Fintech is finding itself at a turning point amid rumblings the industry is ‘losing its lustre’. We’ve seen firms struggle to raise fresh funds, reports of falling valuations, fire sales, staff layoffs and recruitment freezes. Some fintechs have abruptly closed while others have bid their farewells before they’d even had the chance to say hello.
Throughout January on The Fintech Times, we’re sharing industry predictions for 2023 as well as ideas for ‘moving fintech forward’ in the next 12 months.
Today we hear 2023 predictions from Coinmetro, Norton Rose Fulbright, Cushon, Taskize and Calvin Ayre.
Spotlight on auto-enrolment
“In 2022 we saw the 10 year anniversary of pensions auto-enrolment, and there’s no denying the success it has brought to ensure people save for their future,” says Steve Watson, head of policy & research at pensions fintech Cushon.
“However, auto-enrolment is not perfect. There are still too many people excluded, especially women and young people. Also, a healthy pension pot that can’t be accessed before age 55 is of little help with today’s financial challenges.
“We’ve also seen a lot of activity around the introduction of auto-enrolment into other savings vehicles, not to replace pensions but to get people saving for other live events, rather than just retirement.
“We should expect to see 2023 as the year when we get closer to making this concept a reality, which will be the single biggest way to get the UK workforce more financially resilient. But again, the right technology must be utilised. And so it will be providers who use this tech that will be in the prime position to really push this game changing concept forward.”
Crypto will look to regain trust
Kevin Murcko, CEO and founder of major cryptocurrency exchange Coinmetro, outlines his expectations for the crypto and fintech sectors in 2023, as it continues to feel the shockwaves of the FTX collapse.
He says: “The fintech space will have to tighten its belt next year as adverse market conditions roll over into 2023, but this won’t necessarily stymie innovation. Yes, with less money sloshing about, and a recession on the cards, there will be less investment in fledgling fintechs, but just look at how many of the most innovative companies of the past decade were born in the last recession.
“As we look back on 2022, punctuated as it was by the FTX collapse, we can expect to see more pressure from regulators in the new year. In the UK, the Bank of England has backed the government’s crypto ambitions, and the US is taking a similar route to steer toward stability. Transparency will be non-negotiable, and we can expect to see a wide range of financial services firms, certainly in the crypto space, but also beyond, looking for ways to demonstrate hyper-transparency in a bid to regain consumer trust.
“NFTs are perhaps the big damp squib of 2022. You do get the sense that the art and gaming bubble has burst this year, and that 2023 will see NFTs applied primarily to solve pressing issues in the global economy, such as supply chain accountability.
“The prospects for fintech next year are promising, and there are pockets of promise to be found in many areas. AI is something I think will become more prominent, simply due to how fast and intelligent it is becoming in our space.”
A legal perspective
Albert Weatherill is a lawyer and a member of the firm’s global fintech practice at global law firm Norton Rose Fulbright. He observes an increasing focus on governance, procedures and control environments across the industry.
“This is because many firms feel the need to take a pause for breath after years of outsized scale; they are reacting to high profile poor practice and bad actor events in 2022; and they are anticipating increased regulatory focus in these areas through 2023,” says Weatherill.
“Materially enhanced rules-based frameworks for the regulation of cryptoassets are fast developing in the UK and in a variety of other jurisdictions.”
He also suggests that “depressed valuations and a challenging fundraising environment through 2023 are leading to more interest and activity in fintech by financial sponsors and other institutional investors”. While institutional activity across crypto assets is “expected to remain muted for H1 2023 but come back somewhat in H2, with that activity likely concentrated in a smaller number of providers than before”.
Calvin Ayre, a venture capitalist with a specific investment and business focus on fintech innovations, outlines his predictions for developments across the so-called ‘crypto’ sector, as well as regulatory compliance set to shake up the space.
He says 2023 will be the year that politicians, regulators and law enforcement agencies “finally slay the ‘layer 1’ fraud at the heart of crypto” after which they’ll target the “deeper, more insidious ‘layer 2’ fraud that threatens far greater harm”.
“Binance will come, acutely, under the regulatory microscope: Binance seems the logical place for the US officials to start, particularly given the pre-Christmas revelation that Binance US – the allegedly independent, regulatory compliant US-facing operation – was routinely transferring billions in customer funds to and from wallets associated with Binance’s international operations. Tether’s role in propping up those that target consumers will likely come under even greater scrutiny in markets across the globe, leading to demands for actual audits.
“The days of ‘number go up’ seem well and truly behind us. The 2022 exposure of so much criminality at the heart of this grifter economy has virtually guaranteed there won’t be another influx of public money anytime soon. And without a steady stream of fresh funds, Ponzi schemes can’t – and won’t – survive.
“With regulators, politicians and law enforcement finally awake, the downfall of these long-running frauds is nigh. Better still, the thinning of this herd will allow the market to see BSV for what it is: a regulatory friendly and legally compliant blockchain that can serve as both the backbone of the Web3 revolution and an environmentally friendly data storehouse with peerless scalability. A little late, in my opinion, but better late than never.”
APIs get full steam ahead
Kishan Bharwad, head of product at Taskize, a post-trade issue resolution network for financial services, says 2023 could well be the year that APIs finally take off from a technology perspective.
“Currently, simple trade queries through an API require firms like asset servicers to spend huge amounts of time verifying the client, retrieving and then re-keying the data to respond.
“However, firms can now combine the distribution and integration of APIs – which means the industry can finally collaborate to generate capacity within teams to reduce costs, all while improving client experience.
“Next year, expect more and more firms to start realising the value of APIs by acting as a distribution channel for bank’s data. This will give financial institutions one integration solution through which their clients can service the network without the need for human intervention.”