may be able to create a profile and share their story with potential lenders, while lenders may be able to connect with borrowers based on shared interests or values.
Social features can also play a role in financial education. FinTech companies can use social media features to offer customers a place for discussions, where they can support and advise each other. That might also increase customer loyalty, which will be one of the challenges for the upcoming years.
Blockchain technology has been gaining popularity in the FinTech industry since its inception, and this trend is likely to continue in 2023. Blockchain is a distributed ledger technology that allows for the secure and transparent storage and transfer of data, making it an ideal match for FinTechs looking to improve security, reduce costs, and enhance efficiency.
One of the key applications of blockchain in FinTech is in the area of payments and money transfers. Blockchain-based payment systems, such as Bitcoin and other cryptocurrencies, offer a secure and transparent way to transfer money without the need for intermediaries like banks. This decentralized finance can significantly reduce transaction fees and processing times, making it an attractive option for both businesses and consumers.
Blockchain can also be applied to identity verification, fraud prevention, and regulatory compliance. For example, it can be used to create a secure and tamper-proof record of customer identities and transactions, which can help prevent fraud and ensure compliance with regulations such as Know Your Customer (KYC) and Anti-Money Laundering (AML).
Another potential use case for blockchain in FinTech is in the area of smart contracts that are programmed to execute when certain conditions are met automatically. These contracts can be used in a variety of financial applications, such as insurance claims processing, trade finance, and supply chain management, to improve efficiency and reduce costs.
Mobile wallets allow users to store and manage their payment information (such as credit cards, debit cards, and bank accounts) on their mobile devices. Users can simply tap their mobile devices to pay for goods and services without the need to carry physical cards or cash. This solution has the potential to become the next level of payment in 2023 and is expected to handle one-third of point-of-sale transactions in 2024.
Mobile wallets can also enable more seamless and integrated payment experiences across different channels and platforms. They offer additional benefits like loyalty programs, discounts, and rewards. By integrating with other financial services and providers, mobile wallets can offer customers a more unified and frictionless payment experience.
Embedded finance, also known as Banking-as-a-Service, refers to the integration of financial services into non-financial products and services, such as e-commerce platforms, marketplaces, and other applications.
BaaS is made possible through the use of APIs, which allow companies to access financial services and data from third-party providers. Therefore, they can offer a wide range of financial services, such as digital payments, lending, and insurance, without the need to build and maintain their own infrastructure. This trend is currently growing and is expected to continue in the upcoming years.
VI Sustainable Finance
Sustainable finance is a growing trend in FinTech that focuses on integrating environmental, social, and governance (ESG) considerations into financial decision-making. It aims to support sustainable economic growth and address global challenges such as climate change, social inequality, and biodiversity loss.
To support sustainable finance, FinTechs develop financial products and services that promote sustainable development, such as green bonds, impact investing, and sustainable funds. These products can help finance renewable energy, clean technology, and other sustainable projects.
FinTech companies can also use data analytics and AI to assess ESG risks and opportunities and provide more informed investment decisions. By integrating ESG considerations into their analysis, they can identify companies and projects that are more sustainable and generate positive social and environmental outcomes.
What is more, FinTechs can promote transparency and accountability in financial reporting and disclosure. They can develop tools and platforms that provide investors with access to ESG data and information and encourage companies to report on their sustainability performance.
There are also potential challenges with sustainable finance, particularly around measurement and standardization. There is a lack of standardized metrics and methodologies for measuring ESG performance, which can make it difficult for investors to compare and evaluate companies and projects.
VII High Industry Expertise Demand
Lack of mobile and tech expertise is a challenge that many financial companies and FinTechs are facing in 2023 (and it’s almost certain this trend will increase in the upcoming years). As the financial industry becomes increasingly digital, companies need to have skilled professionals who can design, develop, and maintain their digital platforms and services.
One of the main issues is the shortage of skilled workers in the field of mobile and tech development. The demand for mobile developers and data scientists has been consistently high, and many companies are struggling to find qualified professionals with the necessary skills and experience.
To address this challenge, FinTechs may need to invest in training and development programs to upskill their existing workforce. They may also need to consider outsourcing or partnering with third-party providers who can provide the necessary expertise.
What will shape the future of fintech companies?
As there is a growing demand for digital banking services, FinTech businesses this year will face with necessity to distinguish themselves from an increased number of competitors. They also will put an increased focus on security, meeting compliance regulations and gaining benefits from Artificial Intelligence and Machine Learning. Many businesses will also pay more attention to sustainable finance, which is also connected with growing customers’ awareness.
As I expect, the demand for different digital finance services is to grow, which can increase the competition. Growing competition will force FinTechs to put user experience at the centre of their attention. That will result in focusing on mobile devices, embedded payments, increasing personalization, adoption of voice interfaces, the rise of social finance and the use of mobile wallets as the next level of payments.
These trends in FinTech are driven by evolving consumer expectations, advancements in technology, and new entrants into the financial industry. Traditional banks and financial companies will need to adapt and innovate in order to remain competitive in this rapidly evolving landscape of financial technology.
Jakub is a heartfelt and dynamic leader focused on building reliable, modern, customer-centric, and agile organisations. He's the founder and CEO of TeaCode, a team of passionate professionals: software developers, quality assurance engineers, project managers, UX/UI designers, digital marketers and business analysts.