Top trends in fintech and financial services in 2023

In India, the financial services and fintech sectors witnessed a significant growth during the pandemic. As the situation is normalising for many sectors, growth in the financial services and fintech industry has seen an upward trajectory which shows that the trend is not just a passing phase.

In India, the financial services and fintech sectors witnessed a significant growth during the pandemic. While there was a sustained growth all across, the exponential growth in digital payments is a case in point that proves how the industry adapts quickly to disruptions. As the situation is normalising for many sectors, growth in the financial services and fintech industry has seen an upward trajectory which shows that the trend is not just a passing phase. It is well known that the deepening of the financial services industry helps in the overall development of the economy. Building on this momentum, India has emerged as one of the fastest growing fintech markets in the world with a market size estimated at $150 billion by 2025.

Building on this momentum, India has emerged as one of the fastest-growing fintech markets in the world with a market size estimated at $150 billion by 2025.

As we see the growth of financial services and the fintech space, I see following trends for 2023:

Embedded Fintech: Many digital-first firms now embed banking and payment channels as a measure to enhance customer experience. This strategy not only brings a disruptive customer-centric approach on the front but also eliminates the complexities associated with the involvement of third-party websites in the payment process. It also enables organizations to build tailor-made solutions to make the customer interactions even more seamless. An API first, platform-based approach will help tech players differentiate themselves.

Blockchain technology: With the launch of central bank digital currency (CBDC), blockchain enabled payments are predicted to go mainstream. While the e-Rupee initiative will go through the normal adoption curve, I believe, in the coming two to three years, we will see a fair bit of adoption in the retail payments space. The crypto currencies will firmly be in the speculation realm.

Cashless economy: Until a couple of years ago, it was difficult to imagine that buying practically anything without using cash would become a mainstream practice in India. With the ease of use, increased awareness, and higher internet penetration, digital payments have seen a rapid rise over the past few years. India’s digital payment volume has climbed at an average annual rate of about 50% over the past five years. That itself is one of the world’s fastest growth rates, but its growth has been even more rapid—about 160% annually—in India’s unique, real-time, mobile-enabled system, the Unified Payments Interface (UPI). There is likely to be higher growth in digital payments led by UPI as India moves further linking credit cards to UPI and integrating international payments capabilities. As per Reserve Bank of India (RBI)’s ‘Payment Vision 2025’, the central bank aims to increase the number of digital payment transactions by more than 3X by 2025.

Neo banks: According to an Inc42 report, neo-banking in India is set to increase by 281% and account for 9% of India's total fintech market size. While the regulator and the government are watching the space closely and Niti Aayog is working to come out with its recommendations for digital banks, I believe that many of the players will still try to work out the right business model, keeping in mind the dependence on banks till regulations are eased. Also, there seems to be a bit of lull in the SME side of neo-banking platforms and this is the biggest opportunity area for players to provide end-to-end solutions that encompass banking, payments and other associated financial aspects of an organisation.

Government initiatives: Over the past couple of years, we have witnessed continuous efforts by the Government of India to drive financial inclusion through initiatives such as setting up DBUs, setting up of fintech department by the RBI, and introduction of e-RUPI among others.

Ecosystem Banking: Offering a single solution to customers who were earlier dependent on complex and disjoint processes across a variety of applications, ecosystem banking is helping banks offer a better customer experience and generate long-term value for customers. The lines are blurring between banking and payments, with banks realising that it is imperative to not only integrate with many ecosystem players to help their customers in buying goods and services, but also collaborate with fintech firms to give greater choice to customers.

Increased focus on security: As more financial services move online, the focus on security gains greater relevance. With increased online offerings, cyber-attacks like phishing are likely to grow in volume and intensity. Amidst this, players in the industry will invest even more in security tools and services to secure the transactions and ensure privacy to customer data. Furthermore, education to various stakeholders is critical, so it is recommended to adopt a gamified approach to deal with these challenges.

Despite the momentous achievements, a significant opportunity awaits the industry in the coming years, mainly driven by the emerging technology, changing cultural trends and a favorable regulatory landscape. Thus, in 2023, we will have a better picture of what the new normal looks like and how fintech is shaping the financial services of tomorrow.

This article has been authored by Srinivas Nidugondi, chief growth & transformation officer, Comviva)