Today, more and more industries are paving their way toward digital transformation and advancement of their operational capacities. The need to adapt to the new technological environment makes companies alter traditional patterns of business behavior and implement more customer-oriented solutions. In this way, no economic sector can sustainably grow without integrated IT products that streamline services and enhance their accessibility.
Understanding fintech
Over the past years, the financial sector has undergone significant changes in the way services are furnished to businesses and end-users. Fintech, which stands for financial technology, represents a spectrum of innovations helping businesses to automate manual processes and manage financial operations. Hard devices powered by algorithms and customized software boost business productivity reducing the time and cost of companies’ financial procedures. Thus, fintech covers multiple areas, including payments, transactions, online banking, and mobile payment apps. It can manage complex processes like accounting, lending, credit, brokerage, investments, crypto exchanges, and others. This technology facilitates the technical interaction of individuals and institutions with money.
Fintech in numbers
Along with a significant number of advanced fintech tools successfully utilized by businesses, the industry, which is a multi-billion dollar sector today, keeps growing at an exponential rate and, year by year, sets new trends for the delivery of financial services. Boston Consulting Group (BCG) and QED Investors prove the above facts with a 2023 report: fintech yield is expected to reach the mark of $1.5 trillion by 2030 from $245 billion observed in 2023.
The boost of the market under consideration is caused by the increasing use of smart devices and the internet by end consumers, which in turn provoked the demand for online financial services. Along with that, the COVID-19 pandemic proved the convenience and safety of remote and contactless transactions. In this way, the number of users in the digital payments market is expected to reach 5.48 billion users by 2027, based on Statista estimates. Thus, the fintech industry is forecasted to stay dynamic and offer more innovative solutions to meet evolving consumer needs.
Top trends
Consumer behavior, along with regulatory changes and technologies like AI, ML, and blockchain, drive the industry to further development. Today, one can obtain easy access to innovative payment instruments that ensure enhanced security of transactions and convenience of financial operations. These tools benefit end-users and banks, saving the time that was spent on issuing traditional payment means (for instance, credit and debit cards).
So, the first half of 2023 was marked by the emergence of complex financial products enhancing the productivity of the existing banking systems and platforms. Thus, here are the most popular 2023 fintech solutions:
Embedded finance
Basically, this technology is designed to bring payments to the digital paradigm, allowing for spending money in any time and place without POS terminals or plastic cards.
Embedded finance is an instrument built into non-financial digital platforms, services, or products. In integrating this solution into marketplaces or websites of insurance, accounting, and other companies, payment processing and lending becomes easy for all parties. Customers make instant online purchases, and businesses receive payments without redirection to traditional financial institutions.
Open banking
This innovative concept appeared at the beginning of the new millennium and has gone through many regulations since then. Today, open banking allows for secure customer data sharing between banks and authorized third-party service providers using APIs.
Services of open banking can analyze a purchaser’s credit history, collect statistics on their purchasing behavior, and assess their solvency based on a range of criteria. Needless to say, these procedures are performed with customers’ initiative and consent.
Let’s look at how it works through a living example. When applying for a loan to buy a gadget in an online shop, a payment service connects to a bank through an open API and collects customer data – transactional statistics and info about their income and assets to identify risks. The entire process may take several seconds before the service approves the loan. This model is referred to as Buy Now, Pay Later.
Neobanking
This fintech phenomenon is rapidly gaining popularity due to a number of benefits that traditional banks lack. Neobanks are financial institutions that operate entirely online and do not have any physical branches with employees. In addition to credit and deposit opportunities typical of traditional banks, neobanks feature electronic money transfers, and online bill payments, offer tools for money management, and act as personalized financial advisers. To cut it short, driven by AI, neobanks cover almost all the services that traditional banks offer but at cheaper prices and much faster. These and other benefits of neobanks attract more investments and contribute to rising competition in the market of financial services.
Biometrics
Within the frames of a gradual transition to the digital economy, the security of financial operations has become a top priority in the fintech industry. As knowledge-based means of authentication can hardly be deemed completely reliable, biometric technology has been introduced to enhance the safety of personal data.
Leveraging fingerprints, facial features, and other physical characteristics of a user as a verification guarantees more seamless and secure transactions with minimized fraud risks.
Gamification
Year by year, more innovative banking products and services become available to users. A wide range of fintech solutions creates a competitive environment for financial service providers. They have to motivate and engage users with game-like elements integrated into the applications. These may be digital rewards, cashback, loyalty points, and many others. Apart from these benefits, gamification has educational purposes – it helps users understand complex products.
This solution is expected to reach the mark of $30.7 billion by 2025, compared to 2020, when its space was worth around $9.1 billion in 2020.
Conclusion
User-friendly and cost-effective fintech instruments are transforming the world’s financial ecosystem. What is more, their influence stretches far beyond the financial industry. The above fintech trends are game-changers of the financial sector and have the potential to reshape the future of the world economy.