To call 2022 a challenging year might sound like an understatement to many. The good news is that the financial services ecosystem is resilient enough to not only withstand the many uncertainties, but to continue to stay optimistic. As a recent The State of European Tech 2022 study highlights, investments in fintech are not far behind 2021 levels. Moreover, the European tech ecosystem remains largely optimistic. 77% of the survey respondents maintain the same optimism as 12 months ago. 

For 2023, the pace of change will continue to accelerate. The FSI industry must embrace outside influences more than ever before and build their businesses with their customers at the very center of their thinking. Embedded finance, BNPL, ESG, sustainability, or the rise of cryptocurrencies – pick any one of these trends, they are all united by the fact that customers are demanding real innovation. End customers of banks and insurers, as well as their own employees, are adopting new technologies in their lives, and are pressing for the FSI players to be on the cutting edge. Innovation is no longer a nice add-on service offered to delight customers, but increasingly it is the only way to stay competitive. Be that through joining forces with like-minded companies, big or small, or stepping up their own game.  

A major trend for fintech in 2023 will be the increased adoption of embedded finance across the business-to-business (B2B) sector. Buy Now Pay Later was one of the first consumer success stories of embedded finance, but as global trade becomes increasingly digitized, and as companies begin to operate through electronic trade networks, the financial industry will be able to truly unlock the power of “instant” payments and “just-in-time” credit. 

We are already seeing that data and frictionless business processes through embedded finance are the key to delivering next-generation innovation for companies. In the B2B context, Micro, Small & Medium Enterprise (MSME) lending is an area that presents huge opportunities. Leveraging these data-driven innovations and improving the end-user experience with frictionless business processes can address the unmet needs of this sector. For example, in developing countries, 65 million firms have an unmet financing need of $5.2 trillion. Embedded payments and embedded insurance have a higher level of maturity than embedded credit or lending.  

We are seeing examples of Buy Now Pay Later and Working Capital Financing appearing in the B2B context, which allows businesses to borrow money to cover day-to-day operations rather than purchasing equipment. As finance becomes deeply embedded over time, the financial service will become part of our everyday life and activities. For businesses, this could take the form of a payment request being triggered automatically when goods are delivered by a lorry and the receipt is signed digitally by a warehouse clerk. 

At the moment, ESG is being perceived as a reporting issue that evolves around the availability of specific sustainability-relevant data – not the integrated use of it. Self-developed solutions to capture this data often consist of excel sheets established to answer the current regulatory reporting requirements around ESG. This approach may only be sufficient for the time being. 

However, the ESG-relevant requirements will continue to evolve over the next few years, becoming more complex, and more specific, and addressing the remaining letters S(ocial) and G(overnance). This poses a risk for those banks that continue to inflate and expand their proprietary solutions until a lack of data management functionality or inconsistencies causes the system to collapse. 

Consequently, ESG regulation will push the tech industry to develop standard software specifically for ESG solutions based on central ESG databases. In addition, the tech will have to enable banks to work with the data available, not only for regulatory purposes but also as a market opportunity. End consumers are more and more aware of the environmental impact of investment products and will continue to raise the demand for greener solutions. Risk and return combinations of investment products will be strongly assessed in terms of sustainability, credit decisions, and cost will depend on ESG scoring in all areas in the future. 

The future of banking remains unpredictable and exciting. The global economy continues to battle the list of economic concerns. Here are the top 3 trends I’m banking on: 

• Retail banks will have to continue to face high interest rates, rising inflation, and slower growth. At the same time, customer expectations are rising. Banks should enhance customer convenience with anywhere product access: What do customers really care about? Not your traditional banking products anymore. Customers care about value, convenience, and security. They desire curated products to match their needs in everyday life. 
• Investments in modernization need to speed up. Opening up new revenue streams, and business models and remaining competitive requires digital investment. Modern technology and a sophisticated UX design can no longer be the end game, but rather a method to achieve a vision and goals. 
• Despite today’s economic concerns, B2B cross-border payments are expected to grow. Banks should accelerate the adoption of ISO 20022 as it creates a common language for payments globally and unlocks a new wave of payment modernization. 

The world is heading towards a network economy, where users expect end-to-end experiences for a range of products and services through single-access gateways. Insurance companies need to become important nodes in the ecosystem. Here are the top 3 trends I see. 

• Focusing on core competencies such as data analytics. Insurance companies need to provide new products and services to differentiate from competitors. This can only be achieved through new insights and ideas empowered by data, whether from internal or external sources.  
• Externalization / Standardization of non-competitive assets. This is critical for core operations so traditional insurance companies can shift funds and resources to innovation that provides differentiation. ‘Standardization’ includes connectivity to the ecosystem: integrations that are easily accepted by any third party. 
• Customer experience. Users increasingly demand seamless and borderless experiences, sophisticated UI/UX, omnichannel capability and branding are still very important. Touchpoints (and risk coverage) will not be limited to the real world but extended virtually, to the metaverse or crypto-assets, and many more.

Banks undertook significant investments during the pandemic to improve their ability to serve clients remotely. Embedded Finance became a new channel of digital engagement to distribute financial products and this trend is expected to significantly grow through 2023. As the market matures, we are witnessing more use cases from both our customers and partners. They leverage the power of Embedded Finance platforms to help create better experiences, engagement, and support for their corporate clients effectively and efficiently. 

One of the use cases is Request to Pay (R2P). It has already delivered some promising outcomes in 2021 for consumers who pay their bills digitally (Natwest, BPAY & Tikkie, etc.). However, we’re still yet to see the tangible benefits of R2P for businesses. These can be improved working capital or reduced payment risk to billing companies such as utility & telcos and drive value creation for corporate treasury, with Deutsche Bank already making advances in this space. 

In the alternative lending space, products such as Revenue Based Financing are beginning to see increased interest. Such propositions are feasible to implement due to the connectivity and data afforded by Embedded Finance platforms. This transparency between the bank and the corporates enables proactive financial support and unlocks new forms of lending models. 

Going into 2023, the focus for the financial services industry should be on combining assets from the fintech ecosystem with innovative business models to increase profitability through continuous digital optimization. 

In addition, FSIs are entering into the next chapter of “Bank 4.0” – which emphasizes the importance of digital technology to not only improve profitability but also maintain business resilience and achieve green financial goals. 

In response to the global ESG challenge, Taiwan as a technology island needs to take the lead in Asia by building a sustainable financial solution platform. Co-innovation with fintech partners could be the key to providing new services and a differentiated customer experience. 

I predict Fioneer will lead the team to collaborate with ecosystem partners and work with customers to create a “Sustainability Roadmap”, which integrates the digital core, financial transformation, and ESG. Bring it on! 

The adoption of cryptocurrencies has seen a steep increase from both retail and institutional investors. This presented banks that use the right technology with new opportunities in a fast-growing market.  However, as proven by the failure of FTX, one of the world’s largest cryptocurrency exchanges, security and regulation remain imperative.  

We believe and welcome that this will further add to new and already evolving regulation efforts (e.g., the EU’s ‘Market in Crypto-Assets’ regulation). It will all serve to improve customers’ protection and restore trust in digital assets. To offer cryptocurrency investing to their customers and keep their assets safe, banks require reliable and stable technology (i.e., core banking and finance & reporting systems). At the same time, the technology needs to remain open to integrate expert custody tools and connect to external parties, such as exchanges.  

Change happens much faster in crypto than in traditional financial markets. To adapt to this speed and navigate the change, banks need to team up with innovative yet solid partners. 2023 will accelerate that trend, as banks continue to expand into the world of crypto-banking.