As January gets into its stride and marches onwards, deeper into 2023, just what lies ahead for the fintech industry this year?

The fintech sector is gathering pace with businesses becoming increasingly more competitive and innovative in an already creative and crowded market. It’s no wonder that many of us are wondering what will happen next for fintech firms in 2023, what the trends will likely be, and whether there will be any areas that fintech businesses need to be wary of.

So what does 2023 hold for fintech?

Fintech Predictions For 2023

Trends

As with any and every trend, there is no guarantee it’ll stick around as longevity is far from certain. Just as within any sector, some trends really leave their mark while others enjoy their moment in the limelight before disappearing.

Last year, in 2022, there were ample new trends, including the Buy Now Pay Later schemes which introduced greater flexibility, and creative measures like blockchain which decentralised finance. But we’re looking for the trends that are here in 2023 and set to be central to fintech businesses long after the year is over.

The prime trend for this year is the use of AI (artificial intelligence) and ML (machine learning) technologies by fintech firms for overseeing processes, data analysis, and systems management as well as customer relations. The technology provides many benefits to business, which is why it is bound to gain popularity and its use will grow. Among key benefits are improved productivity for companies, boosted profit margins, better products and improved customer experiences and interactions.

In addition to these benefits for fintech, AI and ML technologies benefit both the traditional financial services companies and businesses that oversee fintechs. These firms will enjoy enhanced efficiency throughout the corporation and opportunities for cost savings by using artificial intelligence and machine learning technologies.

AI and ML can also be used to deliver regtech. By incorporating the technologies, they provide much-needed support for companies by managing all the regulatory processes. Businesses are able to create repeat tasks and data security management that are automated, by incorporating AI and ML within regtech. This leads to smoother operations and the easy identification of non-compliance with regulations and financial laws, preventing firms from being fined and ensuring they are able to stay consistently compliant even while they scale up. In fact, the companies that started using regtech in 2022 are already experiencing increasing savings in their business bottom line.

The Need To Adapt & Thrive

Although the sector is experiencing high levels of success and innovation, it’s vital that fintech firms adapt during 2023 if they are to continue thriving. Businesses need to appeal to as wide an audience as possible with their products and services, by keeping inclusion at the heart of everything they do. Compliance will also be a key factor for success this year, as fintechs face the dual challenge of growing rapidly while remaining compliant.

By staying innovative and a force for good, fintechs ensure regulatory requirements remain manageable and at a reasonable, sensible level. However, non-compliance is risky for businesses as it leads to big fines and penalties. It can harm other businesses in the sector or wider financial services industry, by making problems for the future – if firms are non-compliant, there need to be ever more stringent regulations to keep companies in check, which will complicate the fintech landscape and make it harder to innovate freely.

Regulatory Rules In 2023

The fintech sector is undergoing great growth – because of this, the sector is under greater scrutiny and needs more intense regulations.

As artificial intelligence and machine learning are not new technologies, they’ve been gaining momentum during the course of the last year or so. As a result of this, there were some high-profile proposals published for new regulations on AI and ML in 2022. Examples include the EU Artificial Intelligence Act and the US Blueprint for an AI Bill of Rights, as well as many publications by UK regulators on overseeing and policing AI and ML.

These technologies are anticipated to explode in terms of adoption rates and levels of use by fintech businesses in 2023. As AI grows more powerful too, there is a natural need for tighter regulations to make sure the products and services provided by innovative fintech companies continue to be in the best interests of the customers and don’t have negative consequences on the traditional financial services industry.

Throughout this year and 2024, there will be further publications of proposals on the AI and ML regulations needed to protect consumers and society from any possible negatives. When the proposals are announced, it’s important for all stakeholders, companies and organisations using AI and ML technologies to read and understand what’s being suggested, and to engage with these regulations. This way, it is far more likely that the regulations that come into force are relevant, supportive and designed to ensure artificial intelligence and machine learning can be used to create optimum outcomes.

One To Watch In 2023

The Consumer Duty regulation, introduced by the financial services regulator Financial Conduct Authority (FCA), sets out the high level of operation that fintechs and financial services firms are expected to obtain. As fintechs must put customers first, this rule puts pressure on firms in this sector to deliver a good results for customers and to communicate easily with them, always remaining accessible to all, and providing products and services that meet the needs of customers.

Regulations are needed to ensure fintechs innovate and grow quickly while remaining compliant. Otherwise, compliance would become an afterthought as companies focus on scaling up. The new FCA regulation, Consumer Duty, means fintechs need to analyse data to ensure they know their customers – their needs and expectations – and are able to manage these.

This may be added pressure on fintechs but it is also an opportunity for them to make the most of AI and ML technologies and the regulatory requirements to create the best products and services – products that really have customers at their core and make a difference to people’s lives.

Fintechs could elevate their force-for-good status this year to transform the entire financial services sector by utilising technology to innovate in a compliant and customer-focused way.

What Will Happen To Fintech In 2023?

The fintech companies able to adapt in this fast-paced industry will get a head start in this competitive sector. Flexibility, inclusion and compliance are the core criteria for success in 2023 – businesses that can innovate and grow thanks to cutting-edge technologies like AI and ML while using technology like regtech to oversee processes and stay up to date with regulatory changes, have the best chance of success this year.

Rohini Gupta has 15 years’ experience in the banking and investment sectors, and is the founder of FinregE, a company that uses technology to make financial regulation easy.