Trends of the Fintech Industry
2021 has been an astounding year for the fintech market, with a record number of deals in every major region. The degree of fintech solutions attracting investment raised and continued to expand and grow in 2022, with cascading interest in cryptocurrencies, blockchain, AI and cybersecurity. According to CB Insights’ latest “State of Fintech” report, the third quarter of 2021 was the second-highest on record for fintech financing with an impressive 147% increase.
2022 is almost at its end, and entering into 2023 the hope for fintech investment globally is very strong, with distinct sub sectors well-positioned to keep evolving and new ones to emerge and flourish.
Let’s find out what heights were reached in 2022.
Get into Defi
In 2022, DeFi, fintech, and insurtech grew and in coming years will converge even more. DeFi or decentralized finance, is an umbrella term for financial services powered by blockchain infrastructure. DeFi has been gaining popularity, fueled by the fact that it reduces human error through smart contracts, provides access to markets from anywhere at any time with an internet connection, and removes intermediaries. Predominantly, DeFi turns money into a programmable and interoperable protocol, somewhat similar to what earlier versions of the web did to digitize information and content.
Albeit DeFi is a relatively new trend, the amount of value locked up in DeFi protocols has grown to more than $200 billion, with trading volumes reaching almost $100 billion per month. Established fintechs have already begun harnessing DeFi and bringing its functionality into consumer facing brands. DeFi is the next ultimate logical choice, for fintechs and insurtechs can seamlessly weave DeFi functionality into their existing user interfaces, making it more approachable and user friendly.
Web3 becomes more mainstream
The buzz of Web3 continues to build around, as consumers and corporations both look forward to more ownership of their digital products. Web3 aims to decentralize the internet and rebuild it on blockchain, so no particular companies own a big chunk of it. Web3 can offer open, decentralized infrastructure instead of siloed servers or cloud instances. Web3 shifts the balance of power back in favor of the end-user, so when the user on the internet uses financial applications, the data from those interactions is recorded and shared on a publicly accessible ledger and no longer lives on the single application’s server.
In the fintech industry, consider for example the insurer, with the use of blockchain’s distributed ledger technology, insurers will have the ability to store and have access to a single claim’s information, eliminating the need to invest to gather data from public and private domains.
The rise of Blockchain
As of 2022, the crypto, metaverse and AR/VR have started to creep into our everyday lives, and by year-end 2022 is expected to be a milestone year for blockchain technology as web 3.0 has started to become more accessible and more inclusive. A survey by Deloitte found that 76% of surveyed executives “believe digital assets will serve as a strong alternative to, or outright replacement for, fiat currencies in the next 5–10 years.”
Blockchain is being used increasingly in the fintech industry to fight fraud and manage regulatory, compliance, and audit issues. Blockchain technology, coupled with distributed ledger technology, can help banks reduce or eliminate the use of intermediaries. Specifically, banks can benefit highly from these technologies in payments, clearance and settlement systems, fundraising, securities, trade finance, loans and credit, and customer KYC and fraud prevention. Blockchain solutions are being used more and more for cross-border payments as well.
Inclusion of AI
Fintech has been one of the most eager early adopters of Artificial Intelligence as its automation capabilities allow companies to automate repetitive processes, risk management, and fraud prevention. AI helps predict consumer behavior enabling targeted and personalized product recommendations in order to improve the customer journey. Established banks are facing more competition than ever as tech giants, fintech startups and big retailers alike, all are in this race of getting digitally transformed and are incorporating the use of AI, which means that fintech startups don’t really have a choice of opting out of adopting these technologies if they want to stay with the technology adoption curve.
IDC predicted that the financial services industry would be the second-highest spending industry on AI between 2021 and 2025 — second only to retail. Another area of anticipated growth in AI is fraud detection.
Final Thoughts
One thing’s sure that with all these new technological trends the aim is to make the lives of consumers and businesses much easier. Although there might be some hindrances in adopting these technologies at scale, in the long run the advantages definitely outweigh any unease faced during adoption or implementation. The future blends ease of ease of use and convenience with the power of decentralized finance. The fintech startups and the existing financial institutions must start permitting access to DeFi functionality to consumers through their banking and insurance services, if they want to be left out. Fintechs that will rise to the challenge of delivering safe and secure Web3 products to the users, will only stand to win the race to the decentralized future.
