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UK Fintech Investment Led by Embedded Finance, Web3 and ESG; Finds FIS

The latest FIS Global Innovation report reveals the fintech investment trends of 2023 among UK firms battling recessionary pressures.

Embedded finance, web3 and environmental, social and governance (ESG) are leading UK fintech investment in 2023 amid recessionary pressures, according to FIS’ Global Innovation report.

The payment technology provider’s latest study of 2,000 c-suite executives at firms across markets, including 375 in the UK, reveals these three areas as the primary recipients of investment this year. Elsewhere, attitudes towards decentralised finance and cryptocurrency also appeared optimistic.

Accordingly, the majority of surveyed executives expect these areas of the industry to have a ‘major or moderate’ impact over the course of the next year. In this way, 84 per cent agree that ESG be will the area of most poignant impact, with cryptocurrencies expected to be the least influential at 77 per cent.

Among UK executives specifically, ESG retains the top spot for influence at 84 per cent, while the data is once again mirrored with cryptocurrency judged to be the least impactful on business at 73 per cent.

UK preparations for a future of digital assets and the next generation of the internet

Web3, also known as the next generation of the internet, orientates around the use of decentralised infrastructure like blockchain technology and includes innovations such as cryptocurrency, decentralised finance (DeFi) and the metaverse.

The research suggests that the UK is keeping pace with international investments in web3 as organisations worldwide seek to seize the next growth opportunity:

  • Cryptocurrency development

While a majority of 59 per cent of respondents expressed no interest in developing cryptocurrency-related services, only 17 and four per cent of non-financial and financial services firms, respectively, do not anticipate offering such services within the next three years.

This on-the-fence behaviour is being driven largely by a lack of clarity regarding regulations; as cited in a quarter of financial services firms. Elsewhere, a lack of interoperability between platforms was cited as a barrier to the wider adoption of cryptocurrency among 22 per cent of organisations, while 21 per cent see a lack of supporting ecosystem services as an additional barrier to adoption.

Non-financial services firms, on the other hand, shared similar concerns, with 24 per cent noting a lack of cryptocurrency services from banks and other financial services providers as a barrier to adoption.

  • Entering the metaverse

The metaverse and its associated technologies have taken the fintech industry by storm, as its potential for customer engagement becomes increasingly realised.

This eagerness is evident in the findings of the report, according to which, 55 per cent of financial services firms are actively researching potential opportunities in the metaverse.

Meanwhile, 58 per cent of non-financial businesses say it will be strategically important to have a presence in the metaverse in the next three years.

  • DeFi dreams

DeFi is recognised as a major opportunity for growth by 51 per cent of UK financial services firms; according to the report. However, despite its strong reputation for generating growth, the barriers to its total adoption remain in place for now.

In this way, 51 per cent of the surveyed firms admit that their risk management frameworks are currently incompatible with the majority of digital assets, generating one of the most widely considered roadblocks for the wider adoption of the technology in the UK.

Embedded finance to empower UK businesses in 2023

Embedded finance is when consumers have unique, tailored financial services delivered to them at their point of need by non-financial companies.

The report finds embedded payments to be the most familiar to consumers, enabling the speed and convenience of paying for goods and services in an app. For this reason, new use cases across banking, lending and investing are emerging and the drive to deliver embedded financial services is on the rise in the UK.

The report indicates that 84 per cent of UK companies see embedded finance as having an impact on their organisation over the next 12 months in line with the changing customer demands for convenient ways to pay, bank and invest.

To react to this changing demand, 38 per cent of financial services and fintech firms intend to invest in developing their embedded finance capabilities over the same period of time.

Meanwhile, 55 per cent of non-financial firms that see an impact from embedded finance on their business told FIS they will respond by increasing their tech or research and development budget this year.

Fintech Investment ESG
Silvia Mensdorff-Pouilly, SVP of banking and payments in Europe, FIS

“While the macroeconomic environment in the UK and around the world poses a real challenge to businesses of all kinds, those that invest in evolving their technology capability to serve tomorrow’s consumer will find ways to thrive,” comments Silvia Mensdorff-Pouilly, SVP of banking and payments in Europe for FIS.

Mensdorff-Pouilly describes how the research indicates that a wide range of business leaders see embedded finance, web3 and ESG as drivers of growth; despite the recessionary headwinds identified.

“At FIS we view early adoption in these innovative spaces as critical to success over the next few years; the businesses investing now will be the ones succeeding in years to come,” she adds.

ESG and the competitive edge

Incorporating ESG into key offerings could generate a major competitive advantage for all types of companies; the report makes clear.

ESG is the systematic consideration of environmental, social and governance factors alongside financial factors when making decisions about investments, business practices and commercial relationships.

If supported by the right technology, the appropriate application of ESG could align the UK market with new growth opportunities while encouraging wider competition.

On this note, three out of five UK financial services firms view ESG as an opportunity to improve their competitiveness in the market; according to the report. Additionally, 41 per cent of financial services firms are actively developing new ESG products and services.

To address difficulties in accessing and analysing ESG data, 56 per cent of financial services firms say they are investing in technology to improve reporting and disclosures, giving clients more transparency into ESG scores and/or providing more granular ESG ratings of assets and securities.

Author

  • Tyler is a fintech journalist with specific interests in online banking and emerging AI technologies. He began his career writing with a plethora of national and international publications.

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