Financial technology, or fintech, is an industry that has been rapidly transforming the way we handle financial transactions. Fintech firms and financial institutions are increasingly using technology to offer innovative products and services that cater to the evolving needs of consumers. In 2023, fintech will continue to be shaped by emerging technologies such as open banking, IoT, blockchain, AI and machine learning, and SaaS.
Open banking is a trend that involves the sharing of financial data between financial institutions, fintech firms, and third-party providers through APIs. The goal is to empower consumers by providing them with greater control over their financial data and expanding their access to financial products and services. According to a report by Mordor Intelligence, the global open banking market was valued at $7.29 billion in 2020 and is expected to reach $43.15 billion by 2026, growing at a CAGR of 29.4% during the forecast period.
Plaid is a great example of an open banking US-based fintech company. They provide a platform for connecting bank accounts to other fintech applications. The company’s platform enables users to access their financial data across multiple financial institutions. Plaid’s technology is used by companies such as Venmo, Robinhood, and Coinbase.
The Internet of Things (IoT) refers to a network of devices connected to the internet that can communicate with each other. In the world of fintech, IoT can be used to enable payments through wearable devices such as smartwatches, fitness trackers, and other wearables. The global IoT market is expected to grow from $742.1 billion in 2020 to $1,463.19 billion in 2027, at a CAGR of 10.6% during the forecast period, according to ResearchAndMarkets.
For example, IoT-enabled sensors can be used to collect data on customer behavior in physical bank branches, allowing banks to optimize their layouts and services. IoT devices can also be used to monitor and manage assets, such as ATMs and other banking equipment, reducing downtime and maintenance costs.
Overall, IoT has the potential to transform the financial services industry by enabling new ways of collecting and analyzing data, improving customer experiences, reducing costs, and managing risk.
Blockchain is a decentralized digital ledger that enables secure and transparent transactions. In fintech, blockchain can be used to enable secure and transparent payments, as well as to create new financial products and services. According to a report by MarketsandMarkets, the global blockchain market size is expected to grow from $3.0 billion in 2020 to $39.7 billion by 2025, at a CAGR of 67.3% during the forecast period.
BitPesa, a Kenya-based fintech company provides a blockchain-based platform for cross-border payments. The company’s platform enables users to send and receive payments in multiple currencies.
BitPesa’s services enable individuals and businesses to buy and sell cryptocurrencies like Bitcoin, Ethereum, and Ripple, and make cross-border payments using those digital currencies or traditional fiat currencies like the Kenyan shilling, Ugandan shilling, Nigerian naira, and Tanzanian shilling. BitPesa has partnerships with local banks and mobile money operators, which allows it to facilitate seamless and affordable money transfers across borders.
AI and Machine Learning
Artificial Intelligence (AI) and Machine Learning (ML) are technologies that enable computers to learn from data and make predictions. In fintech, AI and ML can be used to improve fraud detection, risk management, and customer service. According to a report by MarketsandMarkets, the global AI in fintech market size is expected to grow from $1.5 billion in 2020 to $22.6 billion by 2026, at a CAGR of 40.4% during the forecast period.
Kabbage, a US-based fintech company that provides loans to small businesses. The company’s AI-powered platform enables quick loan approvals by analyzing a wide range of data points.
Kabbage’s core offering is its line of credit product, which allows small business owners to access funds quickly and easily. The line of credit is based on a proprietary algorithm that analyzes the business’s financial data, such as revenue, cash flow, and bank statements, to determine the creditworthiness of the business.
The company has received significant recognition for its innovative approach to small business lending. The company has been named one of the most innovative companies in finance by Fast Company, and it has received numerous awards for its technology and customer service.
Embedded finance refers to the integration of financial services into non-financial products or services. This means that financial services are offered seamlessly within the context of another product or service, such as a mobile app, e-commerce platform, or online marketplace.
Embedded finance has the potential to transform the way people access and use financial services, by making them more convenient, accessible, and personalized. For example, a ride-hailing app could offer payment processing, insurance, or financing options to its drivers and passengers, without the need for them to leave the app or use a separate financial service.
Embedded finance is made possible by application programming interfaces (APIs) and open banking, which enable different systems and platforms to communicate and share data with each other. This allows financial services to be integrated into other products or services seamlessly and securely.
This tech trend can benefit both consumers and businesses, by providing them with more choice, flexibility, and convenience. Consumers can access financial services in the context of the products or services they are already using, without having to go through the hassle of signing up for a separate financial service. Businesses can increase their revenue and customer loyalty by offering financial services that complement their core products or services.
However, embedded finance also raises concerns around data privacy, security, and regulatory compliance. It is important for businesses offering embedded financial services to ensure that they are complying with relevant regulations, such as KYC (Know Your Customer), AML (Anti-Money Laundering), and data protection laws.
Software as a Service (SaaS) is a major technology trend in the fintech industry, enabling financial services to be delivered more efficiently and effectively through cloud-based software platforms. SaaS solutions offer several benefits over traditional on-premise software, such as lower costs, faster implementation times, and greater scalability.
In the fintech industry, SaaS solutions are being used to deliver a range of financial services, such as payment processing, lending, accounting, and regulatory compliance. SaaS platforms offer a flexible and customizable approach to delivering financial services, allowing businesses to tailor their offerings to meet the specific needs of their customers.
Stripe is a payment processing platform that enables businesses to accept payments online and in mobile apps. Stripe’s SaaS solution is easy to set up and customize, and it offers a range of features such as fraud detection, subscription management, and support for multiple payment methods.
In conclusion, the fintech industry has been rapidly transforming the way we handle financial transactions, and this trend will continue in 2023. Emerging technologies such as open banking, IoT, blockchain, AI and machine learning, and SaaS will continue to shape the industry and enable new ways of delivering financial services to consumers and businesses. Companies such as Plaid, BitPesa, Kabbage, and Stripe are leading the way in innovation, providing new and innovative financial solutions that cater to the evolving needs of consumers. As the industry continues to evolve, it is important for businesses to keep up with the latest trends and technologies, in order to remain competitive and meet the changing needs of their customers.