2023 Predictions: The Wild Ride Ahead for Embedded Commerce and Finance

By Greg Cohen, CEO of Fortis

Here are two words of advice for banking and finance professionals as 2022 winds down and we get set to kick off the new year: buckle up. The world is barreling toward a significant shake up in 2023, and the changes we’re likely to see will reverberate across the embedded commerce and finance space.

Already, inflation and economic uncertainty are driving concerns, and we are already seeing pre-emptive actions by firms. Interest rate increases have caused havoc on high-growth, non-profitable businesses, and additional worries include a concern about a drop in discretionary spending across most segments. While we have seen some layoffs already, spending deterioration will trigger earnings misses, incremental workforce adjustments and restructurings.

Industries such as retail and hospitality are poised to bear the brunt while sectors like healthcare and necessary services are probably more insulated, but everyone will be affected to some extent. The economic downturn won’t tell the whole story of 2023 in the embedded commerce and finance space as 2023 will be the year when future winning plays and strategies are implemented.

Entrenched institutional organizations, many of which spent the past few years reacting to fintech innovations, have billions in capital on their balance sheets and are ready to pounce on opportunities. Meanwhile, fintech valuations have been hammered over the past year, shedding half a trillion in valuation, forcing them to retrench and refocus. The status quo won’t hold, and institutional players and fintechs are on a collision course. Here are seven predictions for the year ahead:

1. A recessionary environment will prompt businesses to refocus on core competencies: Look for companies to retrench as long as the macro-economic outlook is cloudy, which could mean a pause for auxiliary projects. Companies will choose to pass those projects off to partners to create value. When businesses are facing economic headwinds, they tend to get back to basics. That doesn’t mean they won’t continue to evolve, but they’re more likely to offload non-core projects.
2. Technology that improves cashflow will find a receptive audience: Software will continue to evolve in all markets as the fundamental needs still exist for cloud-based, multi-channel platforms; however, the pace of evolution will slow. That said, solutions that can help the business improve cashflow, drive new clients in the door and/or accelerate receivables will be prioritized. Software and commerce solutions helping companies get paid faster are attractive because cash is king during these times.
3. Banks will go on offense in the embedded commerce and finance arena: Look for banks to capitalize on opportunities in 2023, building, renting or buying technology assets to catch up with the fintechs that outpaced them in innovation over the past several years. With fintech hiring slowing and operating models being pressed for cashflow, the pace of innovation on that side will slow. This will provide the banks a real chance to catch up organically and inorganically. It will be interesting to watch who chooses to capitalize on the market opportunity.
4. Regulators will seek to reform sectors that create systemic risk: Divided government in the U.S. will likely slow any movement toward mass regulatory financial services reform, which is generally good for the financial services world. However, regulators such as the CFPB and FTC will seek to aggressively reform sectors that create systemic risk to consumers, such as crypto and BNPL (buy now, pay later).
5. Brace for a massive amount of consolidation and M&A activity: The entire technology industry, including the payments and finance sector, will be roiled in 2023 by a heavy volume of consolidations and mergers & acquisitions. Legacy foundational players will buy new tools and leadership positions to catch up with rivals and reinvigorate customer relationships. Equity firms sitting on tons of cash from dollars raised in 2021 and 2022 will deploy capital into existing companies at depressed multiples, and firms will see value creation in the merging of operations, distribution and solutions.
6. Social and engagement platforms will take a giant leap forward along the commerce paradigm: Look for social media and other consumer engagement platforms to deploy embedded payments and additional financial services as core offerings and expand commerce opportunities on platforms, as declared by Elon Musk (whose background includes PayPal), forcing others to move boldly.
7. A tech behemoth will enter the embedded payments space in an unexpected way: The incumbent technology scale infrastructure companies have a ton of cash on hand, and the big tech company leaders understand the potential of embedded commerce to not only enhance customer experiences across the globe but tie customers to their platforms and expand their average revenue per user. I am suggesting that this could very well be the time when at least one of them will make a more meaningful and bolder move into the space, catching casual observers off guard.

As for technology business leaders who are still in scale-up mode, now is the time to prepare for volatility in the year ahead. That means making projects that improve cashflow a priority, refocusing on core competencies and delivering a great customer experience, including through embedded commerce. As Peter Drucker said, “the best way to predict the future is create it.” Streamline, focus and execute.

It’s tough to make predictions, especially about the future. But given the economic fundamentals at play, the massive amounts of cash in the bank at infrastructure companies and equity firms and a market still in need of future experience enhancements, it doesn’t take a psychic to predict a wild ride. It’s time to buckle up.