Top 10 Financial Services Industry Trends in 2023: Overview, Statistics & Analysis

The financial services industry has been witnessing rapid transformations fueled by technological advancements and evolving consumer demands. In 2023, these trends have continued to reshape the landscape, revolutionizing how financial services are delivered and consumed and transforming how companies operate and interact with their clients. Here are 10 financial services industry trends that shed light on the evolution of the fintech sector and its impact on businesses operating within this realm.

Financial Services Industry Trend #1: Rise of Embedded Finance

Embedded finance is one of the biggest financial services industry trends. Companies are embedding financial services seamlessly into their platforms to enhance client convenience and drive engagement while blurring the lines between traditional banking and everyday activities. McKinsey & Company, in their article about embedded finance, mentioned that small businesses starting up today may never interact with a conventional bank. What makes the next generation of embedded finance so powerful is the integration of financial products into digital interfaces that users interact with daily. Among those are nonfinancial experiences such as shopping online, scheduling employees to work shifts or managing inventory. 

Market research commissioned by Polish banking-as-a-service (BaaS) platform provider Vodeno confirmed the same. More than a thousand senior decision makers in the UK, Belgium, and the Netherlands were surveyed, and it was found that two-thirds of them believe that BaaS is transforming financial services for the better and, more interestingly, half of them said that it would eventually make “traditional” banking obsolete. The results of this research were published in this Forbes article.

According to a16z, “Every 10 years or so, we evolve how software is distributed and sold. Each evolution has unlocked new markets and grown the overall software market”. The new fintech business model increases the overall market for software in two additional ways:

• it increases revenue per user by 2 to 5x versus a standalone software subscription and as a result,
• it unlocks new verticals where previously the total addressable market (TAM) for software was too small and/or the cost of acquiring clients was too high.

Financial Services Industry Trend #2: Buy Now, Pay Later (BNPL)

As mentioned before, companies are seamlessly embedding financial services into their platforms to enhance client convenience and drive engagement. For example, e-commerce platforms integrate "Buy Now, Pay Later" options at checkout. This industry trend enables non-banking entities to tap into financial services, expanding their offerings while providing financial institutions access to a broader client base.

A BNPL plan is a loan offered to a client at the point of sale so they can purchase merchandise on credit but without a credit card. Popular options include Shop Pay Installments from Shopify, Affirm, Afterpay, Sezzle, PayPal, and Klarna. These services enable millions of consumers that were previously operating in the cash domain and/or the Un-banked/under-banked populations that could not qualify for traditional credit card accounts and generally don’t have the cash-on-hand in a bank account to utilize traditional ATM payments. Expanding the day-to-day reach of Financial services to these rapidly expanding new consumer populations opens huge opportunities for full consumer life cycle relationships to be established and nurtured in ways that suit these consumers’ lifestyles and preferences for interactions. 

A good example of BNPL’s benefits is the partnership between Shopify and Affirm. E-commerce platform Shopify has teamed up with Affirm, a BNPL provider, to offer flexible payment options to its merchants. This collaboration enables Shopify's merchants to integrate Affirm's BNPL solution directly into their online stores, providing e-commerce Shoppers with a more convenient and accessible way to finance their purchases. This BNPL option drives both average purchase prices and purchase frequencies, to expand dramatically as well.

Financial Services Industry Trend #3: DeFi and Blockchain Integration

Decentralized Finance (DeFi) has emerged as a game-changer within the financial services industry. Decentralized finance differs from traditional, centralized financial institutions and banking. In Centralized Finance, money is held by banks and third parties, with each charging fees for using their services. At the same time, Decentralized Finance eliminates intermediaries by allowing people, merchants, and businesses to conduct financial transactions through emerging technology. It offers various financial services like lending, staking, and yield farming, all without traditional intermediaries. DeFi is rapidly gaining traction as it empowers users with full control over their assets and fosters financial inclusion. 

Blockchain and cryptocurrency are the core technologies that enable Decentralized Finance. The decentralized nature of blockchain technology is revolutionizing financial services by providing the concept of secure, transparent, and tamper-proof transactions. 

As it is mentioned in the Forbes article, DeFi aims to democratize finance by replacing legacy, centralized institutions with peer-to-peer relationships that can provide a full spectrum of financial services, from everyday banking, loans, and mortgages, to complicated contractual relationships and asset trading. 

Cryptocurrencies continue to disrupt the fintech industry. An example is Ripple, as they provide payment services that are faster than any other existing solutions. Being a money transfer network, Ripple is designed to serve the needs of the financial services industry, and XPR, the native crypto token of the Ripple network, consistently lists among the top 10 cryptocurrencies by Market Cap.

A compelling new segment within the DeFi thought leaders are also emerging, without some of the “storm-cloud” that some consumers may associate with today’s Cryptocurrencies. These Payment Platform providers are fielding award-winning innovative new financial service products to consumers, using their existing government-issued currencies, but without the need for separate banking relationships. A prime example in this field is CloudPay, with their innovative CloudPay NOW payments platform. CloudPay is an industry-leading Global Payroll processing services provider, that has recently introduced its own proprietary “Earned Wage Access” (EWA) product, through which global employers can offer their employees the opportunity to quickly, and easily pay themselves via a mobile app, rather than have to wait for their traditional Payroll-run Cycle in order to gain access to their wages. This form of DeFi is not dependent upon Crypto or other emerging technologies, but rather, cleverly leverages the existing payments rails available to employers globally. EWA is a unique subset of the DeFi trend, and vendors like CloudPay are already changing the employee/consumer relationship with traditional banking and credit concepts.   

Financial Services Industry Trend #4: Open Banking Ecosystems

Director of the Consumer Financial Protection Bureau (CFPB), Rohit Chopra, announced a new US open banking rule in late 2022. This rule aims to solidify personal financial data rights, with the practical goal of allowing consumers who wish to switch card carriers or banks to transfer their account histories to new companies. It became an accelerator toward open banking and one of the top financial services industry trends. 

The core benefit of an open banking ecosystem for banking institutions is to get access to those clients that they wouldn’t have otherwise by changing their business model to create entirely new ecosystems. 

Open banking drives innovation and enables banks to deliver more personalized products. At the same time, it empowers clients by allowing them to share their financial data securely with authorized third-party providers. By allowing those third-party providers access to financial data through APIs, traditional banks are collaborating with fintech startups to get new clients as well as offer improved client experiences. Let’s take Plaid as an example. They are creating APIs that enable seamless integration between banks and fintech applications, enriching the user experience and expanding the range of financial services accessible to clients.

Financial Services Industry Trend #5: AI-Driven Personalized Services

AI-driven personalization is becoming crucial in delivering tailored financial solutions. Fintech companies are leveraging artificial intelligence to analyze vast amounts of data and provide personalized offerings to clients to enhance client experiences and identify potential frauds.

As was mentioned in the TechCrunch article, AI hyper-personalization can help fintechs and financial services boost client satisfaction. “The boom in personal finance management can be partly attributed to open banking, which has enabled specialized fintechs to enter the market by granting them secure access to transaction data. With a focus on personalized solutions, fintechs are using this data to determine the “next best action”, a client-centric strategy that prioritizes meeting the unique requirements of each client through personalized offers, services, or deals”.

For example, the UK-based fintech Cleo uses open banking transaction data and deep learning powered by NVIDIA and AWS to drive personalized client recommendations through a chatbot. Users can get answers to questions such as “How much am I spending on food shopping this month?” or “How can I save 300 pounds by the end of this month?” The app can also suggest particular steps users should take to attain a specific life goal, such as building a savings plan for an upcoming holiday.

Financial Services Industry Trend #6: Enhanced Cybersecurity Measures

On top of all the benefits of Open Banking Ecosystems, cybersecurity concerns are high from both clients’ and financial institutions’ perspectives, as it might even be an inhibitor for consumers in fear of seeing their accounts being hacked. We all remember how Facebook in 2018 has freely let slip the most sensitive information from 83 million of its accounts that ended up in the hands of lobby groups. The evolving threat landscape calls for innovative cybersecurity measures in the financial services industry. 

Biometric Authentication to Enhance Security

As cybersecurity is a top priority, Biometric Authentication is becoming a standard feature in fintech applications. Fingerprint and/or facial recognition and voice authentication are proving to be highly secure methods of user verification. 

According to Santander, Biometric Identification in the digital banking sector has several advantages. Convenience and simplicity of use are undoubtedly among those. It also significantly reduces the chances of suffering crimes such as phishing, a fraudulent practice with which cybercriminals seek to access our personal data by sending e-mails.

With the rise in digital transactions, companies are prioritizing robust cybersecurity practices. For instance, Mastercard introduced Identity Check Mobile, allowing clients to make secure transactions using their biometrics. Mastercard Identity Check Mobile is a mobile application-based biometric authentication solution that allows end-users to verify their identities using a biometric modality of their choice (e.g., fingerprint, facial recognition, etc.).

Financial Services Industry Trend #7: RegTech Advancements

RegTech is becoming essential for companies to navigate complex compliance requirements as it aims to simplify regulation and streamline compliance processes.

CEO of FundRecs, Alan Meaney, explained to Deloitte RegTech as follows: “Like FinTech, PayTech, and many other combinations of XXXTech, RegTech is another example of an industry that is being changed rapidly by software. There has been technology used at various levels in the Regulatory space for over 20 years. However, what the new RegTech label recognises is that the gap between software and non-software enabled services has widened significantly”.

As regulatory demands increase, fintech firms adopt RegTech solutions to streamline compliance processes and mitigate risks. According to Deloitte, RegTech has a very bright future. It allows senior executives to introduce new capabilities designed to leverage existing systems and data to produce regulatory data and reporting in a cost-effective, flexible, and timely manner without taking the risk of replacing/updating legacy systems.

Where Does RegTech Work Best?

• Legislation/regulation gap analysis tools
• Compliance universe tools
• Health check tools
• Management Information tools
• Transaction reporting tools
• Regulatory reporting tools
• Activity monitoring tools
• Training tools
• Risk data warehouses
• Case management tools

Financial Services Industry Trend #8: The Growth of Digital Wallets

The digital wallet market is experiencing exponential growth, transforming how consumers handle payments. A study from Juniper Research says that the next four years will see the number of global users hit 5.2 billion, compared with 3.4 billion this year. More than five billion people will be using digital wallets by 2026 as “super apps” to drive adoption in developing countries.

Digital wallets like Apple Pay and Google Pay are gaining popularity as they offer a convenient and secure way to make transactions. As more businesses embrace digital payments, companies that enable digital wallet integrations are poised for substantial growth.

Big Tech Companies

‍According to an Insider Intelligence report, big tech companies, like Apple and Amazon, could grab up to 40% of the $1.35 trillion in US financial services revenue from incumbent banks.

Apple’s launch of the Apple Card could open doors to additional financial tools such as debit cards or PFM applications. And Amazon could bring Amazon Pay in-store, which could attract merchants by saving them interchange costs, cutting into a $90 billion annual source of revenue for issuers and networks. 

Financial Services Industry Trend #9: Financial Inclusion

Millions of Americans remain underbanked, and roughly half report that they would not be able to cover more than two months of expenses in the event of job loss. 

McKinsey states that in the past decade, the goal of financial inclusion – ensuring that every individual has access to quality, affordable financial services – has become an increasing priority and possibility worldwide. Financial inclusion aims to benefit the world’s poor, the vast majority of whom do not use formal financial services provided by banks, insurers, or microfinance institutions (MFIs). As a result, they cannot avail themselves of the fundamental tools of economic self-determination, including savings, credit, insurance, payments, money transfer, and financial education.

Full financial inclusion would mean providing every household with access to a suite of modern financial services, including savings, credit, insurance, and payments, as well as sufficient education and support to help customers make good decisions for themselves. These products and services must be affordable, designed to meet the population’s needs, available within reasonable physical proximity, and regulated and overseen to protect consumers.

Financial Services Industry Trend #10: Sustainable Finance

Harvard Extension School defines sustainable finance as “investment decisions that take into account the environmental, social, and governance (ESG) factors of an economic activity or project.” Sustainable finance and ESG investing become a powerful movement among financial services industry trends, with investors prioritizing environmentally, socially, and good governance standards that customers, workers, and investors demand of companies. 

Sustainable finance is helping transform both the economy and society with more responsible development and investment in the transition towards sustainable production and services worldwide. More importantly, it is closely linked to UN Sustainable Development 17 Goals (SDGs) to transform the World.

How These Trends Shape Digital Transformation across the  Financial Services Industry

The financial services industry is witnessing significant transformations in 2023, fueled by fintech innovations and consumer behavior megatrends. Financial Services industry trends became a vital part of financial institutions’ transformations – from embedded finance to sustainable finance, these trends are shaping the industry's future and inspiring companies to adapt and innovate to meet evolving client demands. 

Contact Tech-Azur today to learn more about how we are helping financial services firms to embrace these transformative trends. The powerful combination of effectively architected Digital Transformation, in concert with new technology adoption, enables insightful leveraging of these trends to drive sustainable growth for your firm while remaining competitive and delivering exceptional client experiences in these demanding times. Let’s talk soon to begin your journey, or boost your current transformational initiatives aimed at achieving your financial performance goals along with driving deeper customer engagement and the critical consideration of top-talent retention.