5 financial services trends to watch out for in 2023

By Alex Vavilov, Chief Innovation Officer for Stenn International

The financial technology sector is rapidly evolving with traditional methods of banking now being replaced with digital solutions, to make transactions quicker, easier, and more streamlined.

As we welcome in 2023, I explore my top predictions for the biggest upcoming financing business trends.

#1 Embedded finance will become more streamlined

Seamless customer experiences will be at the heart of business next year, and this includes payment options.

Embedded finance is nothing new – over the last decade and beyond, we’ve seen the signs of integrating financial products with non-financial organisations without the need to go through banks. One example of this is retailers offering Buy Now Pay Later (BNPL) schemes to customers which act as short-term financing without the need for traditional loans.

Embedded card payments with digital wallets are another example of how embedded finance has fundamentally changed consumer behaviours and attitudes toward financial services.

However, we’ll begin to see embedded finance become even more streamlined throughout the next year by focusing on the integration of financial services with digital interfaces. For SMEs, partnering with fintechs instead of traditional financial institutions allows for a speedier and more efficient way to access financial services, from raising capital to streamlining accounts payable.

The rise in embedded finance is growing in popularity, so much so that it’s now projected to reach $230bn in revenue by 2025, more than 10 times what it was valued at in 2020. And with customers expecting ease of payment as a norm, it is essential businesses keep on top of new technologies and trends to avoid being left behind.

#2 Fintech companies will partner more with traditional banks

Until now, fintech companies were seen as competitors that only took advantage of the gaps banks weren’t yet able to fill. However, with the fintech industry disrupting the financial services landscape, it’s more important than ever that banks adapt and collaborate with new technologies to offer customers the best service possible, or risk losing out.

That’s why we can expect partnerships between banks and established fintech institutions to become more common next year. No longer limited to developing their own proprietary platforms, banks are increasingly looking to invest in new innovative technologies that fintechs provide.

There are many benefits to this collaboration – for fintechs, partnering with banks offers legitimacy and the opportunity to leverage a wide customer base, as well as access invested capital to develop new technologies. For banks, fintechs can help fill the technology gap and enable a better experience for their customers.

Banking as a Service (BaaS) has become increasingly popular thanks to these collaborations and has helped to make economies and supply chains stronger.

BaaS is similar to embedded finance in that it integrates financial services with non-banks. However, one key difference is that financial products are offered by licensed banks as a technological foundation as opposed to being offered by consumer-facing businesses during the purchase of goods.

PayPal, for example, is a prime example of how fintech’s can successfully operate within a BaaS model.

#3 Businesses will turn to alternative financing options

Bank loans from a traditional financial establishment have traditionally been the primary source of capital for SMEs and startups. However, securing a bank loan isn’t always easy, especially during an unstable economic climate.

With the UK’s recession expected to last until the end of 2023, more businesses will be turning to alternative financing options to help them stay afloat. This can range from crowdfunding to peer-to-peer lending to invoice financing.

There are a number of reasons why alternative financing is a more attractive offer for SMEs. Most alternative financiers will have a higher loan approval rate, meaning businesses that aren’t able to access traditional loans through lack of assets or limited credit history are no longer excluded from securing necessary funds.

Additionally, alternative financing may offer better interest rates or no interest rates at all. The Bank of England recently raised interest rates to 3.5 percent, the highest seen since the Great Recession, to combat inflation. This increase will mean the cost of borrowing is out of reach for many small businesses. However, going through an alternative financier could open doors that would otherwise be closed.

#4 Cryptocurrency will become the norm

We’ve steadily seen cryptocurrencies become more prominent over the last few years. In 2021, El Salvador became the first country in the world to adopt Bitcoin as legal tender while China banned Bitcoin altogether in favour of its own cryptocurrency the digital yuan. While this currency relies on blockchain technology, it vastly differs from other cryptocurrencies since it is centrally controlled by a regulatory authority and backed up by the country’s fiat currency.

In the UK, however, cryptocurrencies are still classed as digital assets and, while legal to trade, are not yet legal tender.

However, this could all change as more financial institutions accept it as a form of payment. Goldman Sachs became the first major US bank to trade over-the-counter crypto transactions and recently announced plans to invest tens of millions of dollars in crypto firms despite the collapse of FTX – one of the world’s largest cryptocurrency exchanges.

With trusted banks and other institutions backing cryptocurrency, we’re sure to see cryptocurrencies become more mainstream into 2023.

#5 Blockchain will dominate financial services

Alongside cryptocurrency, blockchain has been an important technological advancement that is set to change the landscape of business finance.

Firstly, blockchain is a more secure and transparent technology than the outdated models traditional banking typically uses. In theory, blockchain is considered ‘unhackable’ due to the decentralised nature of the technology. This naturally appeals to businesses and individuals who can have confidence their transactions are secure and reliable.

Additionally, blockchain is far more efficient and is particularly useful for streamlining invoice financing processes. Many businesses expected to feel the sting as 2023’s recession comes into force however, invoice financing will offer SMEs a lifeline of freeing up capital ahead of invoices being fulfilled. This means businesses can access cash quickly without having to wait up to 120 days for customers to pay for products and services, allowing essential payments to be made to suppliers and improving cash flow.

However, a lack of automation, compliance restraints and delays for approval can hinder supply chain financing efforts. Implementing blockchain can help solve all these issues, speeding up processes and ultimately creating more robust supply chains.