FinTech Industry Trends in 2023: The Year of the Connected Customer (2024)

It’s that time of year again: time to talk about financial services industry trends and outlooks.

In the past years, big things happened in the FinTech space.

Source:ATOS–LookOut Industry Trends Banking

As an industry veteran, you’ve probably heard all this before:

• The FinTech sector is smoking hot: investments are ripe, competition is fierce, and demand is high.
• Millennials are the driving consumer force, gradually building up their wealth and on track to become the dominant generation in the financial space in 2029.
• AI, ML, and big data analytics are becoming commodity technologies. They’re no longer nice-to-have but must-have to compete.
• Open APIs,platformization, and bundlingare also trends.

Sowill there be any really new financial services industry trends in 2023? Yes and no.

We believe that 2023 will be defined by one key meta-trend: the rise of the connected consumer whose pains, needs, and demands will drive product development and shape the overall vector of the financial industry.

This year, instead of talking about individual tech trends, let’s go on a bit of a journey through the customer looking glass.

The era of connected customers has arrived

Once upon a time, all a customer expected from a bank was to store their hard-earned cash and provide some way to spend and withdraw it. Then came challenger banks and otherFinTechsand showed that all things finance could be lightning fast, mobile-friendly, and affordable.

Meanwhile, customers grew even more accustomed to top-notch omnichannel experiences thanks to Amazon, Uber, and other apps making once-daunting processes a one-click breeze. Gradually, most of us developed a neat digital ecosystem of products to fulfill our every need. Now FinTech appshave the opportunity tofind their place in the heart of that ecosystem.

As we highlighted inourNew Age in Bankingwhitepaper, Millennial and Gen Z consumers — the key target demographics for 2020–2030 — want to see their banking products as their companions and advisors who are helping them reach their financial goals. Gen X is not far behind Millennials in FinTech adoption.

Plus, during past years, FinTech adoption surged on a global scale:

Source:EY–Global FinTech Adoption Index

The data above isn’t all-new, but it’s worth looking at it again. In 2023, the customer experience will become the competitive battlefield forFinTechs.

Wait, but wasn’t 2021 the year of the Customer Experience (CX)? And 2020 too?

Yesand yes, and most financial companies have made huge progress. Collectively,FinTechshave reimagined the once-daunting tasks of opening a bank account, sending money to friends, applying for a loan, and planning for retirement.

Now matureFinTechswill need to transpose that smooth CX fromsingle-purposeto multi-purpose financial products. We’ve come up with agood formulafor that:

In a nutshell, connected customers want financial products that are:

• Simple and intuitive
• Frictionless
• Engaging and interactive
• Able to solve one pressing money matter (or better, several at once!)
• Personalized to their needs
• Designed to proactively help them get better at what they want to accomplish
• Built around a consistent omnichannel experience

In 2019-2021, we already saw how bothincumbent banksandFinTechsadapted to these demands. In 2023, most will likely keep on with those transformational initiatives aimed at building better, smarter, and more complex products.

Intellias take on the financial services industry trends in 2023

• FinTechsare now competing at the ecosystem level.In 2023, we’ll likely see moremarketplace banks, a bunch of newsuper apps,and loads of cross-industry partnerships — all aimed at meeting the demands of connected consumers.

• To bundleor not to bundle?That’s the big industry question. YoungerFinTechsare getting their slice of the market by going after niche use cases — small business digital banking, bill consolidation, startup credit cards, you name it. Bigger unicorns are full speed ahead, beefing up their core offerings with additional products. Think aboutWealthfront’smove into savings accounts. Both approaches have their merits, and we expect these trends in financial services of starting niche and growing bolder to stay strong.

• Customer data collection and operationalization will remain imperative.FinTechsshould continue to focus on viablemachine learning and AIuse cases, deploying predictive analytics to gauge a user’s current standing and future financial aspirations, devising the next best action strategies for them, and delighting withAI-driven personal finance management.

• And yes… customer-centric is still a huge buzzword.We believe that the financial systemas a whole isevolving to meet customers’ needs.

Download infographics

The “let’s do money better” trend — financial literacy

In 2023, we should address the elephant in the room:

Heck, they’re the first to admit it.

• Peoplewho are34 and younger with no children have$4,727in savings on average.
• 33%of Millennial mobile payment users say they occasionally overdraw their checking accounts, compared to 19% of those who don’t use mobile payments.

Also, according to aCredit Karma/Qualtrics survey:

• 56% of respondents feel their financial goals are out of reach
• 55% think they don’t have enough money to make ends meet
• 59% feel stressed about money every single day

How about offering these people some help?

FinTechsalready have the tools to do so:

• Access to a wealth of customer dataon spending behavior, recurring payments, categorized spending, upcoming bills, and debt.
• Off-the-shelf customer analytics solutionsto provide users withat least an overviewof how they’re doing.
• Commoditized access to big data analytics, ML, and AIto buildmore advanced financial coaching solutions

Investing in customers’ financial literacy is the key to winning them for the long term.

First, show customers how to avoid overspending on late bills or cancel unwanted subscriptions. Then teach them how to save more (without sweating too much over it), spend smarter, and invest better. As a result, you’ll have happy, loyal,higher-net-worthcustomers who are willing to stay with your brand for the long term. It’s a win-win.

Autonomous finance — “Doing better money” on autopilot

Having computer code decide how we should save, spend, or invest our money isn’t a futuristic idea. It’s the reality in 2023.

AI-driven personal finance and wealth management are already here, as we highlighted inour research on new-gen personal financial assistant applications.

Consumers who are burned out and stressed out clearly vote in favor of thishands-free approach to managing their money:

How comfortable would you feel using each of the following services?

Source:Quartz–Get ready for self-driving money

We expect to see a surge in the growth of AI in:

• Investing.Ready to meet Robo Advisor 4.0 that uses self-learning AI to balance your portfolio in real time based on market conditions, your stated goals, and your financial behavior?
• Personal finance trends in 2023 and budgeting.Perhaps you’d like a financial assistant that suggests when to pay a bill, which savings account to use, or where to find cash for that dream vacation?
• Lending.Get approved for a loan in seconds, automate the growth of your credit score, and receive personalized credit offers with lower fees — these are just a few things autonomous lending apps promise.

As AI becomes a commodity technology, great things can happen.

Intellias personal financetipsfor 2023:

• For a wider reach,FinTechsshould coach.Finances excite too few consumers, as most view money management as a daunting, complex chore.FinTechsso far have done a good job of showing that investing, budgeting, and saving can be fun (thanks togamification). Now they need to help customers build their skills even further.FinTechscan’t grow if their customers remain bad with money.Soit’s time to teach (but not to preach).

• Intuitive, intelligent tools will drive the growth of your user base.Empower your customers with engaging tools that will help them proactively master different aspects of finance. Offer analytics, calculators, predictors, and estimators to show them where they stand now and what it will take to meet their goals. Deploy generative AI assistants to help them close that gap.

• Align customers’ day-to-day needs with the financial products you’re offering them.It’s time to move from reactiveto proactive offerings. Thanks to advances in AI, you can now anticipate consumers’ needs and capture their day-to-day struggles with high precision. WhatFinTechsare missing so far is the ability to pitch the best offer to the customer at the right time.

• Prep for autonomous finance.It’s happening. The question is,Will you be at the forefront of the innovation?

Voice and virtual cards: A rising payment method duo

Such conversations are inevitable in 2023, asAlexanow knows how to track utility bills, send reminders, and compare month-to-month payments.

Considering all theprevious tech advancements in the voice payment space, we expect that other voice assistants will pick up new skills and take a more proactive role in payments and moneymanagementin 2023.

In particular, voice assistants will:

• Provide conversational support and basic updates.They’ll be able to reply to common queries, provide basic account/balance data, send reminders, set up recurring payments, and more.
• Validate and authorize transactions.Some financial institutionsare already using voice as an authentication method, and voice payments are no longer an industry novelty.
• Delight with new skills.More advanced use cases will let users perform a wider range of activities, e.g. set up recurring payments, cancel subscriptions, and reroute money between accounts.

Connected car commerceis growing,as newer vehicles come furnished with connectivity and integrated payments. Since browsing and driving is bad practice, most drivers choose to place orders by voice.

The skinny:Voice payment technologies had a slow start, but they’re expected to pick up speed in 2023. ForFinTechs, the best opportunities will lie in connected car commerce and conversational AIassistants.

Virtual cardsare another not-so-new but rising payment trend. After all, the volume of credit card fraud is far from decreasing.With the latest series of high-profile card breaches, consumers feel wary to disclose their information to just anyone.

In fact, most connected consumersactually usedigital wallets (PayPal, Venmo, Google Pay, Apple Pay, etc.) to mask their card details and perform transactions securely. Or they opt for a virtual card if one is available from their digital bank.

Offering virtual cards is a quick way to delight customers and stave off the competition fromFinTechswho are making a cautious foray into the payment card space:

• The newApple Cardentices users with cashback, interest-free credit for Apple products, and no fees.
• Google Wallethas also started offering one-time virtual cards.

However, the real revenue opportunity for virtual cards is in the B2B payment space.

As we shared inourdigital business banking post, virtual cards are among the features most requested by customers as they effectively address three big payment challenges:

• Speed – Topping up a card is almost instant (unlike checks), and payments also go through instantly.
• Reconciliation – All spending information is immediately visible, so managingemployee expenses is less of a hassle.
• Reduced fraud – Virtual cards are useless if stolen.

The skinny:Virtual cards are leading the race in the corporate payment technology space. However, we also expect to see more virtual card offerings from both challenger banks and FinTech players.

Open Banking: Almost there

Over the past year and a half, theOpen Bankingecosystem has improved and enlarged. According to aFrollo report:

• 92% of respondents are planning to use Consumer Data Right (CDR) and Open Banking Data.
• 37% of businesses are willing to get started in the next 6 months, which is almost twice as much as last year.
• 59% of respondents highly value lending and income and expense verification.

However, the general industry sentiment is this: financial institutions have not fully figured out how their Open Banking setups will look in terms of technology, products, branding, and tech.

If you’re undecided about the idea of Open Banking, here’s a quick recap of its benefitsaccording to Accenture:

• 90% of financial leaders believe that Open Bankingcan boost organic growthby 10%.
• The EU Open Banking leadersare expected tobring inup to 20% of total lending revenue and 21% of current account revenue, process 17% of payments, and handle 12% of retail investments.

Plus, connected consumers are very much up for Open Banking:

• 85% of those aged 18–24 would trust a third party to aggregate their banking data.
• Over 50% of customers with 4+ accounts in different banks will try an aggregation service.

Intellias skinny:Becoming PSD2 compliant and meeting SCA requirements is challenging. But it will be imperative in 2023 if you want to stay competitive and adopt new business models such as marketplace banking.

Trends in financial services: New regulations and recommendations

PSD2 and SCA are the top-of-mind compliance hurdles forFinTechsin the EU.

But there’s some good news too. The newly releasedset of recommendationson regulations, innovations, and finance from the European Commission proposes some much-needed changes:

• Revising limitations on the types of non-core business services financial companies can provide.
• Reducing the fragmentation of regulations among member states.
• Introducing a more harmonized KYC process and requirements.
• Ending the customer requirement for providing paper documents.

Overall, the report proposes several sound steps that would ease FinTech operations. The strong focus, however, remains on customer data protection and customer privacy.

Source:KPMG–Regulation and supervision of fintech

US regulators are taking a somewhat different stance onFinTechs.

Case in point: Anew billin the US Senateproposes making Facebook’s upcoming libra cryptocurrency security under the law. Most otherFinTechsare also treated in line with outdated financial legislation from the 70s. And while everyone recognizes this isn’t the way to go, little action has been taken so far.

On a brighter note, US authorities plan to give the financial industry at least some boost with a newround-the-clock real-time payments and settlement service, announced to go live in 2023–2024. CodenamedFedNow, the new system could become a game-changer for smaller banks andFinTechs, as they will no longer needto build a private infrastructure(or rent one from a larger bank).

Intellias regulations insights for 2023:

• The EU and the UK are heavily exploring innovative guidelines that would support and promote FinTech innovations.PSD2, SCA, and GDPR may be daunting, butultimatelythey aim to increase market-wide security standards and promote secure exchanges of data between all participants.
• The US financial regulatory landscape is yet to catch up.Most FinTech operations are governed by outdated legislation such as the Gramm–Leach–Bliley Act (1999), the Fair Credit Reporting Act (1970), and the Electronic Fund Transfer Act (1978), among others. Clearly, these are hardly suitable for today’s reality. In 2023, it’s unlikely that any major changes will happen unless prompted by a joint industry effort.

What’s next for FinTech?

Ultimately, this is a question for you and your customers to answer.

• Listen closely to demands.
• Anticipate your customers’ next moves with better analytics.
• Impress customers with innovative products, like alternative lending software.
• Align your products and offers to your customers’ lifecycle of financial needs.
• Earn trust through a transparent and seamless experience.
• Respect customer privacy and seek consent.
• Prioritize your tech investments and product development onall ofthe above.

Reach out to Intelliasto discuss your customer-centric tech investment strategy and work out the ultimate product development roadmap for 2023.