Top Trends 2023 - Financial Technology

Keeping up with the mouse analogy, we’re sure you know Jerry! Yes, the tiny mischief-maker from Tom and Jerry! Did you know that the show first premiered in 1940? Back then, the world of finance looked vastly different: we did not have credit cards, ATMs, or digital banking. That’s to say that financial technology has been constantly evolving to better serve consumer demands. Today, we cannot imagine day-to-day life without online transactions or buy-now-pay-later schemes. We bet we’ll be saying the same thing about touchless payments in a few years! #SpoilerAlert

If you don’t want to be caught in the 1940s with Tom and Jerry, you need to know about the latest trends impacting the financial domain – and that’s where we step in. Last year, we explored trends such as digital-only banking, buy-now-pay-later schemes and blockchain technology. Read on to find the top 5 must-know Financial Technology Trends of 2023!
 

Trend 1: Businesses Will Start Accepting Cryptocurrencies

Last year was a rollercoaster ride for cryptocurrency investors as the market experienced a massive crash, losing trillions in market valuation. However, despite the volatility, crypto will be going mainstream in 2023! This is mainly due to its underlying technology (blockchain) finding broader adoption, notably for real-time cross-border payments.

Think of this: a survey by ZDNet found that more than half (52%) of consumers agreed that cryptocurrency is a “valid alternative” to making overseas fund transfers. Further, roughly 45% of consumers said that they are already using cryptocurrencies for this purpose. Hence, crypto is expected to revolutionize how consumers transact and businesses need to take note of this trend. Major FinTech players such as Mastercard and PayPal have expressed keen interest in rolling out plans to accept crypto across various services.

If you’re still not convinced, Google recently announced a partnership with Coinbase, the second-largest crypto exchange in the world, which will allow customers to pay for Google Cloud services with cryptocurrency as early as 2023. Cryptocurrencies will open businesses up to a global consumer base to allow quick, errorless transactions across the globe.

TechDogs’ Opinion: While skeptics will remain wary of transitioning to cryptocurrency, several progressive businesses have already started adopting it as a form of payment. We expect more digital banks and neo-banks to follow suit by offering crypto-compatible transactions soon. The consumer adoption of cryptocurrency has grown in the last few years, which will make it viable for businesses to integrate crypto payments within their platforms and applications. Visa reported that in the last quarter of 2021, they enabled cryptocurrency transactions valued at over $2.5 billion. We believe with growing consumer interest; more businesses will look to leverage this trend in 2023. #DoYouCryptoYet 
 

Trend 2: Smart Transactions Will Rely On Smart Contracts

Have you come across the term “smart contract” yet? If not, here’s a primer: a smart contract refers to a transaction protocol based on the terms of a contract or agreement that automatically executes, controls and records the actions on a blockchain. Smart contracts can even be used for cross-border payments, making them accessible to businesses using any currency – even Bitcoin!

The trend of using smart contracts is gaining traction as they are extremely robust in terms of trust, reliability and execution. Since they exist on blockchain networks and are digitally enforced, the contract cannot be changed or tampered with. Being virtually tamper-proof also means that these contracts are guaranteed to execute in a precise and predictable manner. #NoLastMomentShenanigans

Smart contracts will enable a higher degree of trust in financial transactions across the globe this year. They can be made between any two parties, no matter the currency, time or amounts used in the transaction. However, the biggest selling point is that they do not require the authority of a third party to verify the authenticity of the transaction. Hence, experts predict that two businesses will soon be able to create and use the smart contract as easily as two individuals.

TechDogs’ Opinion: Smart contracts are the way of the future! Many of the drawbacks found in conventional financial contracts will be addressed by smart contracts. For instance, they will expedite financial transactions between entities located anywhere in the world and only execute when the necessary criteria are met. That’s because every connected user on the blockchain will have access to the same copy of the initial digital contract, this trend will make contract breaches impossible. Additionally, smart contracts will reduce (or completely eradicate!) financial crimes such as double spending and counterfeiting. #DontLetTheContractConYou
 

Trend 3: Wearables Will Enable Contactless Payments

We bet your smartwatch can do a lot. Yet, can it make payments? That’s the latest Financial Technology Trend! Contactless payment wearables have been making waves in the FinTech sector for a while. Yet, in 2023, we expect it will flood the markets, allowing consumers to pay for everyday goods and services faster than ever.

With the pandemic driving digital transformation initiatives, businesses are looking for new ways to answer the consumer demand for contactless payment solutions. Credit and debit cards (or the physical wallet storing them!) always carry the risk of being stolen or misplaced. However, using wearables with payment functionalities can improve security and convenience. Apple Watch took the world by storm as it allowed users to make contactless payments. Moreover, a Juniper Research report from 2021 projected that global volumes for contactless transactions will surpass $49 billion in 2023.

So, as this trend grows, we will see bracelets, fitness trackers, rings, smartwatches, etc. that can be used to make payments instead of banking cards. This will enable a cashless system, where payments can be made simply via tap or touch. Now, that's what we call a smartwatch!

TechDogs’ Opinion: Contactless payments were in focus during the pandemic for obvious reasons. However, the trend seems to be further boosted by the convenience and ease offered by wearables. Heck, British menswear designer Lyle & Scott recently collaborated with Barclaycard to design a contactless payment jacket! Hence, the growth and adoption of contactless payment through wearables will continue in 2023. We expect educational institutions, government agencies, retail stores, etc. to provide convenient payment options via wearables soon. Watch out for fashion brands that are currently developing accessories with NFC chips that will offer tap-and-pay functionalities. #WearToPay
 

Trend 4: Embedded Finance Will Come To The Fore

Another major trend that's expected to emerge this year is that of embedded finance. The term refers to the integration of financial functionalities or services within enterprise offerings of non-financial institutions. This trend will influence business applications across businesses in 2023, from retail chains and supermarkets to cab-hailing and airlines.

Embedded finance will allow non-banking businesses to offer financial services such as private-label credit cards, money lending, etc. to consumers. Some businesses are even exploring areas such as payment processing, loans and insurance. Essentially, embedded finance will allow non-financial businesses to deliver banking "as-a-service". Businesses are keen on this trend, as searches for embedded finance have accelerated by almost 500% in the last five years! #SearchNeverLies

Finance experts believe this trend will be driven by financial institutions offering non-banking organizations access to their services through the use of APIs. This will allow non-banking businesses to integrate financial services into their services and platforms, rather than having to develop entirely new financial services from the ground up. Services will range from providing in-app payment options and issuing virtual cards to developing digital-only banking services and setting up more integrated payment options for end users.

TechDogs’ Opinion: The emergence of embedded finance in the FinTech industry has been on the horizon for a long time. Its adoption will rely on progress on two fronts. First, the emergence of better API-based services from financial organizations. Secondly, the transition to cloud-based SaaS models will create more demand for "banking-as-a-service" by non-banking companies. We believe that since the complexity of operating and managing financial services will be with the provider, more non-banking businesses will look towards Embedded Finance in 2023. This trend is expected to widely improve in-app experiences for consumers. #FinanceAsAService  
 

Trend 5: Artificial Intelligence (AI) Will Transform The FinTech Industry

Yes, we know! Artificial Intelligence is transforming businesses across industries and it is no surprise that financial institutions are now embracing the power of AI in 2023. The technology has already revolutionized fraud detection and credit risk assessments last year, which will lead to the wider adoption of AI in the finance sector this year.

At its core, AI will optimize, streamline and automate a gamut of tasks in the financial domain, leading to better efficiency and return on investments. Artificial Intelligence is projected to reduce the operating costs of banks by nearly 22% by 2030. This will stem from financial institutions being able to develop and deploy better AI-based chatbots, predictive models, risk assessment algorithms and other intelligent systems. In fact, research from Juniper Research indicates that simply deploying interactive chatbots for customer engagement will spare banks close to 826 million hours of human interaction annually!

Overall, AI will facilitate the automation of high-value processes making operations faster and more efficient, resulting in better customer experiences. Using AI for automated data analytics will also help identify and respond to data breaches, provide better data privacy and enhance security for sensitive financial data. Artificial Intelligence as a part of the FinTech stack can be ignored no longer!

TechDogs’ Opinion: In 2023, we predict that financial software will increasingly integrate AI algorithms. Instead of working in isolation, finance professionals will be able to use AI in their routine activities. The most significant advantage of AI integration will be speedier decision-making on crucial activities. However, when implementing AI algorithms, financial institutions will also need to ensure they follow ethical regulations. Building intelligent solutions that protect end users from bias introduced by AI will require collaboration between financial organizations and experts, especially for functions such as analysis of loan default and credit allocation. #TechDogsSupportsEthicalAI
 

Summing It Up

Technology has changed the face of finance – and it will continue to do so! These latest FinTech trends will transform the way businesses operate, how consumers transact with them and everything in between. We will see more businesses adopt cryptocurrencies and smart contracts to provide better financial experiences. Banking institutions will invest in AI integrations, while non-banking businesses will look towards embedded finance to enhance operational efficiency. Moreover, consumer-facing businesses will aim to accommodate the rising demand for contactless payments through wearables.