Top Trends in Fintech in 2023

This forum was so helpful for me when I was trying to steer and pivot my finance career a few years ago. I had quite a few accomplishments since then.So hopefully I can give back a little by sharing some insights from the industry. I'll start with Fintech, it's a really hot & exciting topic right now.

Top Trends in Fintech (based on personal observation and discussions within professional network in 2022 + finance events)​

Paytech:​

POS systems, cloud, peer-to-peer payments, encryption-related solutions. Also referred to as innovative payments, paytech is almost always one of the top field in fintech at public events and private discussions. For anyone interested in this field best way to learn is analyzing current providers and how their APIs work as well as following the new paytech startups and what they are achieving. Probably one of the best books ever written in fintech is paytech focused authored by Twitter founder Jack Dorsey's partner at Square, the book is named The Innovation Stack.

We are blessed with paytech in London. Rapyd, Transferwise, Ebury, Worldremit, GoCardless, SaltPay, Sumup and many other small and big ones are based in the UK, especially in London and they usually form the biggest fintech M&A deals and IPOs as well.

Smart Contracts:​

In every fintech consulting report, at every fintech event I see huge hype around blockchain related fintech startups. Some of them are more mature some of them aren't but definitely industry leaders are investing/focusing on this exciting new branch. Some of the blockchain startups are already some of the biggest fintech players in the UK and globally. Just as AI is cutting off lots of manual labor, I expect smart contracts to be cutting off lots of middlemen functions in legal & finance and their cross-sections.

Digital-only bank model:​

This is already well-established. We are blessed with Monzo, Monese, Starling, Revolut in the UK and they kept improving last year from the consumer perspective. Also some of my friends work as developers for digital-only banks in the UK and they report quite favorable employee conditions as well.

If you are into private/commercial banking, trading systems, financial IT systems engineering, digital-only bank careers can be so rewarding intellectually and financially as well as you will be in high demand.

Another trend I recognized last year in digital-only bank world is how strong the momentum is in the Africa region. I think the talent is becoming really mature, tech adoption is increasing and infrastructure is way behind what they need over there resulting in great environment for innovation and momentum.

Netflix Model and Machine Learning:​

Now that we have so many digital financial business models, that means cumulative data accumulation is mind-blowingly massive. It only makes sense that fintech circles are discussing Netflix model based on recommendation systems will be trending in near future. This also goes hand in hand with increasing consumer demand towards personalized financial solutions.

Cloud:​

Cloud as a storage solution has been adopted by financial institutions more than a decade ago but now there are other cloud technologies that are being employed as well which are quite interesting. Someone I personally met is a fintech founder who explained me how he solved a technical problem regarding a payment system encryption hardware which enabled him to transfer all of the mentioned encryption hardware's functions to a cloud security app for the first time and received investments from Goldman Sachs investors.

Cloud is increasingly being used for cloud computation, serverless applications, machine learning deployment and big data analysis. These solutions are enabling Fintech founders to go from idea to production a lot faster with increased security. They also scale quite well. In my opinion we are in a very favorable era for founding fintech startups.

IoT Finance:​

Financial solutions around IoT and smart devices are also gaining lots of traction. This is a natural trend for finance as consumer trends evolve with increased adoption of smart homes, smart assistants, wearable tech, smart electric vehicles etc. Mina is a good example they only focus on electric vehicle charging payments a great example of recent innovative UK fintech startups.

Insurance Tech:​

As a branch of finance industry, insurance tech is carrying lots of weight under fintech trends. Superscript, Premfine, Lemonade, Root, Hippo, Metromile, ClearCover are good examples to diverse insurance tech business models. Hyperexponential is a really interesting one as well. They provide mathematical models to traditional insurance companies. The diversification of business models in fintech is mind-blowing. It's great but it can be overwhelming as well until you find you specific niche and passion. Tourism industry, medical industries, asset ownership and consumer trends have all been majorly disrupted in the last couple of years meaning insurance products involved in those industries are also due disruption.

Tax tech:​

Another trend in the macro economy is, especially post Covid, remote work and freelancing became much bigger. That means there is a need for financial solutions to evolve to cater that as well. Ember is a good example as they assist with tech business models as well.

Tax tech is not limited to freelancers and startups. Regulations are also due big changes to optimize taxation and automate tax filings. To respond to these regulatory changes there will be major demand by companies for new tax solutions. New business models (P2P, shared economies, international business models) and geopolitical shifts require new solutions in tax. Additionally, Robotic Process Automation or RPA is becoming increasingly effective in automating and optimizing tedious tax processes. I came across quite a few interesting tax tech startups from Swiss, Dutch and German regions. I think UK fintech founders will catch up with exciting innovative tax tech solutions in the next couple of years. If you know any please share!

AI in Trading:​

Usage of AI in finance is not even news any more. I have been using AI models to assist with 8 figure investment decisions since early 2010s. With the break through discoveries in deep learning branch of AI models got a lot better at predictions and they also got more efficient. We have a decade of experience with training AI models in different applications now and I remember how inconvenient it was to deploy and use them in the early days and sometimes predictions weren't on par with human analysts' input.

Fast forward to 2023, AI models beat plenty of human analysts that I know at prediction of specific outcomes (where there's enough quantity of reliable data) such as energy consumption, renewable electricity generation (energy trading), volatility predictions (derivatives trading), weather predictions (agricultural commodities), consumer trends (equity trading) and many other applications.

Fintech applications where AI can be used to execute or enhance trading operations and assist with decision-making processes in trading will continue to be in very high demand in the upcoming years.

Thanks!​

Happy new year and a big thank you to all CanaryWharfians!. It's really nice to have an intellectual platform where one can learn and share high value knowledge with people who have well-aligned passion and goals about the finance industry.

I hope this will be useful for some people. Outlook for fintech world looks really amazing and I think it's also eating the traditional finance business models at an accelerating rate. So it's good to buckle up for the ride but also don't forget to pace yourself as opportunities in fintech can make your head spin.

 

[JustAnotherHuman1]

Likewise to you.

Cloud computing ETFs had a really strong run both during and in the post-pandemic world (well, which tech firm did not?). But all of those gains had been basically wiped out now and they are generally back to pre pandemic levels. Would you invest in the major public platform operators such as AWS, Azure and GCP? Meaning in their respective owners.

AI and machine learning (they are different things) are really hot skills to learn nowadays and will serve one over a life time. This knowledge needs to be maintained however, it’s not like banking where it doesn’t really change over time. A year in tech can be a lot. Programming is not so useful for a banker perhaps, but really is for a trader. The 3rd and 4th industrial revolution is upon is and automation is taking over, so the right time to learn these skills would be now. But not with £45 Udemy courses.. you get what you pay for.

Is financial modeling automated yet? Why are bankers necessary in 2022? Evolution.ai has an interesting service and they are a UK-based company. Taina TECH is similarly UK-based and is an innovative FinTech startup (albeit probably less heard of than mainstream consumer-based products like Revolut). Speaking of Revolut.. can someone explain how can a company as such with no profits (net loss of 150 million pounds in 2021) attract so much investment?

 

[curious_finance1]

Very interesting article. I completely agree that 2023 will challenge so many economic sectors, and many finance businesses will rely on technology to not only keep their market position, but also outperform competitors.

What do you think the best sector positioned for success is? how about the impact technology has in the Private markets and how it has changed the process, be that Equity or Credit? To my understanding Fintech drastically helps improve operational efficiency and investor risk whilst keeping their margins, but is Fintech that smart yet to take over the whole process of an M&A for example?

What if we are some young investors looking for some business opportunities to invest some small savings, what do you think is the better choice?

 

[redherring1]

Likewise to you.

Cloud computing ETFs had a really strong run both during and in the post-pandemic world (well, which tech firm did not?). But all of those gains had been basically wiped out now and they are generally back to pre pandemic levels. Would you invest in the major public platform operators such as AWS, Azure and GCP? Meaning in their respective owners.

AI and machine learning (they are different things) are really hot skills to learn nowadays and will serve one over a life time. This knowledge needs to be maintained however, it’s not like banking where it doesn’t really change over time. A year in tech can be a lot. Programming is not so useful for a banker perhaps, but really is for a trader. The 3rd and 4th industrial revolution is upon is and automation is taking over, so the right time to learn these skills would be now. But not with £45 Udemy courses.. you get what you pay for.

Is financial modeling automated yet? Why are bankers necessary in 2022? Evolution.ai has an interesting service and they are a UK-based company. Taina TECH is similarly UK-based and is an innovative FinTech startup (albeit probably less heard of than mainstream consumer-based products like Revolut). Speaking of Revolut.. can someone explain how can a company as such with no profits (net loss of 150 million pounds in 2021) attract so much investment?

Thank you.

Great observations.

With regards to computation ETFs, I don't want to directly speculate however, I can confidently share with you that:

• Main cloud computation providers are looking more and more like commodity assets. We can see similar price behaviors at major owners of those services which you've mentioned.
• Computation ETFs require deeper look and proper due diligence due to their exposure to small/mid cap tech stocks and emerging business models. We can expect more volatility with the smaller/newer players which can compliment the portfolios with higher risk appetite.

Parallel to your observations I'd like to add that genie is out of the bottle and we see a snowball effect in adoption of these groundbreaking technologies meaning we will continue needing the infrastructure potentially at an exponential rate until saturation in global markets. Hence the finance and tech skills in understanding, analyzing and forecasting these demands will continue to be in high-demand

Re Automation in investment banking: I've used an in-house version of evolution.ai in financial statement analysis in bulk and they are fantastic. That being said, AI/ML models still struggle with quite a few things. They usually struggle with:

• complex tasks
• multidimensional reasoning
• elaborating advanced enquiries
• anything that fall outside their models/layers capabilities
• providing results with common sense as reliable as a human can do

So, models are still learning. They will be fantastic assistants for a while and then we will likely see them reach impeccable autonomy levels in complex tasks.

Taina looks like a very interesting fintech/regtech startup as well. Thanks for sharing.

I think regarding Revolut valuation it's difficult to make conclusive arguments as lots of information is private around it. It's true that in July 2021 they raised $800 million in Series E funding, valuing the business at $33 billion. Potential factors in that valuation are strategic value of nearly 16M+ customers and their data, digital-only bank business model being well positioned for future trends in banking, expansion and previous strategic acquisition in a massive and growing market (India), company's experience with investment products and obviously very strong relations with investor network.

Have a nice rest of the week.

 

[redherring1]

Very interesting article. I completely agree that 2023 will challenge so many economic sectors, and many finance businesses will rely on technology to not only keep their market position, but also outperform competitors.

What do you think the best sector positioned for success is? how about the impact technology has in the Private markets and how it has changed the process, be that Equity or Credit? To my understanding Fintech drastically helps improve operational efficiency and investor risk whilst keeping their margins, but is Fintech that smart yet to take over the whole process of an M&A for example?

What if we are some young investors looking for some business opportunities to invest some small savings, what do you think is the better choice?

Thank you!

Agreed. Rather than a sudden takeover of a process like M&A I would expect gradual shifting in daily tasks and roles. Especially M&A requires such rigorous processes such as analyzing sensitive data, analyzing complex synergies, valuation of intangible assets, dealing with regulatory nuances and ultimately critical thinking and decision making processes.

Fintech certainly doesn't offer the tools to fully automate such complex processes without human analysts' supervision. However, we are seeing a trend of models becoming increasingly more sophisticated and independent. As you've mentioned these tools can dramatically increase efficiencies.

I think under traditional finance branches, private wealth management is positioned for successful transformation. All the ingredients for successful and innovative business models exist such as robo-advisors, personalized wealth management, standardized framework and customer data.

For young investors, I imagine trading interesting assets would be extremely beneficial from the learning point of view. For example, looking into computation ETFs, as @JustAnotherHuman mentioned, can be intellectually rewarding as well and you would end up learning innovative up-and-coming startups, new innovative technologies, their valuation, market performances and new business models. Compared to investing in, for example, an oil-related asset it can be a lot more satisfying in my opinion.

 

[JustAnotherHuman1]

Thank you!

Agreed. Rather than a sudden takeover of a process like M&A I would expect gradual shifting in daily tasks and roles. Especially M&A requires such rigorous processes such as analyzing sensitive data, analyzing complex synergies, valuation of intangible assets, dealing with regulatory nuances and ultimately critical thinking and decision making processes.

Fintech certainly doesn't offer the tools to fully automate such complex processes without human analysts' supervision. However, we are seeing a trend of models becoming increasingly more sophisticated and independent. As you've mentioned these tools can dramatically increase efficiencies.

I think under traditional finance branches, private wealth management is positioned for successful transformation. All the ingredients for successful and innovative business models exist such as robo-advisors, personalized wealth management, standardized framework and customer data.

For young investors, I imagine trading interesting assets would be extremely beneficial from the learning point of view. For example, looking into computation ETFs, as @JustAnotherHuman mentioned, can be intellectually rewarding as well and you would end up learning innovative up-and-coming startups, new innovative technologies, their valuation, market performances and new business models. Compared to investing in, for example, an oil-related asset it can be a lot more satisfying in my opinion.

Thanks for the insight. I guess banking will never be fully automated away, maybe some parts of it that are possible which do not require much human input, kind of like getting suggestions from an “expert advisor” that can be then accepted or rejected. I think one of the challenges is that basically all of the data is highly confidential in financial institutions so in order to train an AI model, it needs to be developed by in-house staff reducing the access to data. This is why open-source software is so powerful as anyone in the world can get access to the source code and contribute to it. It’s also a relationship driven business, so quite a big human element at least at the higher ranks, but there is a technical aspect to it of course.

Also must had been a typo but just to correct you there no such thing as “computation ETF”, there is however cloud “computing” ETFs.

 

[curious_finance1]

Thank you!

Agreed. Rather than a sudden takeover of a process like M&A I would expect gradual shifting in daily tasks and roles. Especially M&A requires such rigorous processes such as analyzing sensitive data, analyzing complex synergies, valuation of intangible assets, dealing with regulatory nuances and ultimately critical thinking and decision making processes.

Fintech certainly doesn't offer the tools to fully automate such complex processes without human analysts' supervision. However, we are seeing a trend of models becoming increasingly more sophisticated and independent. As you've mentioned these tools can dramatically increase efficiencies.

I think under traditional finance branches, private wealth management is positioned for successful transformation. All the ingredients for successful and innovative business models exist such as robo-advisors, personalized wealth management, standardized framework and customer data.

For young investors, I imagine trading interesting assets would be extremely beneficial from the learning point of view. For example, looking into computation ETFs, as @JustAnotherHuman mentioned, can be intellectually rewarding as well and you would end up learning innovative up-and-coming startups, new innovative technologies, their valuation, market performances and new business models. Compared to investing in, for example, an oil-related asset it can be a lot more satisfying in my opinion.

Spot on I would say. Private or personalized services are the main focus at the moment, be that B2B or direct to consumers. As for the potential investing opportunities, I was personally looking also at crowdfunding options, but I guess ETFs might be more resilient or trustworthy, so will definitely take a deeper look at that. Thank you

 

[AugustusSeptimius1]

Very interesting article. I completely agree that 2023 will challenge so many economic sectors, and many finance businesses will rely on technology to not only keep their market position, but also outperform competitors.

What do you think the best sector positioned for success is? how about the impact technology has in the Private markets and how it has changed the process, be that Equity or Credit? To my understanding Fintech drastically helps improve operational efficiency and investor risk whilst keeping their margins, but is Fintech that smart yet to take over the whole process of an M&A for example?

What if we are some young investors looking for some business opportunities to invest some small savings, what do you think is the better choice?

Honestly, considering increasing global tensions, weapons companies and those supplying countries’ militaries is likely a good bet for 2023. Unfortunate to say but looking at matters from a macro level, it’s hard to argue with.

 

[JustAnotherHuman1]

Honestly, considering increasing global tensions, weapons companies and those supplying countries’ militaries is likely a good bet for 2023. Unfortunate to say but looking at matters from a macro level, it’s hard to argue with.

With China on the rise militarily (a potential invasion on Taiwan) and security becoming more important than before globally, and obviously the Ukraine war there is definitely an increased demand for defense stocks but I would not say it's unethical to invest in these stocks. After all, a weapons manufacturer is just like any other business or company, and only with additional investment they can grow. So, should one not invest because this industry effectively profits from wars? Also, plenty of traders made record profits due to the volatility brought about by effectively lots of human suffering - see the Russian invasion of Ukraine. Certainly not fair that someone loses their home, while someone speculating on the price of natural gas profits millions however this is how capital markets work. Does this make these speculative participants on the market unethical investors? I'd hardly doubt anyone could say this, perhaps the average taxi driver would but do they really appreciate how finance works? No, they don't.

 

[AugustusSeptimius1]

With China on the rise militarily (a potential invasion on Taiwan) and security becoming more important than before globally, and obviously the Ukraine war there is definitely an increased demand for defense stocks but I would not say it's unethical to invest in these stocks. After all, a weapons manufacturer is just like any other business or company, and only with additional investment they can grow. So, should one not invest because this industry effectively profits from wars? Also, plenty of traders made record profits due to the volatility brought about by effectively lots of human suffering - see the Russian invasion of Ukraine. Certainly not fair that someone loses their home, while someone speculating on the price of natural gas profits millions however this is how capital markets work. Does this make these speculative participants on the market unethical investors? I'd hardly doubt anyone could say this, perhaps the average taxi driver would but do they really appreciate how finance works? No, they don't.

Agreed!

 

[TheCanaryConsultant1]

Great insight into all these tech companies, thank you. AI is such a hot topic now, and has been growing so rapidly - I agree this is definitely going to shape our future!

 

[magellan1]

Amazing discussion! Paytech is always hot because payments are just the most important segment in fintech. I would add a few important trends to the list.
1) Private assets - I see a growing number of startups that focus on providing access to asset classes like private equity, art and startups to individuals.
2) Embedded finance - Nowadays, many startups use banking/trading as a service or white-label platforms to launch their products faster and reduce regulatory costs.
3) Financial inclusion - Many young startup founders are driven by the desire to make an impact on the world and provide high-quality services to underserved people (banking in Africa, micro-lending in South-East Asia, etc).
On tax tech, a few days ago I learned that one can pay his/her taxes with Bitcoin in Switzerland which is a great example of good government and public policies that aim to boost tech adoption.