By Eduardo Martinez Garcia, CEO and Co-Founder, Toqio
Following the trend of the past few years, 2022 proved itself to be another major year for fintech. Whilst embedded finance continues to be a hot topic, I believe B2B embedded finance will dominate in 2023.
The B2B embedded finance market is already worth billions and is expected to quintuple by the early 2030s. The number of startups offering embedded or in-house finance will increase substantially in the coming years. This will be next years big trend, with regtech and diversity also playing a big part in changing the landscape of the sector. Here are just some of my thoughts on what we can expect in fintech in 2023.
Embedded finance will expand even further
The fintech space is becoming more mature. I see that there is going to be a broader adoption of fintech technology and products by large corporations. Bigger companies are seeing more clear use cases they can profit from. Similarly, we will also continue to see the expansion of embedded finance.
Traditionally, B2B has fallen behind B2C in terms of embedded transactions, but the space is set to explode and reach $2.6 trillion in transactions by 2026, and about $183 billion in revenue by 2027. Many of the reasons behind the massive acquisitions of neobanks are going to be the same driving forces behind the proliferation of B2B embedded finance. Companies are going to look for solutions that provide business users with an excellent, efficient experience within the scope of a corporate offering, and they’ll be looking for experts who leverage the right technology and partnerships.
It’s estimated that 96 percent of businesses will launch an embedded finance offering by 2026, and many of these will be FMCG companies, retailers, etc. This is all going to lead to market consolidation, where there will be more focus among fintech companies. These more specialised fintech companies will begin to serve clients outside the finance sector.
Regtech will become a focal point in fintech
If a company is not legally compliant it cannot move forward with a fintech offering, making regtech the natural basis for all other fintech development. Although regtech is as developed as fintech, regulators simply haven’t been very rigorous in terms of enforcing compliance.
That’s one of the reasons compliance has been a trending topic over the last couple of years. Furthermore, even though incumbents are increasingly collaborating with fintech providers on new products, compliance efforts are still lacking in terms of digital capabilities. The 2023 Future Focus Report from TrustQuay found that just one in three fund service firms have digitised.
The acceleration in digital migration since 2020 is set to reach regtech in 2023, with record 2021 investment in new regtech ventures. And it’s not just a question of digitisation. Regtech will become more relevant than ever as regulatory bodies such as the UK’s FCA crackdown on financial crime and urge organisations to take on digital technologies to enable stronger, more efficient compliance.
We’re going to see major changes in the BaaS model as regulators begin to examine and control the agency model. That means we’re going to see an increase of BaaS providers begin to incorporate digital compliance solutions into their standard offerings.
The return of the incumbents
Incumbent banks and financial institutions are going to become even more significant than they already are in the fintech space. They’re investing heavily in fintech companies and technologies and they’re not going anywhere.
Goldman Sachs, HSBC, BBVA, Natwest, and others are making moves in the open banking and BaaS space and will continue to in the future. Large, stable companies with diversified interests and a willingness to adapt to the new landscape are going to be sexy again. In fact, the bigger the downturn, the more attractive they’ll become. They probably won’t try to take over the space, they know they’re not agile enough, so look for mega-deals between market leaders.
The fintech market will thin out
In the financial sector, institutions need to keep transforming their offerings digitally and expanding their services to remain competitive. Fintechs not only challenge traditional financial institutions with regard to products and processes, but they also tend to be more progressive in terms of human capital. Companies that are creative and diverse will take the lead to eke out a larger market share in 2023 and beyond.
Finding investment is becoming more difficult for startups and we have already begun to see some companies fold, with more to follow. The market will thin out and only those with a solid business plan, a secure client base, and bulletproof technology will be left standing.
Some companies might get bought out or merge with strategic partners, but one thing is for sure: the fintech space will be very different in a year, 2023 will be decisive for many companies and the fintech market as a whole.
How FS organisations can utilise data to boost customer experience
Charles Southwood, Regional VP and GM – Northern Europe and Africa at Denodo
We’ve all heard the age-old adage “the customer is always right”. It insinuates that, in any sector, the needs and desires of those buying a brand’s product or services should be paramount. However, today’s customer has new standards and it is becoming harder than ever for businesses to meet and exceed them.
This is certainly the case in the financial services (FS) sector where getting customer experience right used to be relatively simple. The human touch was traditionally delivered as a bi-product of in-store, transactional interactions. Perhaps, as a result of this, few people ever considered changing their provider and the traditional, established banks ruled the space.
However, with the dawn of online banking and the introduction of new, exciting challenger banks as well as the UK’s unique Current Account Switching Service, the balance of power between the consumer and the bank is changing. Consumers no longer feel locked in. If their needs aren’t being met, they aren’t afraid to look elsewhere and switch their allegiance to other companies. In other words, loyalty is far from guaranteed and customer acquisition is only half the battle.
Retention relies upon delivering strong, unique customer experiences that beat down the competition. In order to achieve this, FS organisations will need to be able to leverage data. Its insights could be the differentiator that enables them to stand out. The positive news is that, in our online world, there is a constant stream of data being produced. However, having access to all this data doesn’t necessarily mean that a brand knows how to effectively analyse and utilise it.
Ensuring data provides insight
The rapid growth in digital technologies and services across the sector has left many FS organisations juggling an unimaginable amount of data. This data is both complex and much of it is lacking in quality. Structured, semi-structured and unstructured, it is stored in many different places – whether that’s in data lakes, on premise or in multi-cloud environments. Before FS organisations can even think about using it to inform customer experience strategies, they need to be able to find it and understand it.
This is where modern technologies – such as data virtualization – can help. Through a single, logical view data virtualization boosts visibility and real-time availability of all data across an organisation. Unlike traditional extract, transform and load (ETL) solutions, it does not move and copy data. Instead it leaves it in the source systems. In other words, instead of just replicating data, data virtualization reveals an integrated view to those trying to find it.
For FS organisations this provides several important benefits. For example, it helps when data sovereignty issues arise and the movement and replication of data outside certain countries is illegal. Data virtualization solutions can also assist in terms of financial reporting by fetching data in real time from underlying source systems – applying the necessary security and obfuscation whilst delivering the performance, the agility and the accuracy needed through the seamless connection of data.
FS organisations that adopt data virtualization, are likely to see an improvement in the overall performance and efficiencies of their business operations. Overheads will be reduced, as will the length of project times. Above all, data virtualization will rapidly strengthen the customer experience by supporting business leaders to think strategically and make decisions based on real-time insights. But don’t just take my word for it.
The proof is in the pudding: How Landsbankinn is delivering on the CX promise
Landsbankinn is just one of the many financial services institutions that has already successfully embraced data virtualization and its benefits. Despite being the largest financial institution in Iceland – with around 40% of the retail and 33% of the corporate banking market share – Landsbankinn used to face several issues when it came to data sharing and analytics.
Over 45 siloed data sources – including Oracle databases, data warehouses and APIs from internal and external sources – made finding and accessing the right data at the right time extremely difficult. Without real-time data to fuel informed decision making, customer experience and operational efficiency were suffering. As a result, Landsbankinn was in need of a data overhaul to streamline and integrate its infrastructure.
To bring together its complex data landscape and collect data in real-time, Landsbankinn implemented the Denodo Platform – a data integration and data management solution built on data virtualization – to build a logical data warehouse. As a result, the team can now aggregate data from multiple data sources, transform that data based on the applied business rules, and then make it available to consuming applications. Ultimately, this means that, throughout the organisation, the data can be utilised by a wealth of employees, even those who are not particularly IT savvy. It also means that the business leaders can use data insights to make well-versed decisions and provide a plethora of services to Landsbankinn customers both quickly and efficiently.
In recent years, customer retention has become the key to successfully growing a business. This cannot happen without an effective customer experience strategy. The ability to convert data into insight is priceless in an economic landscape where the line between a business thriving, surviving and failing is so thin. Those operating in financial services must harness modern technologies – like data virtualization – to stay at the top of their game and ahead of the competition.
The Importance of Digital Trust in Banking and Finance
By Maeson Maherry, COO at Ascertia
With the rising adoption of eSignatures and the acceleration of digital transformation, trust in digital systems is more important than ever before. As a recession looms, the ability to trust digital systems is critical to the stability and security of the banking and finance industry.
So, what should businesses prioritise in an increasingly online world? Information security, data integrity, and digital trust are crucial for ensuring regulatory compliance and customer satisfaction.
Digital trust is empowering banking and finance institutions to effectively tackle issues of identity theft and fraud.
What is digital trust?
On the surface, digital trust refers to a digital system or platform that is secure and can be relied upon to protect and properly handle sensitive information.
Building the confidence that people have in digital systems, platforms, and technologies to handle their sensitive information, protect them from fraud, and function as intended is paramount for decision-makers going forward.
Trust online encompasses various aspects, such as data security, privacy, authenticity and reliability. Digital trust also involves assessing the trustworthiness of digital entities such as websites, apps, and online services, as well as the trust in the integrity and reliability of digital communications and transactions.
Digital trust is a key element of digital transformation, the additional step to ensuring the digital systems in place are secure. This can include the following:
- Online banking platform for customers
- Digital document approvals and workflows
- Secure digital signature solutions
- Know your customer (KYC) checks
- Electronic anti-money laundering procedures
Why is digital trust important for banks?
One of the main reasons why digital trust is so important in banking and finance is that it helps to tackle issues of identity theft and fraud. Customers and regulators require reassurance that personal and financial data won’t fall into the wrong hands. This includes customer statements, investment authorisations, legal records and customer personal data.
Online banking is now well established but the technology continues to evolve and so do the potential threats to data security. With phishing and other identity theft a daily concern, establishing digital trust in the industry is key.
Digital trust provides a means to trust in the identity of a person or document online, to the same degree as meeting or signing in person. This requires additional checks and layers of security to verify identities and the security of documents.
The role of eSignatures in banking
Digital trust is vital in the secure implementation of eSignatures.
In the banking and finance industry, eSignatures are becoming increasingly popular as they allow for transactions to be conducted quickly and securely. However, for eSignatures to be effective and to provide digital trust, all parties involved must trust in the transaction. This is done by ensuring eSignatures are valid and that the person signing the document is who they claim to be.
There are global standards to ensure the authenticity of eSignatures for digital signing. This means there is a way to validate the digital trustworthiness of eSignatures if implemented and used in a manner that meets certain criteria for security and authenticity.
For instance, digital signatures that are compliant with internationally recognised standards, such as eIDAS (Electronic Identification and Trust Services) in Europe, can be considered digitally trustworthy. It’s important to understand not all eSignatures provide the same level of security and to ensure the correct eSignature is used for the purpose and security required.
eSignatures that use advanced digital signature technologies such as Public Key Infrastructure (PKI) or biometrics, can be considered more digitally trustworthy as they provide a higher level of security and authentication.
These technologies use cryptographic methods to ensure that the signature is unique to the signer and cannot be replicated or forged. These standards establish a legal framework for the use of electronic signatures and ensure that they are legally binding, enforceable and offer the same level of trust as traditional signatures.
How does digital trust prevent fraud?
If the public loses trust in digital systems, it could lead to a loss of confidence in the financial system. Fraud, in particular, is at the forefront of public concerns.
Digital signatures are well positioned to offset the risk of financial fraud, largely due to three critical factors when assessing the digital trust of an eSignature:
- Authentication: To verify the identity of the signer, eSignatures employ sophisticated technologies such as PKI. This confirms that the person signing the document is who they say they are and aids in preventing fraud through impersonation.
- Tamper-evident: Tamper-evident features are often included in high-trust eSignatures, which identify if a document has been changed after it has been signed. This helps to prevent fraud by identifying manipulated papers and giving an audit trail of the signature.
- Compliance: International standards such as eIDAS ensure that eSignatures are legally binding, enforceable, and provide the same level of trust as traditional signatures.
The banking industry specifically will benefit greatly from investing in digital trust ecosystems that include eSignatures, biometrics and encryption software to provide verification and assurance for customers.
In the future, financial institutions will adopt Know Your Transaction (KYT) as a means of implementing cybersecurity measures at the transaction level in their banking protocols.
By utilizing digital signatures at the transaction level and verifying them upon receipt, the financial industry can achieve KYT, ensuring that the source of information is under the control of the endpoint and that transaction information has not been tampered with.
This level of security will be a crucial aspect of achieving digital trust in the financial industry moving forward.
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