Top 10 trends for the FinTech industry for 2023

Take a deeper dive into the financial tech trends of 2023 to understand how to improve customer experience and make financial operations more secure, efficient, and transparent

Guus Franke, CEO of Axiom Partners, once noted: “I am inspired by the possibility of developing the solution for today’s and tomorrow’s challenges.” This is precisely what tech trends are all about – seeking solutions for ongoing and upcoming challenges within a turbulent market.

COVID-19 clearly shows what the value of adaptivity is. Companies that were able to innovate rapidly, which entailed implementing new technologies, managed to get a competitive edge and negate the adverse effects of the pandemic. We should learn from the past and prepare for the future. Taking this all into account, let’s explore the top 10 tech trends in the financial services industry to help you prepare for any given challenge out there.

Top 10 tech trends in the financial industry

Innovation in the financial services sector is not essential, although it is necessary. Technologies are key drivers of the entire market and the industry is booming (see Fig.1).Figure 1. Fintech market growth projects 

Yet, to understand which particular tech needs to be implemented, it is crucial to have a clear idea of what instruments are available to financial institutions. Without further ado, let’s proceed to the 10 FinTech trends gaining traction in 2023.

1. Agile and adaptive banking
2. Open banking and embedded finance
3. Artificial Intelligence (AI) and Machine Learning (ML)
4. Hyper-automated banking with Robotic Process Automation (RPA)
5. Buy Now Pay Later (BNPL) 2.0
6. Further advance of cloud and digitalization in financial services
7. Distributed Ledger Technology (DLT)
8. Regulatory Technology (RegTech)
9. Metaverse in finance
10. Financial super apps

1. Agile and adaptive banking

For the financial sector to be agile, it means being competitive while also capable of launching new products at great speed and efficiency. Financial firms, financial institutions, commercial banks, and insurance businesses who stay flexible and nimble are the ones that will stay afloat. Gartner research indicates that by 2030 about 80% of the traditional financial institutions will cease to exist.

Moreover, the Agile banking academic study by the Journal of Business Economics indicates that about 77% of banks and 44% of FinTech firms intend to improve their financial services by adopting Agile methods. Yet, why do all these financial institutions consider the Agile methodology a savior?

The answer is simple. This approach focuses on a product-centric model that allows them to face some critical challenges in their industry. These are the obstacles that Agile and adaptive banking overcomes:

• Unforeseen risks linked to the rise of finance-related criminal activities online.
• Pressure connected with the many amendments to legislation and rules, making compliance extremely challenging.
• Lack of remote access when performing regulatory reviews.
• A general overload of new requests within loan and financial planning services segments.

With Agile and adaptive banking, you get flexibility and simplification in one package. If additional insights are needed, there is a knowledge base from Oracle available.

2. Open banking and embedded finance

Next on the list is open banking and embedded finance. In short, the open banking phenomenon has existed for some time. However, only recently have financial institutions recognized its potential. Overall, the concept boosts digital experiences, grants faster onboarding, and broadens access to alternative asset marketplaces. Open banking delivers a myriad of opportunities to the finance industry because it grants unprecedented access to banking customers. Perhaps, that is why this sector is currently on the rise (see Fig. 2).Figure 2. Open banking market size by region in USD Billion

In more specific terms, open banking grants the following benefits:

• Allows the creation of an API management infrastructure that eases data sharing
• Promotes API governance architecture for better compliance and security
• Implements data policies improving the efficiency of financial services provisions

At this point it is safe to say, open banking promotes data-sharing practices that help banks and FinTech firms boost their customer experience and comply with the existing rules and regulations.

Yet, to make the banking customers’ journey even better, open banking is matching up with embedded finance. This is a concept that revolves around integrating various financial products into the digital interfaces that customers interact with. In recent years, embedded finance has been creating a buzz, with the number of searches growing rapidly (see Fig. 3).Figure 3. Google Trends for “embedded finance”

Open banking coupled with embedded finance is promoting the digital transformation of traditional banks which is bringing customer information to the forefront in the financial services industry. With this information being shared more effectively, there is a greater opportunity for compliance. Additionally, with FinTech companies knowing their customer’s preferences, there is a chance to skyrocket the customer experience.

3. Artificial Intelligence (AI) and Machine Learning (ML)

In the tech world, AI and ML are two words that are used as often as cutting-edge and innovative. It could be suggested that AI in the FinTech market is the fastest-growing sector out there (see Fig. 4).Figure 4. Global Artificial Intelligence (AI) in the FinTech market

Why is that? Perhaps, just one simple fact would suffice:  it is estimated that AI chatbots used in banking save about 826,000,000 work hours. Furthermore, there is a 104% global increase in people searching for “AI in banking.” Now, let’s see why AI and ML are good for banking. In short, the application of both technologies goes way beyond mere automation. It brings much more:

• Increased productivity and better operational efficiency. AI and ML help to monitor, check the quality, and process vast amounts of financial data in a fraction of the time.
• Enhanced personalization in service provision. AI and ML can assess their clients’ personal identifiable information in order to improve financial services, credit card services, mobile services, cloud services, and money management.
• The emergence of new products and services. AI and ML help financial institutions bring forward new products while tapping into new business models.

It is no secret that data is the most valuable commodity at the moment. AI and ML are technologies that help make use of data better than traditional methods. This is what makes these financial services trends so valuable in 2023 and the years to come.

4. Hyper-automated banking with Robotic Process Automation (RPA)

RPA and hyper-automation in banking are expected to reach $4.9 billion by 2029. The market will experience a Compound Annual Growth Rate of 27% between 2022 and 2029. In other words, every year the RPA and hyper-automated banking market will grow by one-fourth of its value. What is the reason behind such rapid growth and why are these technologies coined as financial services trends?

Similarly to AI, ML, and open banking, the financial services industry has been using hyper-automation for a long time. In short, hyper-automation is now being called upon to increase the speed of financial and banking transactions. Likewise, the instrument can help reduce operational expenses while reducing the impact of human errors.

RPA with hyper-automation takes a great deal of time from staff, thus shifting their responsibilities to core financial tasks. In terms of compliance, the phenomenon reduces the chance of human errors, which reduces the chance of data breaches. Accenture indicates that 73% of respondents believe RPA is the key to better compliance.

That’s not all. The report by Deloitte indicates about 80% of banking customers have interacted with at least one RPA tool in the last 12 months. Yet, commercial banking can be taken to the next level with more sophisticated hyper-automation systems like IBM Watson. The institutions can tap into Big data analytics, thus generating new revenue streams and making more informed decisions after getting insights from AI, ML, and RPA. As a result, hyper-automation coupled with RPA, AI, and ML have a bright future for any financial institution.

5. Buy Now Pay Later (BNPL) 2.0

While the credit system has existed for decades, the ability to purchase something by splitting the purchase into interest-free installments is still new. In traditional terms, BNPL was most often used for high-value items. Currently, the phenomenon is spreading to other categories of goods and entering new industries, including finance (see Fig. 5).Figure 5. Buy Now Pay Later (BNPL) market size in USD Billion

This second version of BNPL allows customers to make online purchases with virtual and physical credit cards. Simply put, the system will work as an ordinary credit card service with the key difference being that you can deconstruct almost any purchase into installment-free payments. Tech giants like Apple have recognized this trend and already are reaping the benefits.

Taking this into account, BNPL 2.0 is expected to be a great customer engagement opportunity. It will create a more seamless purchasing experience and decrease the card abandonment rate. However, you still need to remember that the BNPL phenomenon is under scrutiny now. Namely, regulatory bodies are trying to make it bulletproof in regards to data security and potential financial crimes.

6. Further advent of cloud and digitalization in financial services

Next, let’s speak about the advent of cloud computing and digitization in finance. The global finance cloud market is currently valued at $29 billion and is expected to rise at a CAGR of 22% until 2027. This means digital transformation is moving at a pace that is reshaping the technology offering and customer experience banks and other financial institutions are offering. Now, let’s look at how ’cloudization’ and digitization in the financial services industry are presenting themselves.

The phenomena come with these aspects:

• Serverless computing
• Cloud-native re-platforming
• Containerization
• Open banking
• Technology access

The aspects listed above make the migration of financial processes into the cloud a must. Why? Because this very process comes with the following advantages:

• Cost reduction linked to the abandonment of physical data centers in favor of the cloud
• Agility and scalability through the rapid increase of cloud data storage capacity
• Faster and better access to data with lower downtime
• Enhanced data security and greater data transparency

Bringing the financial services sector into the cloud is a way to make it secure, efficient, transparent, and effective.With cloud computing advancing rapidly, we can only imagine what new data storage and management tools will emerge in the near future. Sticking with the cloud is the right solution for any industry valuing data.  Yet, while the cloud grants various benefits to the financial sector, cloud adoption in some areas is still impeded by unwieldy regulations.

7. Distributed Ledger Technology (DLT)

Businesses operating in the financial sector are constantly looking for agile and innovative methodologies because their legacy systems are creating too many complexities. For instance, these old systems come with a lack of transparency, fragmented wealth management, and siloed operations. Because of this, FinTech firms are experimenting with various Web 3.0 technologies in order to face the challenges noted above. And, DLT is one of the prospective candidates (see Fig. 6) being used.Figure 6. North America Blockchain DLT market in USD Million

In a nutshell, DLT presents some solid benefits in the financial sector, particularly capital markets. The advantages are linked to the following:

1. Collateral management. DLT helps businesses tap into unused assets while also reducing operational overheads. This is done by automating both initial and variation margin flow.
2. Trust issues. Parties involved in financial operations often have a competing business interest. which is why establishing trust is vital. DLT helps give each party an independent node providing equal data access and efficient consensus protocol rise.
3. Inefficiency. When there is no single data source, various operational risks, manual verification processes, and multiple reconciliations appear. DLT offers real-time confirmation and settlement through smart contracts.
4. Democratization. DLT brings democratic access to data, information, and assets making all parties equal in the context of the financial operations conducted.

At this point, as a distinct Web 3.0 technology, DLT is revolutionizing capital markets and asset management. It grants equal access to data, as well as helping the parties involved to put customer’s interests in front of their competitive desires.

8. Regulatory Technology (RegTech)

The RegTech market is growing similarly to global cloud finance and RPA. The segment is expected to reach a value of $30 billion by 2027. What is the key driver behind RegTech?  The rising number of fraudulent activities in the financial sector. Some even call RegTech a new FinTech.

It is crucial to explore several key elements so as to determine whether the concept meets its preceding reputation. In short, RegTech is a way of improving compliance by applying modern technologies. In recent years, the application of RegTech has increased by 500%.

So, what does RegTech grant that conventional methods do not provide? In short, the approach offers these benefits:

• With growing regulation, compliance personnel cannot keep up with it. RegTech helps automate the compliance process by processing vast data volumes at a rapid pace.
• The traditional methods of compliance relied on manual input, which is prone to human error. In turn, RegTech is based on automation tools and algorithms minimizing the chance of error.
• RegTech brings higher transparency in connecting people to processes. In this way, insights can be shared much faster and more candidly.
• RegTech improves risk management. Businesses can use their existing data to evaluate risks, as well as alert personnel and authorities of suspicious activities.

RegTech helps financial institutions keep up with the increasing pressure of regulation, which  makes automation serve the purpose of better compliance through error minimization, efficient data processing, and effective risk management. Most notably, it helps avoid massive fines linked to noncompliance, some of which can be as high as $4.3 billion.

9. Metaverse in finance

Perhaps, we could say that the metaverse concept will forever be associated with Mark Zuckerberg’s promo. However, if there is nothing behind the phenomenon, why is it growing so rapidly (see Fig. 6)? Let’s investigate a metaverse case in finance closer and determine whether this tech trend should be on the list at all.Figure 7. North American metaverse market size

In a nutshell, the metaverse can be coined as the fifth stage of the banking evolution. The key argument is that it brings the customer experience in virtual banking to a whole other level. Metaverse brings AR and VR into the financial sectors, thus improving personalized banking as a service. Notably, banks choose these metaverse-propagating tools as the key point of focus.

It is expected that by 2030, about 50% of banks all over the globe will use AR and VR as a channel for customer transactions and employee engagement. To illustrate,, Bank of America recently launched a VR-based training program to help their employees prepare for real-life customer interactions. In turn, BNP Paribas launched an app allowing customers to conduct different banking transactions via VR. These experiments are not so widespread, yet they show some promise.

With people becoming more familiar with VR, AR, and metaverse in general, we can expect a boost in virtual banking. The new generation of tech-savvy consumers will use VR and AR to a greater extent. Keeping this in mind, you can expect that metaverse in banking will be a more and more common phenomenon.

10. Financial super apps

The final trend for today is financial super apps. These are applications focused on delivering a better customer experience through hyper-personalization. For instance in China, super-app payment solutions are used by 92% of city residents which surpasses the popularity of credit, debit, and cash combined. WeChat and Alipay are notable super apps examples.

In short, super-apps are extremely popular because they bring different apps into one single ecosystem. With a super-app, you can shop, set an appointment, place an order, make a purchase, and communicate all in one place. With about 1.25 billion users, WeChat grants varying functionality with just a single app installed. As a result, you don’t need to develop multifaceted ecosystems with a super-app. And, you can design and develop a product with varying functionality. This boosts the customer experience and makes it easier to secure data flows.

The bottom line

In reviewing the tech trends above, it is apparent that the financial services industry has the prospective tools needed to meet the many challenges. The power of AI, ML, and RPA bring unprecedented data management capabilities. Additionally, they help boost the security of financial transactions and improve the industry’s compliance. In turn, metaverse, super-apps, and Agile banking allow a high degree of personalization in the financial services provision.

The key thing to remember is that each of these trends is accessible to every company or business out there. You just need to reach out and take the very needed step toward innovation and Avenga can guide you through the process with ease. Contact us!