By Rohini Gupta, founder of FinregE,
As we move further into 2023 and gather momentum for the months ahead, the pace of fintech businesses is also building momentum as fintech becomes increasingly innovative and competitive.
So as we begin a new year, what’s next for fintech? Let’s take a look at the upcoming trends of 2023, and what to be cautious about this year.
The Fintech Trends of 2023
Fintech trends, like any other trend, can be here one day and gone the next. Some fintech trends of 2022 were increased flexibility through Buy Now Pay Later schemes, the decentralisation of finance through innovations such as blockchain, and increased embedded finance provided. However, it is those that become a trend and then manage to stick around that make their mark in the long term.
Other Technologies being used within Fintech: One of the biggest fintech trends for this year will be the use of AI (artificial intelligence) and ML (machine learning) for data analysis, systems, processes and customer interactions. The benefits of this technology are improved productivity and profits for business as well as enhanced products and better customer experience and interactions. Traditional financial services institutions and other organisations supervising fintech will also feel the benefits of this technology, thanks to the greater efficiencies and cost savings of using AI and ML.
These two technologies can be used to deliver regtech too, supporting companies in the management of regulatory processes in the financial sector. Regtech helps to identify non-compliance with regulations and laws to ensure companies continue to be compliant as they scale up. AI and ML within regtech enable the automation of repetitive tasks and the monitoring of data security, and the businesses that adopted regtech in 2022 are already seeing cost savings through their bottom line.
Increase Regulatory Requirements for Fintechs: As a sector experiencing enormous growth, there is an increasing need for further-reaching regulations to ensure fintechs continue to be a force for good and don’t have unintended negative consequences on the financial services sector.
In 2022, there were a few major publications of proposals for new regulations on AI and ML, such as the EU Artificial Intelligence Act and the US Blueprint for an AI Bill of Rights. There were also publications from UK regulators on supervising and regulating AI and ML.
As AI grows and becomes more powerful, there is naturally a need for greater scrutiny. During 2023 and 2024 it is likely that new publications on AI regulations will be made. It is vital that key stakeholders and those using AI and ML technologies and society as a whole, engage with the proposed regulations while they can to ensure the regulations are accurate and able to support AI and ML being used for the best possible outcomes.
The Need to Adopt Flexibility and Inclusion in Fintech: As the New Year gets underway, it will be crucial for fintech firms to adopt flexibility, inclusion and compliance into all they do. There is a need to make sure inclusion is front and centre in all decisions, and success also depends on compliance.
If fintechs grow at an accelerated pace whilst staying compliant, they will succeed in being innovative and good. Non-compliance runs the risk of doing harm to others by creating issues in the future through the need for heavier regulations as a result. Fintechs can continue to thrive during 2023 if they continue doing what they do, whilst keeping inclusion and compliance at the heart of operations.
Something to Remember in 2023
Something that financial institutions must be wary of in terms of regulations and working with fintech firms, is the Consumer Duty regulation by the UK’s financial services regulator Financial Conduct Authority (FCA). This rule puts pressure on fintechs and financial companies to perform to a high standard, delivering good outcomes to their retail customers with communications that are easy to understand and products and services that match their needs and are offered in a supportive way.
The nature of fintechs is to grow quickly and offer innovative products to customers at a fast pace – and often, compliance is an afterthought. However, compliance with the new rules from the FCA means fintechs are required to really understand and know their customers and to analyse customer data.
On the one hand, this is added pressure for fintech firms. On the other, it is a great opportunity. Fintechs can and should use this additional regulatory requirement to transform the financial services sector, using AI and ML and data analysis to deliver customer-centric products and services.
With compliance in mind, fintechs can provide better products and services. They can also implement and adopt technologies such as regtech to manage and utilise regulatory requirements.
The fintechs that will be successful in 2023 and beyond will be those who stay innovative and competitive, while also staying flexible, up to date on regulation, and adapting to the ever-changing fintech industry.
Rohini Gupta has 15 years’ experience in the banking and investment sectors and is the founder of FinregE, which uses cutting-edge technology to make financial regulation easy.