Fintech Trends To Look Out For In 2023 (2024)

87%—that’s a great number for a new year, especially for the Indian fintech industry. This is the number that signifies the rate of adoption of fintech products by consumers in India and it beats the global average by 23%.

This number was revealed in the Economic Survey 2022-23 conducted by the Government of India. Another recently conducted EY study estimates that by 2030, the fintech market in India will have a revenue of $200 billion and will have $1 trillion of assets under management.

Bolstered by the government’s active regulations and sound regulatory environment, India now hosts more than 2100 fintech companies, placing it as the world’s third-largest provider of fintech services. All thanks to young companies established in the past five years that comprise 67% of the total fintech companies in India.

The Pay Later Market is Growing

On the back of expected regulations in 2023, there will be a lot more clarity for the pay-later category which has seen its share of scrutiny. Pay-later companies will be able to move forward more confidently and on the flip-side, customers will gain a lot more confidence in small credit.

In 2023, pay-later fintech companies will be able to offer credit to underserved customers more effectively and at scale. This will help the category to enter the mainstream and be seen as a viable alternative by the masses.

As more merchants adopt cashless payment systems, consumers will be able to track their spending in real-time, giving them more control over their finances. Furthermore, businesses will benefit from faster transactions, lower transaction costs and decreased risk of fraud.

Cyber Security and Fraud Prevention

As financial institutions become more reliant on technology, cybersecurity and fraud prevention will become even more critical. In 2023, we can expect to see a lot more fintech companies invest in cybersecurity measures to protect their customers, data, and reputation.

Using artificial intelligence and machine learning, fintech companies will be able to identify fraudulent activities and repeated defaulters a lot more successfully. Today, these functions are backed with underwriting models that prevent an increase of automatically approved defaulting customers.

Fraud prevention is an important aspect of cybersecurity hence financial institutions will use advanced algorithms and machine learning to not just detect fraudulent activity but also prevent losses. This includes monitoring account activity, flagging suspicious transactions, and implementing real-time fraud detection systems.

Open Banking and API Integration

Open banking is a growing trend that allows third-party service providers to access customer data through open application programming interfaces, also called APIs. It can create a more competitive marketplace, drive innovation, and increase transparency.

By sharing customer data with third-party providers, financial institutions can offer more personalised services and better products. Customers can also benefit from a more seamless banking experience, as they can access multiple financial services through a single platform.

In 2023, we can expect to see more financial institutions embracing open banking and API integration to improve their customer offerings. This can include integrating payment services, investment platforms, and budgeting tools into a single platform.

Rise of AI in Fintech

Expert financial advisers agree that AI technology will revolutionise financial planning by 2023. AI-powered software can analyse vast amounts of financial data and create personalised investment strategies based on an individual’s preferences and risk tolerance. This is possible through sentiment analysis.

Chatbots will possibly be able to identify customer issues and solve them using local languages and dialects even. AI-powered chatbots can also act as virtual financial advisers, offering guidance and support that may not have been available to younger generations in previous years.

It’s predicted that AI will take over some of the tasks traditionally handled by human financial advisers, allowing for greater efficiency, speed and accuracy in managing finances.

The Return of DeFi and Blockchain

As the DeFi ecosystem in India continues to grow, we can expect to see a wider range of innovations emerge. For example, we may see the development of new DeFi applications that cater specifically to the needs of the unbanked population in India. These applications could provide access to financial services such as microlending and insurance, helping to bridge the gap between the traditional financial system and those who have been excluded from it.

Looking to the future, we can expect to see continued growth and innovation in the Indian decentralised finance and blockchain ecosystem. As more entrepreneurs and businesses explore the possibilities of these technologies, we may see the creation of new economic models that challenge traditional notions of finance and commerce.

Ultimately, the success of decentralised finance and blockchain in India will depend on a variety of factors, including regulatory clarity, technological innovation, and user adoption. However, with the right conditions in place, it is clear that these technologies have the potential to revolutionise the Indian economy and empower individuals across the country.

Embedded Finance is Going to See a Boost

Embedded finance allows customers to enjoy banking-related services from non-banking businesses without disrupting their customer experience and journey.

Some examples of embedded finance include when customers are able to subscribe to an online course and make a payment within the course website itself or when customers take a cab ride and pay for it inside the service provider’s app.

By 2025, embedded finance is estimated to hold a value of $141 billion, driven by demand from traditional companies such as vehicle manufacturers and hotels. In 2023, more than 70% of financial services & fintechs are expected to build embedded finance products and services.

Credit Scoring will Become More Accurate

Be it institutions, entrepreneurs, or regulatory bodies, everyone is seeking quicker and more effective methods to analyse customers’ financial and credit profiles, prevent fraud and automate credit approval. Innovations like using customers’ online activities to predict credit behaviour and AI-driven credit scoring will become very helpful tools to help streamline this process and make it more cost-effective.

Neobanking will Become Hyper-Focused

With neobanks seeing massive growth globally and in India during the pandemic years, it stands to reason that they will continue to expand. In 2023, neobanks will use their deep understanding of customers & their access to data to develop hyper-focused products and services that cater to different segments such as new-to-credit customers, students, retirees, salaried women, & more.

Fintechs will Become Wiser

Above all, fintechs used to growth above everything will see reason in 2023. With Indian regulators becoming more cognizant of the relationship between fintechs and their customers, we can expect more policies that help shape the category into one that’s sustainable, responsible and compliant. Fintechs will also become wary of unnecessary costs and will focus on making money sustainably.

Bottom Line

To conclude, while volatile geopolitics and an economic recession have made things difficult, the Fintech ecosystem is looking very bright. The fintech industry is continuously evolving, driven by advances in technology and changes in consumer behaviour. 2023 will witness significant trends in AI and machine learning, blockchain, digital banking and mobile payments, cybersecurity and fraud prevention, and open banking and API integration.

These trends have the potential to transform the financial industry and provide more personalised, convenient, and secure services to customers. 2023 is shaping up to be a watershed year for the way digital banking and finance evolve in the country and around the world.