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Six ways fintech is evolving around the world

Evolving Global Trends in FinTech

The emerging field of Financial Technology, known as FinTech, is in a constant state of progress and advancement, and this trend continues in 2023.

In recent times, the banking industry has witnessed a remarkable surge in the adoption of fintech solutions, driven by the growing technological literacy of users. Embedded Finance, Open Banking, Banking-as-a-Service (BaaS) Offerings, Sustainability and Green Finance, Neobanks, Artificial Intelligence (AI), Robotics and Machine Learning (ML) technologies will continue to shape the fintech landscape.

In this piece, we explore six key trends that are currently defining the future of the fintech industry in 2023 and beyond.

These trends are expected to enhance accessibility and simplify the lives of both businesses and consumers. Experts predict that the fintech sector will expand significantly, reaching a value of $174 billion during this year.

 Embedded Finance

Embedded finance involves the seamless integration of financial services, tools or products that are traditionally obtained via a bank. These are directly integrated within the products, services, platforms, websites, or applications of a non-financial organization.

In recent years, embedded finance has been gaining traction in the fintech industry and has become a dominant trend in 2023.

Leveraging on consumer needs and a desire for convenience, embedded finance enables seamless transactions and scalable personalized financial experiences.

Flavours of Embedded Finance

Embedded Lending: This is where credit or financing products are integrated into a non -financial services company. Examples include eCommerce store, retailer, or marketplace. This allows buyers access deferred payment facilities at point of sale without having to go to a bank or lender.

An example of embedded lending is an eCommerce store that offers short-term loans at checkout in the form of buy now, pay later (BNPL) options. This allows customers to split their payments or obtain loans seamlessly.

Consumers can access credit without leaving the platform they’re on. This removes the need to visit a bank to get a loan and spend hours on paperwork

Embedded Payments: This service makes life easier for consumers and business buyers by enabling instant payments at the touch of a button.

An example of embedded payments is the digital wallet on a mobile phone such as Kegow, which enables instant contactless payments. Another example is rideshare apps utilizing embedded payments. Customers don’t need to enter their credit card information every time they wish to make a payment. Instead, they pay automatically via the app upon completion of their journey.

Embedded Insurance: This is where insurance products can be found and added on to a purchase at the point of need with just one click. This removes the need for a broker or insurance agent.

An example of embedded insurance can be found in Tesla. Tesla offers car insurance for each Tesla car purchased. As for travel where purchasing a flight ticket comes with travel insurance, there is no need for an insurance agent.

By embedding financial services into these platforms, businesses can provide a more streamlined, yet holistic and convenient experience for customers. This eliminates the need for separate financial interactions.

The global embedded finance market is currently valued at over US$54 billion. It is however predicted to grow to more than US$248 billion by year 2032. As a result, experts predict that the market for embedded financial services will expand. Estimation is about 40% annually over the next several years.

According to Future Market Insights, the embedded finance market was valued at just US$43 billion in 2021, and it has all chances to reach over $248 billion in the next 10 years.

2.0    Open Banking

Open banking is a regulatory and financial technology framework. It involves sharing customer financial data securely and with user consent with authorized and trusted third-party providers (TPPs). This is done using standardized Application Programming Interface (API). API allows for the exchange of information between different systems in a secure and controlled manner.

This enables the development of new innovative applications and services that leverage the financial data of users and existing banking infrastructure. This is to offer personalized financial management tools, streamlined payment solutions, and improved access to credit.

Open banking opportunities are used by many fintech businesses and startups that offer budgeting, expense tracking, financial planning, lending, and others.

For example, with Open Banking, a user can connect their bank account to a budgeting app. This can then provide personalized insights into their spending habits, savings goals, and financial health.

Open banking presents an opportunity for traditional banks to join forces with fintech instead of competing against them.

According to Open Bank Project, in May 2022, there were more than 6 million open banking users globally. In 2024, 63.8 million people will use open banking, predicts Statista.

3.0    Banking as a Service

Banking as a Service (BaaS) is a model where banks or financial institutions open access to their payment ecosystem. They also provide their banking services and infrastructure to third-party companies, typically non-banking entities. This is done to offer financial products and services to their own customers.

BaaS allows non-banking entities, such as fintech startups, e-commerce platforms, or other companies, to leverage existing traditional banking infrastructure. These entities leverage capabilities without needing to obtain a banking license or build their own banking infrastructure from scratch.

BaaS also takes advantage of APIs but it differs from open banking. It provides a third party with the functionality of a bank based on which new product can be developed. It does not provide third parties with ready-made data.

Companies pay for access to the BaaS platform, after which the financial institution opens its APIs to that company. This access provides the systems and information needed to create new financial products.

By utilizing BaaS, non-banking entities can focus on their core business while offering banking related services seamlessly. They can provide functionalities such as account creation, payment processing, money transfers and loans. They can even issue cards to their customers without having to develop and maintain the underlying banking infrastructure.

Next is Sustainability and Green Finance

Sustainability and green finance describes the integration of the use of technology in finance with Environmental, Social and Governance (ESG) objectives. This promotes sustainable investing, green bonds, and environmental impact tracking.

Fintech solutions can provide value in terms of social inclusion and practical implementation of environmental ambitions. With a growing focus on environmental sustainability, fintech is facilitating the integration of ESG factors into financial products and services. Fintech solutions support sustainable investing and enable the issuance of green bonds to fund environmentally friendly projects. They also provide tools for ESG data analysis, tracking and measuring the environmental impact of investments.

With the increasing focus on ESG factors, there is a rising interest in fintech companies that offer ESG capabilities. These companies specifically target climate change, decarbonization, and the circular economy. However, the sustainability aspect of fintech products poses challenges. The carbon footprint of technologies used and the ethical concerns related to personal data and AI development are examples.

Addressing these challenges requires fintech companies to prioritize sustainability. They can do this by adopting eco-friendly practices and addressing cultural and ethical issues tied to data usage and AI algorithms. Collaborative efforts with industry stakeholders and regulators can facilitate positive change and promote a more sustainable and ethical fintech industry.

5.0    Neobanks

Neobanks are also known as digital-only banks or challenger banks. They are a type of fintech company or a digital fintech solution that has been gaining immense popularity in recent years. As more consumers prefer to conduct financial transactions online or through mobile apps, this eliminates tedious paperwork. It also eliminates the need to visit a bank physically and waiting in long queues.

FinTech has played a significant role in the growth of neobanks, which are a specific type of fintech company focused on reducing the cost of banking services.

Unlike traditional banks, neobanks typically offer a narrower range of services but concentrate on providing high-quality offerings in those areas. They operate entirely in the digital realm, without any physical branch locations. This Neo banking concept has gained popularity, with many new FinTech businesses adopting this model. The rise of neobanks benefits both companies and customers, as it leads to cost reductions and improved accessibility to banking services.

Neobanks offer a range of virtual banking services, such as peer-to-peer transfers, international remittance and instant transfers. They also offer simplified registration processes, IBAN and ACH accounts and contactless cards with free transaction fees. Moreover, they have the ability to purchase various cryptocurrencies like Bitcoin and Ethereum.

Neobanks have emerged within the fintech landscape to make banking services more affordable. While they may have a narrower service scope compared to larger traditional banks, they prioritize specialization to enhance the quality of their offerings.

Neobanks also tend to be more transparent in their operations, emphasizing openness and clarity for their customers. Examples of neobanks include Kegow, Naira.com etc.

6.0    AI and ML for financial technologies

Artificial Intelligence (AI) and Machine Learning (ML) are revolutionizing the financial services industry and its related sectors. These technologies bring automation and advanced capabilities that lead to cost reduction and streamlined processes.

Banks and financial institutions are embracing AI and ML to enhance the customer experience, cut costs, and boost productivity. They also retain customers, offer innovative services, and ensure secure payment transactions.

Through the collection and analysis of data on customers’ cash accounts, credit accounts, and investments, AI enables financial institutions to monitor their clients’ financial health and provide tailored and personalized services. Cognitive automation, data analysis, engagement, and insights empower companies to improve smart banking services.

For instance, AI and ML have empowered chatbots with natural language processing, resulting in smooth and efficient customer interactions. Recognizing the benefits, banks and fintech companies with AI capabilities are forming partnerships to leverage these advancements.

Fintech solutions involve vast amounts of data, and AI, especially ML, is the ideal technology to process and leverage thick data. AI contributes to various areas in fintech, including risk management, fraud prevention, cost optimization. It also significant for personalized banking experiences and workflow automation for both team members and customers.

According to Insider Intelligence, chatbots powered by AI will become so deeply integrated into the banking process by 2030 that customers won’t be able to differentiate whether they are interacting with a bot or a human. This highlights the transformative potential of AI in the financial industry.

The worldwide market for AI in fintech is expected to reach an astounding $27 billion by 2026 while maintaining a compound annual growth rate (CAGR) of 23.17% from 2021 to 2026.

Chams Holdco– an award-winning ICT company, through its subsidiaries (ChamsSwitch, ChamsAccess, CardCentre, ChamsMobile), has been operating at the leading edge of the FinTech space over the past thirty years. Chams has equally evolved in its operational breadth and industry leadership by deploying innovative solutions as a key indigenous strategic player in the African FinTech space. We are poised to continue to champion the dissemination of FinTech solutions for Nigeria and Africa.

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