The fintech sector is expanding, with global funding up 96% in the last year. More and more fintech companies are becoming “decacorns” (companies valued at more than $10 million), as technology advancements in this industry continue to grow.
Financial service consumers are gradually migrating online and favoring online services over traditional ones. This motivates financial institutions to take prompt actions, incorporate the newest technologies into their offerings, and continuously enhance their clientele services.
Let’s take a peek at our forecasts for the fintech sector’s upcoming technological trends.
Fintech startups continue to experience down rounds
This will be especially true for firms who raised money in 2022 and 2023 with a short runway and a very high valuation. Many fintech firms will be compelled to close their doors or sell themselves, especially those in B2C and working with retail borrowers.
Some will accept finance in exchange for significant valuation haircuts, allowing them to extend their runways. However, there is some good news: pre-seed and seed firms, as well as those that are headed toward profitability, are in a stronger position to raise money (particularly from returning fintech entrepreneurs) and entice top talent from later-stage startups.
Great talent will be available more than ever
For pre-seed and seed-stage startups and established businesses, this is especially true. Employees have lost faith and confidence in later-stage firms that have gone through layoff rounds or are expected to do so shortly.
Because company equity is in the red, all of its top employees will quit. This means that business owners in this sector need to keep a look out and ensure that they hire the top candidates available. Their knowledge will be incredibly helpful to you.
Financial inclusion and environmental, social, and governance (ESG) frameworks will be highlighted
Financial inclusion has benefited greatly from the recent significant uptake of fintech, particularly digital wallets (which was expedited by the COVID-19 pandemic), particularly in the MENA area.
More than 100 million people in the MENA region lack access to financial services, and numerous initiatives are being launched by regional central banks, organizations like the Philippines (BSP), the World Bank, the International Finance Corporation, and others to adopt fintech and promote partnerships with established players in the financial services industry. This bodes well for fintech startups focusing on ESG and financial inclusion.
Increasing merger and acquisition activity between established businesses and fintech firms
Banks are restocking their war chests in response to increasing interest rates, and given the drastically reduced values of fintech businesses currently available, they will undoubtedly go on an acquisition binge.
They will either pick off their skills when startup employees go back to banks and asset managers or outright buy fintechs to hasten their own development. Since JP Morgan was the most engaged in the fintech sector in 2022, I would also anticipate seeing more partnerships form.
Cross-border remittance market changes
Last but not least, as a co-founder of the cross-border remittance firm Purpl, I anticipate that global remittance levels will decline from their peaks following 9% growth in 2021 and 5% growth in 2022 to $626 billion, with a potential contraction of 0-3%.
This will primarily be caused by foreign workers in the US, Europe, and MENA losing their jobs as a result of cost-cutting measures, or, in the best cases, by saving less due to higher living expenses and lower purchasing power, which will ultimately result in them having less money to remit to their families.
Having said that, this contraction will present a chance for fintech firms operating in the sector to sharpen their product and service portfolios and user experiences in order to increase their market share of their target market.
Contemporary cybersecurity
Cybersecurity in fintech never loses significance and emerges as one of the primary market trends. Financial information is delicate and more susceptible to online dangers. A data leak can be quite expensive for financial companies.
These statistics are:
Source: Onix
Every year, more sophisticated security measures will emerge as a result of the fintech sector’s growing vulnerabilities and risk of cyberattacks. According to Grand View Research, the biometrics market will grow to over $25 billion in the coming years.
The COVID-19 pandemic is altering how people view information security worldwide. Even though fingerprinting is currently one of the most used technologies, consumers are searching for new contactless methods to protect their data and establish their identity. Systems for identifying the voice, retina, ears, vein pattern on the hands, and even DNA will advance in 2022.
It is anticipated that the number of industry-specific biometric solutions would increase. For mobile banking, for instance, financial companies are now taking into account multifactor biometric authentication.
Mobile devices will be able to recognize the user simultaneously using voice and face recognition using this sort of verification. Higher security and the impossibility of impersonating a legitimate user will arise from this.
Contactless Technology
Without a doubt, contactless technologies are becoming more popular in the financial industry. Contactless payments meet the growing demand from customers for quicker, more practical ways to pay for goods and services. The prevalence of mobile devices with NFC (near-field communication) technology has also made contactless payments simpler than ever for customers.
Apple Pay, Google Pay, and Samsung Pay are all significant players in the contactless payments market in the United States. Additionally, a PwC analysis estimates that global mobile payment transactions would increase from $396 billion in 2017 to $1.08 trillion by 2022–2033.
The popularity of contactless payments is rising due to a variety of reasons. The continued use of EMV chip cards is one. Due to the fact that these cards are safer to use than conventional magnetic stripe cards, many merchants are now requiring consumers to use them. In Europe, where EMV chip cards have been widely used for many years, this is particularly true.
The acceptance of NFC-enabled mobile devices as a payment method is another factor boosting the use of contactless payments. In reality, many stores already feature NFC terminals that let customers use their smartphones or smartwatches to make contactless purchases. We may anticipate seeing much more growth in this industry as more and more people get accustomed to making payments via their mobile devices.
Embedded Finance
The goal of embedded finance is to connect payments for investment instruments, insurance, loans, and debit cards with virtually any non-financial platform. For e-commerce enterprises in particular, embedded finance services are advantageous since they speed up transactions and help boost client loyalty. Prior to this, customers had to visit the bank, submit a loan request, successfully complete an evaluation process, and then wait for approval.
However, thanks to embedded financing, users may now quickly and easily obtain credit and make any purchases they need online. Particularly for embedded payments, the projection for this growth is impressive.
Conclusion
Since the future influence of blockchain, artificial intelligence, IoT, cloud computing, and other technologies cannot even be predicted at this point, we are still in the early stages of genuine fintech. Tech businesses continue to explore more of the financial services value chain each year while also generating new market structures in underbanked developing nations.
Nowadays, certain banks that offer new, digitally friendly banking services and incorporate digital payments, microfinancing, and robo-advisor services into current bank accounts share the market alongside pure FinTech businesses.
