Fintech in 2023: What’s Driving Growth?

While other sectors have been struggling in today’s troubled economy, FinTech has been maintaining its growth and delivering on its promise. Unlike other businesses, FinTech isn’t reliant on supply chain management and is not as sensitive to inflationary pressures. Unless the economy lurches sharply into recession or worse, the FinTech industry should see continued growth and profitability in 2023.

This article will cover the following:

• A brief history of FinTech and its growth
• Which FinTech sectors are poised for growth in 2023?
• What non-economic forces will shape FinTech in 2023?
• How will the lessons learned during the Covid-19 pandemic affect FinTech?
• How will climate change and other ecological concerns shape FinTech in 2023?
• How will FinTech be regulated in the coming years?
• What other obstacles will FinTech face in 2023?

A brief history of FinTech and its growth

One of the very first companies to demonstrate the potential of FinTech was the financial powerhouse we now know as Capital One. In 1994, the company was a small monoline player in the credit card industry. Two years later, its management adopted a data-intensive algorithmic method of evaluating consumer creditworthiness. Capital One began offering credit cards to people other financial institutions had turned down.

The influx of new customers enabled the company to collect even more data while further refining its creditworthiness assessment tools. Today, Capital One is the 13th largest bank in the country. The company grew so rapidly, in large part, by extending credit to people that other credit card issuers thought weren’t good credit risks, thus providing vital banking services to underserved and unbanked populations. Capital One’s early success as a technology-focused bank became a model for other financial services companies.

The word “disruptor” has been used way too often to describe some of these companies, but the term isn’t just marketing talk. Capital One was indeed a disruptor. And in the last quarter century, we’ve seen other innovations that have certainly disrupted the industries they’ve been used in:

• Robo-advisors now manage stock portfolios
• Payments apps make it cheap and easy to send money to people anywhere in the world
• Peer-to-peer lending apps pair investors directly with borrowers
• Investment and crypto apps let investors buy, sell, and trade securities in seconds from a mobile phone.

Which FinTech sectors are poised for growth in 2023?

While FinTech as a whole will likely continue to grow in 2023, four FinTech sectors look ready to outperform the rest:

• Peer-to-peer lending
• Blockchain applications
• Digital wealth management
• Payments applications

The common threads running through these four services are efficiency and economy. During difficult economic times, which many analysts expect to see in 2023, wringing every bit of friction and unnecessary costs out of a company’s financial processes will be especially important.

Peer-to-peer lending largely eliminates the need for a “middleman,” such as a bank, to collect deposits from one customer and then loan them to another.

Similarly, blockchain finance applications allow assets to be transferred from one party to another securely, immediately, and at a low cost.

Digital wealth management allows consumers direct access to the kinds of analytical tools that, in the past, were used only by stockbrokers and professional investment advisors.

Payments applications facilitate the budgeting, requesting, disbursing, and reconciling of funds without the need for human intercession or the risk of human error.

What non-economic forces will shape FinTech in 2023?

Various medical, environmental, and legal forces will significantly impact FinTech in the coming year or two.

How will the lessons learned during the Covid-19 pandemic affect FinTech?

While some authorities have recently declared that the pandemic is over, Covid-19 is still responsible for an average of 384 deaths daily in the US alone. Regardless of whether it still constitutes a pandemic, Covid-19 is still very much with us and will continue to shape consumer choice and behavior in the year ahead.

We can expect contactless payments technology to continue to evolve. Health officials have proposed the development of a global blockchain that would maintain people’s vaccination records. Other companies are working on digital vaccination certificates that could be used by immigration authorities, hospitals, and other institutions.

How will climate change and other ecological concerns shape FinTech in 2023?

Green finance aims to increase the funds available for sustainable development projects while decreasing the financial industry’s carbon footprint.

Those who promote green finance have primarily focused, as of late, on the cryptocurrency industry. Proof-of-work models of blockchain validation consume massive amounts of electricity and have a considerable carbon footprint. Ethereum’s recent switch from proof-of-work to proof-of-stake significantly reduces its per-transaction energy consumption while simultaneously multiplying the number of transactions the network can process in a second by many orders of magnitude. If Ethereum’s gamble pays off, other cryptocurrencies and crypto exchanges will likely come under pressure to modify their operations.

How will FinTech be regulated in the coming years?

It’s no secret that governments worldwide are moving toward tighter regulation of cryptocurrencies and cryptocurrency exchanges. And given the sharp decline in cryptocurrency values in 2022, we expect that regulations will not be long in coming. After all, when everyone’s making money, there’s a lot less popular pressure for regulation, but as losses mount, the likelihood of regulation increases.

In addition, several industries that rely on FinTech tools have faced accusations of digital redlining. It’s been shown that the seemingly-neutral algorithms FinTech companies use to make lending decisions can perpetuate racial and class-based discrimination. Because the algorithms used by the FinTech industry are generally proprietary, their decision-making process is hidden from public view and governmental oversight. It’s conceivable that laws and regulations could expose FinTech algorithms to public scrutiny, analysis, and regulation. Though this is a possibility, it’s unlikely to happen in 2023 as policymakers focus more on the overall state of the economy rather than on economic justice issues.

What other obstacles will FinTech face in 2023?

One of the friction points in the adoption of FinTech lies hidden in the tech stacks that most companies use these days. In this context, tech stacks are the totality of technologies a company or a finance team uses to fulfill its functions. When a company uses disparate platforms that don’t talk to one another, the result isn’t pretty. Some organizations may, therefore, be leery of adopting FinTech platforms for fear of compounding tech stack complexity.

Of course, there was great concern and frustration among computer users a couple of decades ago because applications for Windows couldn’t share data with applications for macOS. While Windows/Mac integration is much better today, it still isn’t seamless. Based on that example, we expect tech stack problems will persist in 2023 and become more pressing than ever as companies strive for greater efficiencies and the integration of all apps in their tech stacks.

One advantage of PayEm over other payment platforms is that it can centralize and connect a company’s tech stack. The application is built with an all-in-one ethos and integrates with a variety of services, including ERPs and HRISs. Click here to schedule a free, no-commitment demo and see how PayEm can help you cope with whatever 2023 throws at us.