Blockchain, Open Banking, and Digital Payments: the Most Important Fintech Trends to Watch

Welcome to the exciting world of financial technology, where innovation and change never stop. As an expert in crypto, I'm thrilled to share the top fintech trends set to shake up the industry in the nearest future. There are approximately 26,000 fintech startups globally, almost double the number in 2019. The fintech industry is growing at about 20% annually, and the global market could reach $174 billion by 2023. Prepare to witness a wave of change and transformation powered by the latest breakthroughs in blockchain, open banking, and digital payments.

We'll delve into eight critical trends poised to dominate the fintech landscape, from the explosive growth of decentralized finance (DeFi) to the essential role of cybersecurity and data privacy. So, fasten your seatbelts and join me on this journey into the dynamic and ever-evolving world of financial technology.

Digital payments

Digital payments are set to revolutionize the way we handle transactions by 2023. As society becomes cashless, more companies are incorporating digital payments into their business models. The global digital payments market was valued at $7.36 trillion in 2021 and is projected to reach $15.27 trillion by 2027, implying an average annual growth rate of 12.38% from 2022 to 2027. The rise of cryptocurrencies and other digital currencies has further fueled this trend, offering consumers more payment options. Experts predict that by 2023, digital payments will account for over half of all transactions globally.

The landscape of digital payments is changing. It is no longer limited to just familiar bank cards. While card transactions still account for a significant share of the non-cash transaction market - 72% in 2020, according to Capgemini - growth is stagnating due to the emergence of local and regional schemes such as EuPay, EPI, Verve cards, and others. These schemes are challenging the worldwide dominance of the card market.

Disposable virtual cards have been around for some time, and their popularity for online payments is growing. They remain an excellent option for improving security and convenience, providing a worry-free experience when making payments on sites you have never bought from before and do not trust.

Contactless payments simplify the payment process and make it more convenient for consumers. They benefit from shorter lines, the elimination of cash at the register, and faster queue movement. With disposable virtual cards, you can rest assured that your actual card data will remain safe from theft.

Voice commands are a ubiquitous and rapidly growing trend, with virtually everyone now carrying a voice assistant. With the constantly improving capabilities of AI, this technology is poised to become even more sophisticated and revolutionary. It's a safe bet that voice commands will soon extend beyond simple commands and into payment systems.

Payment bots, smart contracts, and payment automation are truly fascinating topics revolutionizing how we conduct transactions. As we progress towards a digital economy, the significance of these topics only increases. For instance, payment bots allow for quicker and more secure transactions, while smart contracts provide a decentralized way of executing contracts without intermediaries. Payment automation, on the other hand, streamlines the payment process, reducing the likelihood of errors and increasing efficiency.

Payment chips have yet to be widely adopted, but their development has significant potential, given the increasing use of mobile devices that support NFC technology. Payment chips offer advantages over NFC technology, such as increased security or more efficient transactions. Furthermore, payment chips have potential applications beyond payment systems, such as contactless access control or identification verification. As new use cases for payment chips are explored, we expect to see an increase in their adoption and potential for innovation.

Digital payments have become increasingly popular in recent years, and for a good reason. They offer unparalleled convenience, safety, security, and transparency that traditional payment methods simply cannot match. One of the key factors driving this trend is the prevalence of blockchain technology, which has emerged as an essential component of many digital currencies. Using a tamper-proof and decentralized ledger, blockchain ensures that transactions are secure and immutable, giving consumers the peace of mind to prioritize their safety and privacy.

Additionally, digital payments have made managing finances and tracking spending more accessible. Thanks to digital tools, transactions can be quickly recorded and analyzed, empowering consumers to make more informed purchasing decisions. As a result, it's no surprise that more and more consumers are turning to digital payments to stay on top of their finances and make their lives easier.

Another trend to shape the digital payments landscape in 2023 is the rise of mobile payments. With the ubiquity of smartphones and mobile devices, more and more consumers are opting for mobile payments as a convenient and secure way to make transactions. Mobile payments are expected to surpass traditional card payments by 2023.

As we enter a new era of digital payments, companies that don't incorporate this payment method into their business models risk being left behind. With the potential for increased security, convenience, and transparency, it's no wonder that digital payments are set to be one of the most significant trends in fintech for years to come.

ICO and DAO

In 2023, we expect crowdfunding and P2P lending to continue to evolve and expand in the fintech industry. One exciting development is using initial Coin Offerings (ICOs) and Decentralized Autonomous Organizations (DAOs) in fundraising efforts. Through these technologies, individuals can come together to launch projects and raise funds.

Another trend to watch is using fiat currency to secure loans backed by crypto assets. This lending model, known as the "fiat series," was a precursor to the peer-to-peer lending that emerged later. The growth of P2P lending has been remarkable, with a 62% increase in 2022, according to a report by McKinsey.

The rise of blockchain and decentralized platforms has made P2P lending more accessible, secure, and transparent. With smart contracts and blockchain-based identity verification, lenders and borrowers can transact without intermediaries. This eliminates the need for traditional banking institutions and offers more financial freedom to individuals.

Crowdfunding and P2P lending will continue to disrupt the traditional finance landscape, enabling new forms of fundraising and borrowing for individuals and businesses.

Openbanking and API integrations

Open banking and API integrations are expected to grow in popularity in 2023. With open banking, financial institutions allow third-party developers to access their customer data, creating new opportunities for financial innovation. This trend is fueled by regulatory initiatives like the European Union's PSD2 and the UK's Open Banking Standard.

API integrations allow businesses to connect their systems and data with financial institutions, creating a more streamlined and efficient customer experience. In 2023, we expect to see more enterprises integrating with banks and other financial institutions through APIs, enabling faster and more secure transactions.

Moreover, the rise of fintech startups has led to new API-based banking services that offer features like budgeting tools, automated savings, and investment management. These services provide users with a more personalized and intuitive experience, and banks are increasingly partnering with fintech to offer these services to their customers.

In addition to these trends, we expect to see advancements in areas like blockchain-based identity verification, artificial intelligence, and machine learning in financial services. These technologies will help improve financial transactions' security, efficiency, and personalization, driving further innovation in the fintech industry.

DeFi platforms to adopt advanced risk management techniques

Decentralized finance is expected to continue its rapid growth in 2023, offering new financial products and services that challenge traditional financial institutions. With this growth comes increased attention on risk management, as the decentralized nature of DeFi presents both opportunities and challenges.

DeFi platforms will likely adopt advanced risk management techniques using artificial intelligence (AI) and machine learning (ML) to address these challenges. These technologies can help identify potential fraudulent activities and assess the creditworthiness of borrowers more efficiently and accurately.

Furthermore, DeFi protocols may implement more sophisticated risk management strategies, such as credit scoring models and collateralization requirements, to minimize the risk of default and protect investors' funds.

Embedded Insurance

Embedded insurance, a division of the finance industry, is a new trend to transform the insurance industry in 2023. It involves the integration of insurance into other products or services, such as mobile devices, cars, and home appliances. This means that customers will no longer have to purchase insurance policies separately but can instead have them automatically embedded into their products.

One of the main advantages of embedded insurance is its convenience. Customers can meet their insurance needs seamlessly without filling out lengthy forms or visiting an insurance broker. This can lead to significant cost savings and increase customer satisfaction.

In addition, embedded insurance can also be personalized to meet the specific needs of individual customers. For example, a car insurance policy can be tailored to the driver's usage and driving habits.

Several companies have already started offering embedded insurance products. In the US, companies like Tesla and Uber have integrated insurance into their products, while in Europe, BMW and Volvo have launched similar programs.

This trend is expected to grow in 2023, with more companies adopting embedded insurance to provide a more seamless and personalized customer experience.

RegTech

RegTech is a growing trend in the FinTech industry aimed at easing the burden of regulatory compliance through automation. It involves using technologies such as artificial intelligence, blockchain, and machine learning to help financial institutions comply with regulatory requirements more efficiently and cost-effectively.

In 2023, RegTech is expected to continue growing, with more companies adopting it to streamline compliance processes and reduce the risk of non-compliance. One potential growth area is using RegTech for identity verification and KYC (know your customer) procedures, which are critical for preventing fraud and money laundering. Another area is the integration of RegTech with blockchain technology to create more transparent and secure financial systems.

Cybersecurity

In addition to traditional cybersecurity measures, advanced technologies such as machine learning, artificial intelligence, and biometric authentication are expected to grow in 2023 to further enhance security measures in the fintech industry. Biometric authentication, which uses unique physiological or behavioral characteristics such as fingerprints, facial recognition, or voice recognition, can provide a more secure and convenient way for users to access their financial accounts.

Furthermore, the increasing use of cloud computing and remote working in the financial sector has also led to the development of cloud-based security solutions. These solutions allow financial institutions to secure their networks and data from cyber threats while providing flexible and scalable security solutions.

Embedded FinTech

In 2023, the growth of embedded FinTech is expected to continue, with more companies implementing this system to provide a seamless and integrated customer experience. With the help of embedded FinTech, traditional financial institutions can leverage other companies' customer base and user experience to offer financial services without needing a standalone app or platform.

In 2021, the integration of credit and payments into non-financial products in the U.S. generated $20 billion in revenue for companies. Technological advancements made this trend possible, allowing for the seamless integration of financial services into everyday products. This led to higher customer satisfaction, increased sales, and more convenient shopping experiences. It has also revolutionized how businesses operate, creating new revenue streams, reaching new markets, and increasing competition among financial service providers. As technological advancements continue, businesses can offer more sophisticated payment solutions, better meet customer needs, and remain competitive.

One of the most significant benefits of embedded FinTech is the ability to offer personalized financial services to customers. By analyzing customer data from other platforms, embedded FinTech can create tailored financial solutions based on user needs and preferences. This customized approach can help financial institutions to attract and retain customers in a highly competitive market.

Embedded finance is a real win-win. On the one hand, it provides a better user experience for consumers; on the other hand, it leads to an increase in sales volume and average checks for distributors and the customer base for solution providers. Experts predict an annual industry growth of 40.4%.

Moreover, the use of embedded payments is expected to become more prevalent, allowing users to make purchases without leaving the platform they are using. This can significantly increase the conversion rates for merchants while providing a convenient experience for users.

How Have Web 3.0 and Blockchain Transformed Everything?

Web 3.0 and Fintech are closely linked, with Web 3.0 focused on financial technologies such as blockchain and smart contracts. This allows for real-time features like transparency, safety, and decentralization for secure and transparent payments with information on the sender and reason. However, certain limitations, such as the inability to refund payments in case of an incorrect account number, must be addressed through ongoing innovation.

Web 3.0 and blockchain technologies put the user first, with tokens giving ownership to platform users. This ownership is distributed among users and enables the transformation of the ownership structure of a company. Web 4.0, with the implementation of AI, will further personalize fintech and increase financial inclusion for people worldwide.

Transparency is a fundamental principle of Web 3.0 and is being adopted by more fintech companies to build trust between users and the platform. Every financial transaction is recorded on the blockchain, making it immutable and transparent. By 2024, we expect more fintech companies to adopt Web 3.0 principles to improve transparency and build user trust.

Blockchain Opportunity Scale

Blockchain technology offers various opportunities, with the highest potential being its implementation in government systems. Several countries have already adopted cryptocurrency and integrated it into their banking systems. However, the official banking system and the unofficial blockchain system conflict. This will change when the government adopts digital payment solutions.

While there may not be a unified system for the government to exchange resources in 2023, corporations already use blockchain technology. JP Morgan's Quorum is a blockchain-based platform with several apps in the blockchain supply chain. Alfa Bank in Russia has also launched a blockchain project with S7 Airlines for calculating jet fuel.

Visa and Mastercard have introduced B2B Connect and Ripple for cross-border payments. These projects simplify transferring money overseas by eliminating the need for multiple verifications. Cryptocurrencies and blockchain technology enable secure and transparent transactions, and smart contracts automate manual activities. Corporations are already embracing technology and exploring its possibilities, while some governments may hesitate to adopt it.

Legal regulation of cryptocurrency

The regulation of cryptocurrency is a big issue in the fintech industry. Governments and regulatory bodies worldwide are trying to figure out how to regulate this new asset class effectively. Some countries have started regulating cryptocurrency, but the regulatory landscape is still broad. Lack of clarity poses challenges for businesses and investors unsure about the legal implications of using or investing in cryptocurrency.

El Salvador has recently adopted Bitcoin as a legal tender, and other countries may follow. In some jurisdictions, regulators are starting to take a more proactive approach to regulating cryptocurrency to balance innovation and consumer protection. New regulations in the European Union require cryptocurrency exchanges and custodian wallet providers to comply with anti-money laundering and counter-terrorism financing regulations.

In the United States, the Financial Crimes Enforcement Network has proposed new rules requiring exchanges to collect user information and report certain transactions to the government. Regulatory bodies will likely establish new guidelines and rules for the use of cryptocurrency as its use expands. While this may create uncertainty and challenges for businesses and investors, it could also help to establish a more stable and secure environment for the growth of the cryptocurrency industry.