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Trends in FinTech in 2023

We have compiled a checklist for everyone who wants to succeed in FinTech in 2023. It highlights what to pay attention to and how to adjust your path for the future.

FinTech funding in 2022 was decreased compared to previous years, which is pushing the entire industry to work harder and deliver better results for investors. For example, FinTech funding in the third quarter of 2022 amounted to $12.9 billion, which is 64% less compared to the same period last year and 38% less compared to the previous quarter.

In 2023, we are focusing on cybersecurity, artificial intelligence, disintermediation, and business deglobalization.

Now let's delve into the details.

BaaS Technologies (Banking as a Service)

Also known as Open Banking, BaaS involves banks leasing their infrastructure to other companies to optimize internal development and cloud infrastructure. BaaS allows third parties to take responsibility for launching and operating servers, while companies can focus on other tasks.

This is a major trend in the development of digital banks. FinTech companies are partnering with technology firms to create new products and expand their service offerings for customers. Good examples include Chetwood Financial, a digital bank that acquired Yobota, a provider of banking services, to expand its BaaS offering. Another example is SoFi Technologies, an American company offering banking and personal finance services, which acquired Technisys, a developer of banking software.

Mergers and Acquisitions

Collaboration is a natural progression in the FinTech industry, and it will continue to evolve. Large companies scale up and offer more technological products by merging with smaller companies that can provide innovative products but may lack an extensive customer base. Successful mergers in 2022 included Bottomline Technologies and Thoma Bravo, Abrdn and Interactive Investor, Fiserv, Finxact, UBS, and Wealthfront.

The Rise of Neo-Banking

In the context of Kazakhstan, it would be more appropriate to talk about the emergence of neo-banks.

Neo-banks communicate with customers more quickly, are more flexible and adaptive, and do not have physical branches. However, in Kazakhstan, apart from the absence of physical branches, there is currently no overarching regulator. Nevertheless, the first steps in this direction have already been taken with products like Simply by Beeline and OGO Finance by Kcell.

Digital Cards replacing plastic

As early as 2020, banks began actively offering the option of digital cards. The pandemic, as well as the lack of access to bank branches, further contributed to the development of this trend, and now digital banking and digital cards have become commonplace. According to the National Bank, in November 2022, the number of non-cash transactions increased by 28.2% compared to 2021, reaching 10.2 trillion tenge.

The majority of non-cash transactions in Kazakhstan are conducted through the Internet and mobile banking (63.7% of the total number of transactions and 80.6% of the total volume of non-cash payments and money transfers) and POS terminals. This trend will continue, and the number of transactions will only increase. This presents a favorable field for offering new products, bonuses, and cashback.

BNPL (Buy-Now-Pay-Later)

BNPL is one form of installment payment, and its global market share currently stands at 2%. BNPL is a service that allows online purchases to be paid in installments, without customers having to enter into agreements with banks or pay additional fees and commissions. In the coming years, laws and regulations will be established to protect BNPL consumers worldwide. BNPL does not require or provide credit reporting, which appeals to consumers. Currently, the market is dominated by a few large organizations, but microfinance organizations are gradually entering the scene. The BNPL market is unregulated, which poses significant risks as customers may take on credit they cannot repay. Additionally, there are cybersecurity concerns, as fraudsters actively create fake websites posing as BNPL payment services and stealing payment card information.

Nevertheless, this service remains attractive and will continue to evolve, accompanied by the emergence of appropriate regulators.

Creating Banking Ecosystems

Kaspi provides the most successful example of a thriving banking ecosystem. They not only created a successful mobile banking app but also launched their payment system, marketplace, and classified ads platform. Currently, the Kaspi app surpasses Amazon in terms of daily audience. Following Kaspi, Halyk, Jusan, and Forte have launched their own marketplaces. The trend of creating integrated systems where users can find everything they need will continue to grow. Therefore, it is worth focusing on improving the customer experience and introducing new features to simplify their lives.

Open APIs

Open APIs facilitate data exchange and enable external platforms to access ready-made services, such as money transfers between social media users. In Europe, the concept of Open APIs has been actively developing since 2015. It all started with empowering consumers to control access to their banking and financial data. This was stipulated in the Second Payment Services Directive (PSD2), which allowed consumers to have control over their banking and financial data for the first time, as outlined in the guiding principles of PSD2.

In the current crisis conditions, open APIs are more important than ever. This helps service providers offer personalized products while ensuring users' data and financial security.

The entire industry is now approaching two stages of open banking development: open finance and open data.

Open financing will enable the creation of new products and services and facilitate a more comprehensive and accurate risk assessment by incorporating data on insurance, pensions, mortgages, and investments into calculations.

The National Bank of Kazakhstan has already published a concept for the development of Open API and Open Banking in Kazakhstan for the years 2023-2025. Financial market participants will be able to offer customers new secure opportunities to manage their data, such as integrating payment services and applications in a single interface.

Development of SWIFT Payment Analogues

For conducting transactions, payment messages are sent through SWIFT using an intermediary bank. Essentially, SWIFT operates like a messenger, sending encoded messages from one bank to another with information about the amount to be transported to an account.

Analogs to SWIFT have already emerged in Europe, Russia, and China, which help reduce dependence on this payment system and alleviate concerns about sudden system disconnection.

The trend towards improving payment systems for cross-border transfers was not unexpected. It also presents an opportunity for the rapid development of the digital economy.

One of the recent analogs is Visa B2B Connect. The absence of an intermediary bank allows for faster money transfers, reducing the time from a week to a couple of days and decreasing the number of correspondent transfers.

GovTech Development

GovTech refers to the direction in which the government applies new technologies to its products and services. Such digital transformation of the government primarily helps startups and IT projects grow.

One example is the emergence of government services in banking applications. This is convenient not only for the population but also for the government itself.

Collaboration between the government and businesses enables the transition of traditional services online, making them accessible to a wider audience. This is particularly beneficial for populations without convenient physical access to banks.

For instance, in the first eight months of 2022, approximately 8.5 million Kazakhstani citizens visited the Government Services section in Kaspi.kz application. Additionally, FreedomBank was able to create a unique product not only in Kazakhstan but worldwide: digital mortgage and auto lending.

In 2023, government products and services will become even more accessible and advanced, and this should be taken into account when creating new products.

Artificial Intelligence

The Big Four (GAFA) have temporarily set aside the VR world and have focused closely on AI. And for good reason, as predictions indicate that AI can reduce banking operational expenses by 22%, amounting to a staggering $1 trillion.

By 2026, the market for applying artificial intelligence in fintech will reach $26.67 billion. And we are not only talking about machine learning but also about banking chatbots that will become even better. They will be easier to integrate and provide improved responses to customer queries, expanding not only the database of response options but also enhancing their quality. Bots will become more human-like, responding to the user's emotional state and taking urgent actions, such as card blocking, depending on the situation.

AI is also being implemented in blockchain-based financial reporting, facilitating the creation of new records, and tracking, and storing transactions involving financial assets.

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