by Dr Narisa Chauvidul-Aw
Quantum computing
Quantum computing is one of the most exciting technologies in terms of overall ability to change the world. Realising the potential of QC would allow us to solve seemingly impossible problems and test cases that even a supercomputer would take thousands of years to complete.
In 2023, we can expect governments and the private sector to throw money into quantum computing across the board and begin to work out commercialisation models. The aim right now is to scale the approach, so we can apply it in an efficient and affordable way across the world, not just in state-of-the-art labs.
One of the biggest challenges to getting quantum computing to work as we want it to lies in figuring out quantum error-correction. Due to various modes of ‘noise’, we cannot be sure there aren’t faults in output. Correcting this in an efficient manner will pose a problem for top engineers and no doubt be a priority in the coming year.
Greater Regulatory Scrutiny
Fintech services are often at risk of running afoul of regulatory framework, even if they operate in grey or totally unregulated area. But the fact remains: customers need to be protected. Expect leading firms in the most disruptive areas of the industry to work with regulators on updated laws with a particular focus on transparency and accountability.
There is no doubt that more regulation in the crypto space is an absolute must-have. We cannot move forward without a framework to work within, to protect customer funds and bring stability to a classically volatile market.
It goes without saying that greater scrutiny is required for crypto-related businesses when considered against the backdrop of the calamitous FTX collapse. It has become clear that the industry cannot be reliably self-regulating, and not only are retail investors at risk, but also institutional capital. This is not sustainable and only serves to weaken the offering from benevolent actors, who suffer from reputational damage by association.
Blockchain
Despite being around for over a decade now, blockchain remains relatively nascent and continues to threaten to change the face of financial transactions globally.
Blockchain technology is based on a decentralised platform not controlled by a single entity, so it is a highly secure way of storing data thereby reducing the risk of identity and data theft to the minimum.
More than 10 million blockchain-based companies are jostling for position at the top; it remains to be seen how it will boost the global economy over the coming decade. Mainstream adoption will be the first domino to fall before it tangibly affects global economies.
Nowadays, most of blockchain’s market value belongs to the banking industry – 29.7%. Process and discrete manufacturing follow with 11.4% and 10.9% respectively. Dubai is even planning to implement blockchain for government functions, and we can expect more financial institutions to follow this trend.
Smart contracts
Smart contracts are an ingenious solution to the issue of trust and paper contracts. Because agreements signed in a smart contract are encoded in computer language – using digital signatures, or cryptographic keys to be precise – certain preconditions must be met before the contract is verified and the latter stages of the deal can be released, especially in terms of dispersing funds.
In short, smart contracts are guaranteed to be accurately executed.
A smart contract is stored publicly, on the blockchain, and the contract must be fulfilled to the letter. Any breaches will simply fail to execute the smart contract and thus, no payment will be made (or asset transfer, etc.).
The manifold applications of smart contracts means it’s a fintech trend which is likely to transcend national borders and become accessible to virtually anyone.
Web3
Metaverses hold potential to redefine interactions entirely. The way we meet, buy or advertise can all be irrevocably changed inside a metaverse. Add to that non-fungible tokens, or NFTs, and you also redefine asset ownership for the new digital age.
This is Web 3.0, commonly known as Web3, and I believe we will see rapid advancements in this space in the near future. Activities in the virtual world can be connected to the real world on a scale never before seen. Using the nascent technology available now will help us build this brighter future.
Peer-to-Peer finance and credit
Already numerous fintech companies are providing peer-to-peer finance and credit services. These are particularly popular with millennials, observably so in Asia with applications such as the Alipay wallet and Wechat pay wallet in China. I think P2P has potential for explosive growth in the western world. Companies really are missing a trick by failing to implement seamless and easy QR code payment infrastructure.
Already peer-to-peer is used in financial institutions, and P2P finance has become a convenient way to tap into lines of credit without suffering through a long application process.
This is a particular boon for small business owners, who can apply for P2P credit in order to develop their business. They can further apply for loans from credit unions and even non-financial companies. The loan decision is simply based on a member’s credit history and worthiness.
The rise of P2P provides solutions where financial institutions fail to. As SMEs attempt to bounce back from challenging economic conditions, this could be huge for 2023.
Indeed, peer-to-peer payments have gained market share and consumer popularity as a convenient way to send and receive money. Alipay and PayPal are excellent examples.
Artificial Intelligence
It’s not uncommon for bank revenues to exceed the income of entire nations; this is why they are pioneers in the Artificial Intelligence space applied to financial institutions. AI helps to analyse customer behaviour above all.
Banks can as a consequence personalise communication with their clients, customise advice offerings and implement AI-enabled payments.
Furthermore, AI can provide an effective barrier against cybercrimes, money laundering and financial fraud. Not only can AI facilitate the automation of high-value complicated processes, faster transactions and customer convenience, but it can also spot hacked data and breaches and offer unrivalled privacy and security for client data.
We should look with great interest at AI, and specifically machine learning, for potential to scale transaction monitoring and create a safer world in finance. This could be particularly useful in terms of removing bad actors from cryptocurrency markets.
As Artificial Intelligence grows more sophisticated, its adoptability will only increase. Expect the trend to gain momentum, especially in the financial sector.
Digital-only Banking
Some banks already exist solely in the virtual realm.
What this means for clients is essentially them being relieved of all paperwork, no need to visit brick-and-mortar institutions for account opening or getting a new card.
A plethora of convenient tools exist in-app for expense management and balance reviews, as well as global payments, contactless cards, P2P transfers, and much more.
Buying and exchanging cryptocurrencies is another revolutionary change in these digital native banking services. These banks already offer crypto-compatible payment services and have tapped into what is poised to be the greatest financial disruption of all time.
One obstacle is user trust: issues that cannot be settled online become a major problem for them. This may be solved by partnerships with traditional banks, so while digital-only banks could need time and adaptation to take the lion’s share of the market, it seems to be only a matter of time before they do.
Traditional banks will be increasingly forced into the space of digital banking
Traditional banks have been locked in a game of playing catch-up in recent years. Evolving customer expectations, regulatory requirements and tech advances are finding them caught standing still.
This is only expected to gain momentum. Primarily, this is because millennials are the fastest-growing cohort of clients with spending power, but also, this age group is becoming the beneficiaries of the greatest transfer of wealth in history.
Some estimates claim $68tn in wealth is set to be passed down from the baby boomers – the wealthiest generation ever – to their children and other heirs over the next few decades.
Young millennials especially have grown up with technology and are so-called ‘digital natives’. The enormous surge in tech as they came into adulthood, which just so happened to occur at the same time as the 2008 global financial crash, has made them immensely comfortable using fintech to help them access, manage and use their money.
According to a Facebook whitepaper entitled “Millennials + money: The unfiltered journey,” 92% of millennials distrust banks and view them as an unreliable source of information.
Many millennials expect easy, immediate access and control of their finances from their mobile phones. Paying bills and transferring funds must be as easy as a few taps. Being able to review spending habits, gain guidance and retain real-time access at all times is important to this generation. Banks are finally becoming aware of this.
Payment innovations
Consumers are less reliant on cash than ever in the digital age. They value quick and easy ways to pay for goods and services; so, banks and non-bank players (such as retailers, tech companies, startups and telecommunications firms) are introducing value-added services in the sphere of payments.
Bottom line is: payments should be as easy as possible, without compromising on security or speed. And if you want a user to choose your service, give them an incentive.
Contactless Payments
The COVID-19 pandemic changed many things, but most dramatically in terms of financial services it saw an explosion in the use of contactless payments. Contactless-enabled credit and debit cards, as well as mobile wallets, became the primary forms of digital payments.
Apple Pay came as a revolutionary payment solution, allowing fans of the brand to pay for goods with their iPhones or even Apple Watches. And it was all so easy! Google Pay and Samsung Pay have also hopped aboard the trend.
Advances in fintech will only see further changes to the nature of how we pay and where payment fees go.
Crypto card payments
People are often surprised to learn digital currencies are already a form of payment in traditional card networks. Visa is a great example, because it has more than 65 cryptocurrency partners. The last quarter of 2021 alone saw Visa enable cryptocurrency transactions with an overall value of more than $2.5bn.
SaaS platforms
Who doesn’t know about Stripe? This is the fintech payments startup with phenomenal growth unmatched by almost any other firm in history. By 2021, it was already worth $95 billion and served as a fine example that the onramps into the payments sector was fast-growing.
Other giants of online payment platforms such as Shopify and Mindbody have also transformed, turning effectively into operating systems; both firms now offer users emerging and innovative financial services, payment cards and loans.
Enhanced customer experience and faster product delivery is the name of the game. And it’s led to huge business growth for these companies.
Watch out for upstart new firms looking to make moves in the space. This is a huge trend for 2023 with significant upside and room for innovation.
Digital exchange and trading solutions
When the internet is such an ever present in our lives, it’s no wonder financial services are increasingly moving online. The demand for digital exchange platforms is likely to grow exponentially due to the demand for fast and hassle-free money exchange and transfer, often across international borders.
Widespread adoption of fintech platforms and solutions has combined with mass user migration to the online world, with the result of an explosion in demand for digital platforms that provide easy access and straightforward management of finances.
There is ample opportunity to integrate this trend with highly secure blockchain technology. It’s plain to see that digital exchange platforms could be a big hit in 2023. However, the regulatory landscape will be key to informing what these platforms look like.
Buy now, pay later (BNPL)
There are unsavoury elements to BNPL – we don’t want to see people buying within their means, yet paying later when they may not be able to afford the purchase. But there is soaring demand for buy now, pay later solutions.
Some companies even offer travel now, pay later which shows there is significant scope for innovation in this sector. The age of cheap credit may be over in the UK, but BNPL could provide a neat fix for those who need a quick loan to make one-off purchases. Consumers should however beware the risk of not paying in time as costs may quickly add up.
Open banking
The customer experience and convenience are increasingly important in the world of digital banking. Hence, open banking: a practice which enables secure interoperability in banking.
You can connect data from other banks and financial institutions for a clear overview of your finances, or even utilise third-party apps who connect with the bank’s API to provide neat widgets and services for a better overall experience.
In practice, consumers are given more opportunities and customisation in managing their finances. Look out for open banking developments in 2023, as we may be fast approaching a world where you can use Amazon, PayPal and Facebook to send money or gifts securely to friends with a click of a button.
