According to Vantage Market Research, the financial technology (fintech) industry is expanding rapidly, with its global revenue expected to increase from $112.5 billion in 2021 to $332.5 billion in 2028. Fintech refers to the application of new technologies in financial products and services to improve the use and delivery of financial services. It competes directly with traditional banking methods through modern technologies such as artificial intelligence (AI), blockchain, application programming interfaces (APIs), and data analytics.
Today, the digital ecosystem in the financial services industry is largely driven by fintech. However, even before the COVID-19 pandemic, established financial institutions and new entrants were already integrating technology into their business models to get ahead of the competition and overcome macroeconomic forces and changing customer behavior.
As the financial landscape becomes even more complex and increasingly busy, several trends are paving the way for legacy banks, startups, and other market players looking to solidify their positions in the industry.
Digital banking to expand in market size and service offering
Due to its convenience, accessibility, and security, digital banking has grown in demand around the world. Moreover, younger generations have been quick to adopt digital banking due to its ease of registration, minimal fees, and capabilities.
In 2023 consumers are also likely to see an expansion of what online banking applications can do. From simply serving as a platform to perform financial transactions, online banking apps are set to become full-on customer relationship management systems capable of understanding customers’ needs and tailoring financial services to their financial goals and situations.
Essentially, online banking apps could transform into smart digital assistants that can anticipate customers’ preferences by analyzing their financial decisions and transactions over time. For instance, if a customer customarily transfers funds from their payroll to their savings account at the end of each month, the banking app could record this behavior and perform proactive actions, such as reminding the customer to top up.
AI chatbot integration and deployment across the board
With the novelty of ChatGPT, OpenAI’s AI-powered chatbot, financial institutions are also increasing investments in chatbots to serve as virtual assistants and respond to customer requests and inquiries. In addition, an AI chatbot can also be useful in analyzing users’ financial information and recommending financial products that best suit their needs.
However, AI deployments must do more than perform routine customer service tasks and target product recommendations to be exceptional going forward. For example, financial institutions can use AI to automate middle-office processes to drive operational efficiency, freeing up time to focus on more value-adding and strategic tasks.
For example, AI is instrumental in deploying robotic process automation (RPA) software that can automate manual, repetitive, and high-volume tasks involved in middle-office finance operations, such as risk management, post-trade processing, compliance, and more. The software also enables accurate data entry and re-entry and automated documentation and standardization.
Buy now, pay later – A unique sector
Buy now, pay later (BNPL) has been around for decades, but it has recently experienced a surge in interest for its accessibility as well as scrutiny because it might encourage reckless spending. BNPL rose in popularity during the COVID-19 pandemic when more people were staying indoors and shopping online. As a short-term financing option, BNPL allows customers to defer payments for products purchased at a later date. BNPL services offer interest-free installment options, so customers never incur additional charges on their purchases. Some companies offering BNPL are PayPal, Affirm, Afterpay, and Klarna.
According to a 2021 survey conducted by C + R Research, clothing and electronic devices were the most-purchased items using BNPL services. As the use of BNPL services expands to other sectors of e-commerce, governments are likely to pay more attention and impose the appropriate regulatory measures, not only to avoid misleading customers but also to implement affordability assessments before granting short-term loans to applicants.
The crypto market is still viable
Data from Finbold shows that the crypto winter wiped out over 70 percent of Bitcoin millionaires in 2022. By buying into the market when the price of Bitcoin was at its lowest, wealthy investors could capitalize on the time and initial high barrier to entry to increase their earnings. However, the recent economic downturn has impacted the cryptocurrency market, prompting many investors to liquidate to minimize losses.
While there is still uncertainty in the crypto world, experts believe that the industry has shown significant growth over the past decade. Blockchain, the technology behind cryptocurrency, is still both promising and powerful. Because of its decentralized nature, blockchain improves security, transparency of financial transactions, and protection from cyberattacks. Further enhancements in blockchain, in terms of scalability and processing speeds, could revitalize investor confidence in cryptocurrency.
Governments and regulators are examining fintech companies intently to ensure they operate fairly and securely. Meanwhile, several countries are also in the process of launching their first central bank digital currencies (CBDC). Unlike cryptocurrencies, CBDCs are issued by the central bank. The value of a CBDC is fixed and equivalent to each country’s fiat currency.