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Fintech Trends 2023: What to Keep an Eye On

Since we’ve started to exchange goods and services for money, there has been a constant change in finance. Some of these changes were improvements, while others have allowed various entities to earn money unethically. FinTech is the latest trend that’s supposed to make financial services more accessible to the general population and to make their use more fair and transparent. 

In the past few years, we’ve seen an increase in the use of technology to track our health, work, hobbies, and even finances. While some of these activities were restricted to performing them physically in the past, they are now commonly done on the internet. 

For example, we have telemedicine, which helps us make appointments with our doctors and health care practitioners. On the other hand, many people are using mobile banking, which allows them to make payments and check their budgets without having to go to the bank.

As much as 43.5% of people use mobile banking as a primary way of accessing their bank accounts. While mobile banking is a really helpful tool in our lives, it’s only the tip of the FinTech iceberg. In this article, I will give you information on what are important trends that can potentially improve your life and, potentially, your budget. 

Fintech Explained

Financial technology, or FinTech, is a concept that implements the latest innovations, such as artificial intelligence and cloud computing, into finance. When you combine those two words, you’ll realize that this has been present in the world since forever, but we’re actually talking about a specific way in which these two ideas combine. 

Fintech is a field that’s growing rapidly, and companies that operate in it are usually startups or financial institutions that are looking to keep up with the times. 

There’s a noble idea behind FinTech, which is to make various aspects of finance easier to use, and more accessible no matter your income and in which part of the world you are. While there are many financial experts that do analysis on various transactions, AI technology and computers are becoming more and more efficient and accurate at it. 

While there’s a plethora of regulations that every company has to adhere to, FinTech has some additional concerns. Financial data is much more sensitive, and it needs to be protected. In the United States, Federal Trade Commission provides companies with the information and resources to financial companies to meet their data protection responsibilities.

In Europe, General Data Protection Regulation ensures that such companies build their approach toward customer data based on privacy. Other countries worldwide followed this example and adopted the equivalents of GDPR. Most notably, California, where many tech companies are stationed, adopted California Consumer Privacy Act. 

Hopefully, this technology will find ways to improve our traditional financial institutions and experience widespread adoption. Fintech encompasses various financial concepts and technologies, so I will explain some of the most popular. 

1. Decentralized Finance

Decentralized Finance (DeFi) is a financial system that uses blockchain and self-verifying smart contracts to execute transactions.. The word decentralized suggests that this system is free from the interference of centralized authorities such as banks or stockbrokers. However, there’s often a “centralization risk” associated with DeFi as their engines are often hosted on centralized servers.

On top of that, some exchanges that claimed to be decentralized suffered data breaches which led to losing customer funds.This risk is associated with various crypto platforms, and it’s a serious concern.  You can, for example, buy Shiba Inu coin on a CEX or DEX and transfer it to your hardware wallet for your extra safety. DeFi applications allow users to:

  • Borrow
  • Lend
  • Trade
  • Invest

Whatever activity you choose to perform is completely transparent and traceable. The downside of this is that you can’t revert transactions. Banks can initiate chargebacks, which is sometimes quite useful and can prevent people from losing serious amounts of money. 

The greatest advantage of DeFi is that it can allow transactions as long as there’s an internet connection, making it very accessible to people worldwide. This trend is constantly evolving, but we’ve seen quite a few scams and hacks happen to it. Hopefully, the companies that are working on developing DeFi applications and platforms will minimize the risks of such ad

2. AI and Machine Learning

Since the recent increase in the popularity of ChatGPT, everyone and their grandma is talking about artificial intelligence and machine learning. While I tried to avoid this hype, I have to admit that AI is quite powerful. Finance is another field where AI can help us make progress. 

A vast majority of Fintech companies are using AI to make their processes functional. Compared to humans, AI can analyze large amounts of data in a matter of minutes and deliver the results to the user or to the company. 

This data can include credit history, income, spending patterns, or other valuable data and asses the financial health of the user quickly.

While many people don’t want to trust a robot with their financial accounts, it’s just as reliable, if not more, than a person that does that manually. Another significant advantage of AI in Fintech is fraud detection

AI can analyze thousands of different financial transactions, and based on its conclusions, it can mark a suspicious transaction fast. This allows fintech companies to increase the security of their users and prevent any undesirable actions. 

Besides the use of artificial intelligence in a broader sense, financial advisors are using AI as personal assistants that help with financial guidance. This software is called Robo-advisor, and people use them to show them the best way to handle their investments. Robo-advisors are more popular with rookie investors as it can help them analyze the market with ease. 

3. Embedded Finance

Even though you aren’t aware of it, you’ve probably been using this type of fintech for some time. It’s not revolutionary or groundbreaking, but it’s making a variety of financial taks much easier to execute.

This term is used to describe a selection of financial tools that people can use to make their payments on a certain platform. This platform usually isn’t finance related. While delayed and split payments have existed for a long time, embedded finance brings this into the digital space.

For example, you’re looking to make an online purchase, but you’re too excited to wait for your salary, so you decide to split the payment into a couple of smaller payments. People have complimented embedded finance that it enhances the customer journey, and it’s like you don’t even interact with a financial institution. 

Growing businesses need secure financial processors who can process customer payments with flexibility. It is common to engage an ISO agent to provide smooth and secure payment services. An agent will handle the transaction and provide daily and monthly financial reporting tools.

E-Commerce and social media platforms, delivery services, and various other types of services can utilize this technology to facilitate the payment process. Financial institutions can also find this trend useful, as they will be able to reach new audiences by partnering with companies. 

4. Regtech

In our modern world, there are laws and regulations for everything, yet nothing is as strictly regulated as finance. The reasons behind this are pretty obvious, but even if you’re doing everything accordingly, it can be hard to collect all the documentation and send it on time. RegTech stands for Regulatory technology, which refers to regulations in finance. 

The idea behind this is to help businesses and individuals monitor their compliance and understand which processes aren’t according to the rules. This technology has the potential to revolutionize how corporations handle compliance risks.

Besides helping with following regulations, Regtech can also help with fraud prevention, data privacy, and money laundering, to name a few examples. Penalties imposed to companies that don’t protect their user’s privacy or commit fraud can be quite serious, leading to bankruptcy. 

The Future of Fintech is Exciting

While none of these technologies have experienced widespread adoption, we’re in the process of testing them and understanding what aspects of them can bring us progress. Some trends, such as DeFi and Open banking, have been around for a couple of years, while others have emerged recently.

None of these trends can replace traditional banking at the moment, but these technologies will certainly continue growing. This market was worth 112.5 billion dollars in 2020, and experts are predicting it to triple by the end of the decade. 

No matter if you’re an investor, an enthusiast, or an entrepreneur, it’s best to do your fair share of research before you give up your money to a new company. Even if they don’t have malicious intent, they can fall prey to hackers or be exposed to unfortunate market situations. 

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