Tech Trends That Are Rapidly Shaking Up The Global Fintech Industry

Globally, the fintech industry has seen investment flowing from venture capital funding steadily dry up over the course of the last several months, however, that doesn’t mean that innovation has come to a grinding halt just yet.

Despite a slowdown across the global economic landscape due to inflationary pressure and soaring interest rates, the fintech industry witnessed the second-highest investment activity behind enterprise software development.

Funding estimates are a bit all over the board, with total funding dropping by 60 percent in Q1 2023 compared to Q1 2022. Overall, more than $14 billion in funding deals were made, marking 55 percent growth quarter-over-quarter.

The news about slower funding rounds isn’t all that bad. After all, early-stage deal shares marked a new high, growing 72 percent during the first quarter of the year. The seemingly multinational financial company, Stripe alone raised a record-breaking $6.5 billion during the first three months of the year.

While funding activity has slowed, overall, forward-looking opportunities seem promising, to say the least, as companies look to adapt even more innovative technology. This will not only help to improve existing infrastructure but will also give them a better blueprint to navigate the increasingly complex regulatory compliance framework.

With fintech companies, and perhaps many others, now rushing to make technological innovation their top priority in the months ahead, here’s a look at some of the ongoing tech trends that are rapidly shaking up the fintech industry this year.

Artificial Intelligence and Machine Learning

Artificial Intelligence (AI) and Deep Machine Learning (ML) are rapidly changing the financial services sector and for good reason. Perhaps the most significant transformation over the last seven months was the public release of OpenAI’s ChatGPT, which has amassed global attention.

Now, financial services companies, and more innovative fintech startups are steadily realizing the potential AI and ML hold for the future of banking, cross-border payment, business solutions, and seamless banking.

AI innovation experienced the biggest investment and growth since the launch of ChatGPT back in November 2022. While many remain skeptical over the long-term implications AI can have on the business sector, fintech experts are feeling optimistic that AI will help revolutionize the way people will bank and transact and also broaden the day-to-day application of their platforms in an ever-growing digital economy.

ESG-focused fintech innovation

Environmental, social, and governance (ESG) currently stands as one of the primary investment opportunities for businesses and private equity investors. ESG-focused investments have seen growing popularity during 2021 and 2022, witnessing a decline during the later half of last year, and a slow start to 2023.

Nonetheless, investors remain positive that ESG-focused investment vehicles will help keep governments and organizations on track to align themselves with national decarbonization strategies outlined by COP27. In a poll conducted by PwC researchers found that 80 percent – eight in ten – of surveyed private investors plan to increase their attention and investment in ESG products.

For fintech, this boasts a new opportunity to include more environmental, social, and governance products in their line of services. Furthermore, the implementation of ESG-focused products is not only on the backend of fintech companies, as many are looking to bring these efforts more into focus on the consumer side of the business as well.

While there’s still a lot of work that needs to go into the accurate application of ESG services, fintech companies could become the drivers of sustainable banking and financial activity as they pursue more deliberate action to align themselves with ESG initiatives.

Embedded finance products and services

There has been a growing trend emerging that has seen more companies undertake embedded finance efforts. Using embedded finance enables companies, and private users to access financial services via a third-party channel, however much of what has already passed has given an insight into where embedded finance could be heading.

The biggest opportunity for embedded finance lies perhaps in emerging markets, as it could provide consumers and companies with fewer financial restrictions, while at the same time lower transaction costs, and all the foundational work for future products.

Technological drive towards more inclusive banking allows traditional financial service providers to partner with emerging fintech companies, providing them with a more in-depth understanding of how consumers are transacting. With banks being able to provide the existing infrastructure, both literally and figuratively, fintech could create more tailored services for a myriad of businesses and consumers.

Open Banking

For quite some time financial institutions, from big banks to government treasuries have been increasing their investment into open banking. With open banking, banks, and perhaps more so, fintech companies can help improve security, innovation, and industry competition across multiple sectors.

The technology behind open banking – API-based connectivity – increases user control but also increases the scope of transparency. This enables fintech to have a better understanding of the type of people that are accessing financial information and how they plan on using it.

Leveraging these capabilities puts fintech companies in a comfortable position to drive further innovation in the field of open banking, especially with the support, and perhaps financial backing from big banks and private equity investors.

Already open banking practices can replace outdated mechanisms that are no longer fit for a digitally advanced economy. 

Cloud Computing

Across multiple business sectors, cloud computing has taken up a more prominent priority, as innovative software capabilities enable companies to harness the scalability of cost-effective and secure movement of data or information.

In fintech, cloud computing has become a household name, especially as more consumers are coming online, and the recently unbanked, are now leveraging fintech products more freely.

With cloud computing, fintech companies can deploy their services more rapidly, ensuring enhanced customer interaction. Among this, we see the greater need for data and analytical insights move into the spotlight, especially for fintech companies that are now partnering with banks and larger financial institutions.

Using cloud computing infrastructure technology, fintech companies can analyze customer or market data more accurately. Integrating AI and ML software would only further improve data collection, and improve understanding of market segmentation.

Robotic Process Automation

Automating mundane human tasks has been a process that’s seen increased activity ever since the advent of the pandemic. Now, with increased understanding and enhanced technology, fintech companies can free up human resources, and integrate Robotic Process Automation (RPA) more adequately across the financial services sector.

One of the biggest attributes of RPA is the fact that it is not dependent on APIs, and can further track customer activity in an embedded graphical user interface (GUI). Ultimately what this means for fintech companies, and banks in general is that it creates more efficient systems, requiring minimal investment and human resources to operate.

Not only is RPA applicable in user-end cases, but there is also a greater need for this sort of technology in backend modernization. From a banking perspective, this would help to further automate financial transactions and minimize human errors even further.

RPA takes a big leap forward in the move towards automation, especially in a time where basic mundane tasks no longer require human resources, companies can lower expenses, while at the same time improving efficiency.

Blockchain integration

Faster acceptance of blockchain technology, with a bigger appeal to digital assets such as cryptocurrencies among various markets, has seen financial institutions rapidly create more secure and up-to-date digital wallets, blockchain ledgers, and transaction platforms.

For fintech companies emerging on the scene of blockchain technology, this presents a different or unique approach to what the future of finance will look like, and how consumers, businesses, and perhaps governments will transform their understanding and acceptance of digital currencies.

Along with the establishment of blockchain technology has come decentralized finance (DeFi), and for fintech companies, this gives them more leverage for innovation as they develop products that are unique to these digital financial practices.

Overall, blockchain technology remains somewhat still in its infancy, but there is a lot of room for improvement, and we’re already seeing fintech companies taking on the responsibility of reshaping how customers and businesses can use their digital assets more freely in the public market domain.

Cybersecurity

Cyber threats remain one of the biggest challenges for the rapidly digitizing financial services sector. Research by IBM and the Ponemon Institute estimates that the average cost of a cyber security breach in the financial services sector racked up a bill of more than $5.72 million in 2021.

Since the modernization of most human systems, from work, socializing, and communication and now banking, cyberattacks on financial institutions have increased at staggering amounts, with the first half of 2020 seeing a 238 percent increase in digital cyberattacks alone.

Fintech companies could however sit with the solution, focusing their imperative on authentication and improved authorization across the services sector. Then there are enhanced encryption features and improved vendor administration.

While these efforts are still in the early stages, fintech companies and banks are taking the increased risk of cyber threats more seriously, looking to develop tools that not only protect their direct systems and data collection centers; but can further secure user information, minimize threats, and inform consumers and businesses.

Final thoughts

Fintech companies have begun a new revolutionary period, where instead of delivering seamless day-to-day financial services solutions to emerging markets, and previously unbanked consumers, they now provide an in-depth look into the future of finance.

With more collaborative projects on the horizon, fintech companies won’t necessarily become a direct threat to bigger and more established financial institutions but will be considered an avenue of innovation and transformation.

__

(Featured image by Tumisu via Pixabay)

DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.

This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.