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Trends and Big Ideas Shaping Fintech in 2023

At Visa, we see our work with fintechs as one of our greatest opportunities. Fintechs are changing the game, reinventing the ways consumers manage their finances, and businesses manage their operations. 

As we begin 2023, we’re excited to see new innovations and solutions enter this space. To kick things off, we asked our partners about what they’re tracking in 2023

Shifting from growth to cost savings 

The fintech industry is continuously evolving and one of the biggest expected shifts in 2023 is moving from a growth mindset to a cost savings mindset. Following the 2008 recession, many companies, especially fintechs, were able to prioritize growth as the cost of borrowing, inflation and wage growth all remained low. In our new economic reality with continued inflation, that’s shifting. 

“As we move away from a ‘growth at all costs’ mindset in this new macro backdrop, there will be an increasing focus on solutions that help companies more efficiently manage their financial health and operational efficiency, while eliminating technology debt and adopting leading B2B fintech SaaS solutions.” – Logan Allin, Managing Partner & Founder, Fin Capital 

“Over the last couple of years, stimulus programs have pumped trillions of dollars into the economy while cheap debt has been abundant. As rates rise and the economy slows, fintech companies will shift focus from helping their customers grow faster and invest better to cutting costs, optimizing spending, and improving financial stability.” – Emily Man, Investor, Redpoint Ventures

M&A becomes a strategic move 

In this new stage of slowed growth, M&A could become a strategic option for many fintechs—especially for those lacking a solid balance sheet and for the more financially sound players looking to acquire more of the market share. 

“The mantra for 2023 will be ‘acquire, get acquired, or consolidate.’ A reset of valuations combined with a reckoning in the positioning of public fintech and financial services players will lead to consolidation in the market. Some of this consolidation will be a product of achieving scale and sustainable economics in categories with too many players (e.g., BaaS), whereas others will be opportunistic players to acquire assets and accelerate competitive positioning in a market environment that will see greater alignment between price justification (for the public entity) and valuation expectations (for the private company).” – Commerce Ventures

“There will be massive, massive consolidation. Many companies will be sold as acquihires. Some will not be able to raise their next rounds. Sub-sectors with many entrants competing for market share will see more concentration around the category winners. And I think this will be net healthy for the ecosystem.” – Nik Milanovic, GP of The Fintech Fund & Founder, This Week in Fintech

“2022 was a good reminder to play the long game during the natural ebbs and flows of any industry. There have been so many headlines about the death of VC funding yet in reality, it’s still at a high level if you look at it over time. 2023 will be like an episode of Chopped. There will be winners, but more chefs will go home. We all got a chance to compete over the past few years and the industry is better for it.” – Cara Hayward, Director of Partnerships, North America, Currencycloud 

Zeroing in on compliance 

While the pace of innovation within the fintech industry continues to accelerate, an increased focus on regulatory compliance and internal controls will be critical for helping fintech businesses build for the long term and be timely for the health of the industry.  

“With increased scrutiny and hefty fines for non-compliance, banks will be more actively committed to ensuring both themselves and their fintech partners are meeting the highest standards of compliance and regulation. Compliance is not a box that can be ticked, it’s a vital component in protecting consumers, borrowers, and maintaining a healthy financial ecosystem.” – Rhett Roberts, Founder & CEO, LoanPro

“With regulatory scrutiny increasing around bank-fintech partnerships, crypto, P2P payments platforms, and more, being compliant will be a key aspect of a fintech company’s success in 2023. With that in mind, fintech companies that prioritize compliance early on and build it into their infrastructure, rather than treating it as a box to be checked later on, will have a distinct competitive advantage.” – Tommy Nicholas, Co-founder and CEO, Alloy 

“As many have discussed, the 2022 crypto incidents proved the need for a more robust regulatory framework and clearly structured consumer protections. We are hopeful 2023 will bring closure to users of those platforms as well as a better framework for future innovation within the non-fiat financial landscape.” – Wade Arnold, Founder & CEO, Moov 

“Fintech companies and sponsor banks must have a deep understanding of the regulations that are relevant to them based on the services rendered, customer demographics, and geographies. Compliance and risk management programs must be put in place by experienced professionals.” – Logan Allin, Managing Partner & Founder, Fin Capital

Combating digital identity threats 

Fraud continues to be one of the biggest challenges facing fintech and payments as fraudsters weaponize PII in even more aggressive ways. One of the newest threats to consumers is the emergence of synthetic IDs—when fraudsters assemble a net new persona from fragments of ID components. With these threats looming large over the industry, finding ways to help build security and trust will remain critical. 

“In 2020, fraudsters stole PII from millions of individuals through pandemic-related scams. Fraudsters typically wait a few years before using stolen identities, giving them time to create and nurture synthetic identities—which are used to open and fund bank accounts, build credit, and carry out a fraud attack. In 2023, we expect much of the PII stolen in early 2020 to be weaponized against FIs at an increased rate. For FIs that aren’t prepared, these attacks will be crippling.” – Tommy Nicholas, Co-founder and CEO, Alloy

The continued digitization of all aspects of our lives demands a better approach to representing identity online. We are intrigued by many of the approaches that entrepreneurs are taking to this problem, including ideas around self-sovereign identity, frictionless integration of biometrics into customer identification, and novel applications of cryptography. The high risk of fraud across banking and payments means the earliest use cases will be in financial services.” – Steph Khoo, Tom Brown and Izzi Steinhaus, Nyca

“There has been a recent wave of fraud and a subsequent crackdown from the regulators with cases where banks have sponsored fintechs. And while there were always rules in place it hasn’t stopped some going rogue. Hopefully this development will finally force fintechs to take compliance and regulations seriously. We think there will be a wave of innovation in this space.” – Cara Hayward, Director of Partnerships, North America, Currencycloud

“Fraud is quietly becoming the biggest issue in fintech, but it doesn’t have to be. Fraud rates spiked during the pandemic, with digital account onboarding becoming the default. The industry has started to fight back with better ML, better data, and more sharing of best practices. Fraud isn’t a competitive issue of fintech companies vs. banks but could be a big space for collaboration.” – Simon Taylor, Head of Strategy & Content, Sardine

Personalization drives financial inclusion, new lending models

Many fintechs are working to make today’s financial world more relevant and equitable by tailoring their offerings to the specific needs of consumers. Today, when a customer consents to sharing their data, it can help lenders take a more tailored approach. We expect to see more personalization within fintech to help improve performance and drive better customer outcomes.

“Technology is propelling lending programs to unprecedented heights of personalization. The financial services industry is no longer limited to generic, one size fits all loan programs. Instead, future borrowers can expect dynamic, tailored programs with unique configurations that cater to their evolving needs and preferences. We are entering a new era of financial services, where scalability meets individuality.” – Nate Bray, CRO, LoanPro

“The next step in digital transformation for financial service providers involves simultaneously enhancing the customer experience and increasing financial accessibility while also reducing costs. Payroll connectivity providers like Argyle are providing real-time visibility into payroll data. With programmatic access to this information, companies can offer new financial services to more consumers, such as paycheck-linked lending, earned wage access, and cash advance.” – Shmulik Fishman, CEO and Founder, Argyle

“A big trend in the industry, and part of our mission, is the creation of modern tools in payments that can help companies and small businesses with cash flow, avoiding high interest rate loans or expensive cash advances. With better technology, tools, and visibility we are working to modernize B2B and B2smb payments and cash flow.” – Wade Arnold, Founder & CEO, Moov

Shifts in real-time payments 

With advancements in the tech powering payments, removing the “action” from transactions is becoming table stakes for consumers and businesses. Consumers are looking for simpler, faster and more seamless experiences, and it looks like more of this is on the way.   

“Another trend we’re seeing in emerging markets and underestimated communities is the benefit of frictionless payments. Since their rise at the start of the pandemic, frictionless payments have especially benefited lower-income populations. This solution can save money, and even more importantly, time – freeing people up for their side hustles and other income-generating opportunities.” – Kunal Kaul, Chief Lending & Strategy Officer, Tala

“Massive digital transformation in business-to-business (B2B) and real-time digital payments: B2B payments are still largely manual and run on checks, wires, and ACH. We’ll see a wave of innovation happening in corporate payments similar to what we saw in the past decade in consumer payments, and an expansion of embedded payments opportunities driving a more seamless experience for corporate use cases.” – John MacIlwaine, CEO, Highnote

Embedded finance reaches new frontiers 

Embedded finance infrastructure has made it easier for non-financial businesses to integrate financial products or services into their offerings. In 2023, we expect embedded finance will continue to play an important role in digital transformation.

 “Opportunities to embed payments are now everywhere. In industries that were once quite literally brick and mortar, like construction, we’re now seeing an appetite for sophisticated software-based payments instruments that even a constructor contractor can employ while they’re on their phones at a construction site. Digital transformation and embedded finance will continue to push each other to innovate to the edge.” – John MacIlwaine, CEO, Highnote

“To date, most embedded solutions have focused on payments, lending, card issuing, and payroll services.  The most successful vertical fintech plays have a built-in customer base where you can maintain low customer acquisition costs due to an easy upsell. In addition, these companies exist within highly fragmented markets where the customer experience to access financial products and services is highly burdensome. Lastly, open banking has made it easier to access data that was once only available to financial institutions. When this data is comingled with real-time revenue data, underwriting becomes much easier.” – Logan Allin, Managing Partner & Founder, Fin Capital

Next phases of fintech 

We’ve seen the different phases of fintech evolve and anticipate a new wave of changes to unfold as new technologies and tools become engrained in our financial lives.

“We’re entering a new era of core enabling technologies, and the implications of Generative AI will be felt across sectors. For fintech, AI has the obvious application of making customer service chatbots more useful, but there are other potential use cases, like improving optical character recognition (OCR) or language translation. The digital transformation of banks is another one that comes to mind – we’ve seen major strides in software solutions that address infrastructure needs in compliance, data, and security. And lastly, we continue to be excited about fintech as an enablement technology – often referred to as embedded fintech – which unlocks the fintech opportunity for other industries.” – Neil Kapur, Partner, TTV Capital

“I believe we’re in what I like to call the “Empire Strikes Back” phase of fintech. The last decade was dominated by nimble startups stealing market-share from banks. But the incumbents have woken up to the fintech threat and have three powerful weapons in their arsenal: distribution, licenses, and low cost of capital. I think the next decade will be defined in-part by banks partnering with fintechs (rather than build or buy them – both expensive and counter-productive).” – Nik Milanovic, GP of The Fintech Fund & Founder, This Week in Fintech

A big thanks to our partners for contributing their insights to this piece. We look forward to seeing your innovative work unfold and partnering together in the year ahead.