Carta Worldwide 2023 Fintech Predictions

Carta Worldwide on banks, financial crime, regulation, BNPL, and the gigification of fintech.

It’s been a tumultuous year with a lot of uncertainty for the payments and fintech industry, but despite all the doom and gloom of valuations and layoffs, not all hope is lost. In this article, Richard Wray, Chief Operations Officer at Carta Worldwide, discusses his view on what we’re set to see next year as he shares his 2023 fintech predictions with Financial IT.

Let’s dive in…

Banks will pounce as recession sets in

The industry has never experienced a recession before and many fintechs are struggling to make money with valuations dropping like stones. How will this all play out for next year? Expect banks to go on a fintech spending spree. And banks won’t just buy the fintech – they will buy fintechs given many firms will be available for rock bottom prices. In 2023, we can expect to see legacy institutions acquire companies to obtain specific features and functionality, rather than whole platforms, as fintechs are bought, broken down and rebundled.

Consumers to face an avalanche of financial crime

The coming year will see an increased risk of fraud and financial crime as the impending recession – like the pandemic – will encourage fraudsters to conjure up new ways to target consumers desperate to find new ways to gain access to credit and manage their money. The advent of new digital payment methods also creates new opportunities for fraud. Cybercriminals are discovering new ways to break the rules as quickly as new digital payment methods are created. Using new unsavoury tactics to steal account details and personal information.

Fortunately, we’re already seeing RegTech companies develop highly effective electronic KYC solutions that use innovative artificial intelligence and machine learning technology to offer protection. The proliferation and standardisation of these new digital anti-fraud solutions will prove pivotal in mitigating the avalanche of fraud set to fall on consumers in the new year. 

Regulators will reel fintech back in, and fintechs want it

Fintech has always held disruption at its core and is known for moving fast, and occasionally breaking things. In stark contrast, regulation has largely been cautious, slow, and unable to match the relentless pace of fintech innovation. This has created problems – from a runaway BNPL market to acquirers overcharging merchants and crypto firms going under and losing customer’s money. In 2023 we’ll see a step change in regulation including new rules to consumer credit across Europe to cover BNPL, the PSR stepping in to protect merchants, and MiCA to regulate crypto assets. Fintechs, previously resistant to more regulation, are now demanding rules to bring stability and order to a market that has faced a year of uncertainty and upheaval. 

If 2022 was all about BNPL, 2023 will be about prepaid

If the past year belonged to BNPL, the next year will belong to prepaid. We’re already seeing rapid growth in the prepaid market; valued at USD 2.01 trillion in 2019 and expected to reach USD 18.47 trillion by 2030. As purse strings inevitably tighten amid the impending recession, prepaid will offer consumers the chance to better manage their finances and mitigate against a likely drop in disposable income. Pre-paid debit cards allow consumers to restrict and keep track of the money they’re spending, making diligent financial management easier. They also help consumers build up good credit, responsibly. The benefits of convenience, control and an improved credit rating will incentivise consumers to adopt prepaid in 2023.  

Gigafication and the second coming of fintech

The massive layoffs seen in recent months will likely continue into 2023 – while no one wants to see people lose their jobs, the silver lining is a greater pool of available talent. On one side this will lead to the gigafication of fintech where, with the volatility in the market, being able to ramp up and down resources is hugely beneficial. On the other side, fintech leaders will launch a flurry of new businesses. With investors focused on either small investments or major ones, these early-stage fintechs can tap into the mountain of VC dry powder available. Furthermore, these leaders have the know-how to scale fintech businesses, and with a focus on stronger unit economics that will drive profitability, these start-ups are likely to be more resilient and sustainable. Out of the ashes of 2022, expect to see the second coming of fintech in 2023.