RegTech, BNPL and Crypto: Four Fintech Trend Predictions for 2023

2022 was a turbulent year for the start-up industry. Companies had to lay off large parts of their workforce, sell others to competitors or even go out of business completely. In this new economic climate, where interest rates are rising and venture capital is no longer as cheap as it has been in the past 15 years, the question is: What does the short- to medium-term future look like for startups?

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There will be a lot of startups

Contrary to many assumptions, we will see a real boom in entrepreneurship in 2023. Despite the global economic situation, VCs are still sitting on masses of “dry powder.” It’s just waiting to be invested in compelling business ideas. This makes us confident of seeing a wave of new (fintech) startups in the coming year – especially since many highly skilled tech talents are entering the market due to layoffs or company bankruptcies. They have the savings and want to start their own companies. Business models are now being scrutinized even more closely and must prove early on that they can grow sustainably. Nevertheless, many VCs will make one or two bets in the early-stage segment.

The crypto winter will continue

2022 was not a pleasant year for cryptocurrencies and their investor:s. The recent FTX bust marked just another low point in an ongoing bear market, which meanwhile we have been witnessing for quite some time. Global crypto market capitalization, which accounts for the total value of all crypto assets, has fallen about 64 percent year to date, from $2.2 trillion to about $797 billion, according to CoinMarketCap data. The two largest cryptocurrencies by market cap, Bitcoin and Ethereum, have fallen 64 percent and 67 percent, respectively, over the same period. A massive drop – but not the bottom yet, I suspect.

Cryptocurrencies are heavily influenced by the underlying sentiment of the market. An inherent skepticism among investors can be observed, which will be difficult to overcome. Cryptocurrencies gained momentum among institutional investors as an alternative investment. However, over the past year, it has become apparent that they have a high correlation with the equity market and do not perform well when combined with other risk assets. Institutional investors will be much more cautious in allocating to cryptocurrencies in the future.

Progressive differentiation of Buy Now, Pay Later providers

Contrary to all prophecies of doom, BNPL top dog Klarna was able to present impressive results last fall. In terms of metrics that are key in the current economic climate – reduction in credit losses and total cost of ownership, and thus higher margins – the team presented promising results. Sure, there’s still a lot to do. And yet, for a company of this size, such a turnaround is no small feat.

Looking ahead to 2023, Klarna can be expected to build on this stable foundation and continue to approach – or even return to – profitability. Considering that companies such as Apple or Mastercard launched their own Buy Now, Pay Later offerings last year, a progressive fragmentation of the BNPL market will also take place at the same time. Although consolidation is probably three to five years away at the earliest, the foundations for success are being laid today. This competition will not be decided by who ultimately offers the lowest prices, but rather the companies that can create the most user-centric offering with the greatest added value for retailers and end customers will prevail.

RegTech is experiencing a lot of momentum

With the digitization of more and more financial services, there is also increasing pressure on regulators to quickly identify and combat potential fraud scenarios. Counteracting fraud in a regulatory way is without question an important step, but in many ways, it also makes it increasingly difficult for fintech companies to efficiently act on the regulations in place. In a 2022 report, Juniper Research predicted 200 percent market growth for regulatory solutions – from $67.6 billion in 2022 to $203.5 billion in 2026. If these predictions are to be believed, 2023 could be another record year for RegTech.

Even though much depends on the general macroeconomic development and predictions like these are always a bit of a guessing game, there are good arguments in favor of each of these points. It will be exciting to see what 2023 has in store for the fintech industry.

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(Featured image by Jonas Leupe via Unsplash)

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First published in Payment&Banking, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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