I believe Money 20/20’s projections for the new year best capture the current state of the economy and the start of widespread layoffs in the sector.
I tend to concur with Money 20/20’s remark given the erratic ups and downs of the recent years. However, there are a few forecasts for 2023 that are important.
Big Tech and fintech layoffs could be good for banks and credit unions
Recently, a number of highly skilled computer personnel were let go. They come from a variety of sources, including fintech companies and Big Tech. In November 2022, Stripe let go 1,120 employees, or 14% of its workforce; Robinhood had two layoffs and let go about 1,000 workers. As Bitcoin’s price has decreased, practically every cryptocurrency company has also decreased.
These actions have flooded the labor market with a large number of skilled individuals with specific knowledge in fields like wealth management, alternative assets, blockchain, and other areas. These workers are knowledgeable about both the technology and specialized industries and highly regulated sectors in addition to the technology itself. At the same time, as they seek to digitally modernize to keep up with fintechs and challenger banks, banks—particularly smaller community banks and credit unions—can benefit from talent with this experience.
Financial organizations might also find great value in the broader pool of non-fintech professionals who have lately lost their jobs in other industries. Jason Strle, CIO of Wells Fargo and head of enterprise functions technology, noted that the bank is looking for proficiency in programming languages, development frameworks, and data analytics—but banking experience is not required. Strle also understands the value of the technical knowledge available in the labor market.
According to Strle, non-traditional technology industries like banking have similar but distinct chances to collaborate with the leading innovators to reimagine future client experiences. A long-standing organization like Wells Fargo has an added layer of stability, consistency, and scale, which is a plus.
Smart financial institution leaders—from your neighborhood credit union to industry behemoths like Wells Fargo—understand that recent layoffs have made the market for technical talent prime pickings, and they are undoubtedly utilizing the opportunity to acquire excellent personnel.
Consumers will be presented with more ways to save and invest than ever
Dani Fava, group head of product innovation at Envestnet, made this forecast. In a market that is continuously changing, Fava is tasked with locating and prioritizing possibilities for financial advisers to offer transformative advice. This is what she refers to as “impulse investing” or “impulse saving.” It was put this way by the author: “Whether through a consumer banking app, mobile wallet, gig work, or credit card, consumers will experience an onslaught of ways to save and invest without much planning, mirroring impulse [shopping] behavior.”
When companies have the attention of consumers and can provide them with something truly valuable, much like in so many of our encounters with goods and services we already use, there is an opportunity. Brands can view this transaction as more than just a buy because it offers the potential to save money and build wealth for more purchases, investments, or financial services in the future. For instance, the Cash App Card and Acorn App both use “round-ups” to do this. Microinvestments can be made using small leftovers from transactions and purchases, and over time, they can build up significantly.
This signals a turning point in the market, according to Fava. “We’re about to experience truly democratic infrastructure for accumulating wealth.”
Leap Global Partners, a venture capital firm that invests in businesses and exceptional LatinX founders, concurs. It recently published the “Top 10 Investment Themes Worth LEAPing Into” report for 2023, which had a section on “contextual financial services.” The claim is that “trusted brands will directly provide their customers with timely, pertinent, and frequently customized financial services.” Importantly, these services might not be provided by conventional financial institutions like banks and brokerages but rather by fintechs and other businesses that are positioned to provide customers and even businesses with the ideal service or product at the ideal time.
Open banking will become a reality
I viewed Plaid’s webinar on 2023 Fintech Predictions, which was intelligent and enjoyable. A panel of professionals, including CEO Zach Perret, riffed on a variety of subjects, offering differing viewpoints on technology, consumer behavior, financial inclusion, legislation, and compliance. Open banking is one particularly noteworthy forecast from the webinar that Patrick Moorhead, CEO and chief analyst of Moor Insights & Strategy, and I have discussed on our podcast for more than a year.
Open banking is a practice that allows banks and other financial institutions to give third-party financial service providers access to consumer banking, transaction, and other financial data. Open banking, which is made possible by the use of APIs, makes it easier for clients, financial institutions, and outside service providers to network accounts and data across different institutions. Consumer financial data is at the custody of banks, and unlike in the United Kingdom and the rest of Europe, open banking is not yet subject to any regulatory restrictions in the United States. Consumer demand, though, exists for personal data control and for regulatory action to impose open banking norms. Despite the lack of a structured regulatory framework in the US, I think open banking will become widely used in the country by 2023, assuming that fintech companies, banks, and regulators can agree on how it should be run. The open banking experience will change significantly once it occurs. John Pitt, the policy director for Plaid, compared it to “going from a dirt road to a superhighway.”
2023 will be the beginning of the age of centaurs
Huh? Describe a centaur. Sanjib Kalita, managing editor of Money 20/20, made this forecast. “Unicorns will become history as we’ll see the creation of centaurs…a combination of man and beast…or of Fintech and,” he says, explaining the situation. Banks are anticipated to participate, but merchants, telecoms, and technology firms may also join in. This tendency will be driven by the financial climate as well as acquirers’ increased capacity to recognize or foresee value development.
Regardless of the channel, value can be created at the point of engagement by providing the customer with precisely the personalized products they need. This is made possible by the power of APIs. Embedded fintech or embedded finance are other names for this. All types of financial services, not only banking, are currently incorporated into software. This development is on the rise and will pick up speed in 2023. Banks will need to provide products that meet client needs at the correct time and place as the volume of loans slows.
This will likely soon apply to cars as well; your car will serve as your new electronic wallet. Consider this: Your automobile has long been able to pay for tolls using either a large transponder or a straightforward RFID tag. Why then can’t it save payment information to pay for gas, drive-through ordering and pickup, parking, and other services automatically? Last year, I wrote about it while the United States Grand Prix was taking place in Austin. I believe it’s inevitable that this strategy will give automakers and OEMs (original equipment manufacturers) a special point of differentiation.
Social Features Will Aid Younger Retail Investors
“Over the last year, we’ve seen many banking and investment apps look to social media for inspiration—many have made a conscious effort to add social-first features to their platforms in order to attract a younger audience,” Benjamin Chemla, cofounder and CEO of investment-app Shares, told Verdict. We are convinced that this trend will not only continue to advance in 2023 but also play a critical role in any tech firm operating in the financial sector.
Public, which provides social features and investments with a theme, has also done this. My kids, who are in their twenties, like the app’s social elements that let them interact with other conservationists and environmentalists to make investments. With StockTwits, Reddit essentially accomplishes the same goal for all age groups. Aside from the meme stock mania, retail investors now make up close to 25% of all equity trading volume. Although many of these investors are knowledgeable, they lack the technology and trading ability that institutional investors have. Retail investors who share information can use more complex tactics and acquire data outside of their own research. People power, indeed!
CB Insights says: Challenger banks are back
CB Insights notes that challenger banks, or fintechs with banking offerings, received money in five of the top fintech funding rounds in the final quarter of 2022. The company interprets this trend as “signaling that this category might be making a comeback after seeing sharp drops in funding in 2022.”
Neo Financial, a Canadian challenger bank, secured a sizable $146 million (CAN $185 million) Series C round in May 2022, bringing its total funding to $234.7 million (CAN $299 million) since its founding, even though it didn’t make the top five. Additionally, the digital bank has far more than one million customers.
Neo Financial’s CEO and co-founder Andrew Chau concurred with CB Insight’s analysis and provided more explanation. “The economy has been harmed by rising interest rates and rising inflation. Challenger banks with financial services, especially those who offer a variety of goods, have managed to survive that storm, he said. “They either did this by having variable-rate lending products or, for those with bank charters, by benefiting from rising interest rates in the form of higher deposit float revenues.”
According to Chau, 2023 will be a year of concentration for his business as well as other challenger banks, with a focus on core products, margin improvement through higher revenues, and cost savings per customer. The challengers will be able to grow concurrently if they have established distribution channels or effective growth loops. According to Chau’s forecast, challenger banks will be better than ever in 2023 and 2024, with an improved economy, and they will be prepared to make their next investments in new features and products for growth.
Money movement will become a customizable, personalized experience
The instantaneous, straightforward transactions that online service users are used to are what they want from their money-handling tools, whether they are for personal or professional affairs.
Orbipay Unified Money Movement Services from Alacriti, a cloud-based platform that enables banks and credit unions to deliver money movement “experiences” fast and easily, is one example of this. This covers both consumer and commercial use cases for contemporary, user-friendly digital payments, such as bill payment, disbursements, transfers, and more.
In a meeting I had with Mark G. Majeske, senior vice president of quicker payments at Alacriti, he said, “No one cares about the payment rail [a payment platform or network that digitally moves money from payor to payee]; they care about efficiency and the experience.” Then he made the comparison between sending a money transfer and a shipment. You are given options for how and when you’d like the shipment to arrive—along with accompanying costs—when you drop off a package at a shipping facility or print a shipping label online. This gives you the freedom to choose whichever speed vs. cost tradeoff makes appropriate for you.
Similar to how you can’t send a package from New York to Australia in four hours, there are some options that are just not available for sending money in a bank branch, including on the weekends or on holidays. What matters to them is how the transaction was handled. The consumer can therefore be given options for safely transferring money at various speeds for appropriate fees, whether it’s a holiday or just another Tuesday; the choice is theirs, and the experience is customized to their needs. I believe that this approach to the payment experience will revolutionize the sector.
This will be particularly useful for the B2B payment industry, which is still plagued by inefficiencies. The B2B payments business is far behind in a world where the entire money ecosystem is being digitally altered. Yes, B2B payments are trickier since they need to be integrated into more procedures, such approvals and invoicing. However, there are still many of inefficiencies and problems.
All in all, the payments industry should undergo significant change. Majeske stated, “We have a collection of tools… that are capable of carrying out any transaction. In order to close this business gap, the industry must first identify the demands and then hunt for the appropriate instruments.
BNPL will finally give credit where credit is due
BNPL will eventually have to answer for its largest problem, credit reporting. This is mostly caused by two factors. Protecting consumers from overextending themselves is priority number one. The second is financial wellness, which aims to assist subprime, credit-thin, or credit-invisible customers in establishing their credit. The purpose of BNPL should go beyond simply making payments more convenient for individuals because it was created to cater to those clients.
The BNPL firms and credit bureaus still haven’t figured out how to accurately report these transactions. Even if everything is paid on time, different trade lines and timings of transactions, such as opening too many new lines of credit quickly, might temporarily reduce a credit score. Unreported payments, however, do nothing to raise a consumer’s credit score. Most BNPL companies simply list late payments, which prevents consumers from benefiting from credit-building opportunities. The BNPL participants and the main four bureaus are debating this, and I’m optimistic that a customer-friendly solution will emerge this year.
RegTech will have its debutant moment
This year, we’ll see an increase in compliance-driven solutions that, by offering automated and precise risk analysis, assist financial services firms optimize their risk management processes. These innovations in data management, cloud computing, and machine learning seek to keep businesses in compliance with pertinent laws without slowing down the pace or scope of their activities. Such cutting-edge technologies ought to strengthen and secure compliance in the financial services industry.
I enquired about this forecast from my security expert colleague Will Townsend of Moor Insights & Strategy. He remarked, “Since the financial services sector is heavily regulated, enhanced security is required. For financial businesses, cloudification offers the chance to scale new services and back-office capabilities, but it also widens the security surface for malicious actors. Regtech is ready to assist in assuring compliance and plugging security gaps.
Tokenization will make private equity funds available to the masses
Private equity is one of the most opaque and challenging sectors to engage in, yet it has beaten the S&P 500 by more than 70% since 2001 while exhibiting less volatility. You would naturally assume that funds will find a method to give individual investors access to this asset class in this era of financial democratization.
This is taking place, according to Jamie Finn, co-founder and president of Securitize. “Tokenization has made it possible for large numbers of people to gain access to some of the most significant private equity funds. To reach the masses, companies like KKR, Hamilton Lane, and many more are fast embracing this new approach.The promise for lower investment minimums—which means more inclusive access—and more potential for liquidity via secondary markets like Securitize Markets arises from the use of blockchain technology for automation and better efficiency.
While the phrase “democratization of…” may be getting old, “inclusive access to…” isn’t.
Wrapping up
Although the fintech industry has been somewhat unexpected over the past few years, keeping an eye on industry developments can give you important information about the economy, customer preferences, and consumer behavior—revealing new business prospects. During the pandemic, years of innovation were compressed into a relatively short period of time. In order to capitalize on the trends that are transforming the way money is handled, fintechs and financial institutions now have the luxury of breathing room to iterate and innovate in order to provide effective and affordable solutions for managing accounts, processing payments, and more. I’m excited to write a year-end review in 2023 so we can see how everything works out.
About a Fintech company called Nydoz
Innovative financial technology firm NYDOZ is committed to creating ground-breaking consumer financial and investing solutions. Our experienced team combines deep industry knowledge with unmatched technical know-how to develop ground-breaking tools that enable people to take charge of their financial futures. We’re on a mission to democratize access to financial services and level the playing field for everyone, and we’re doing it with an unwavering focus on excellence. We’re committed to influencing the course of the world economy and establishing a more just financial system by working with investors like you.
