Smart Finance Trends: Insights from Our Experts Worldwide
Banking and smart finance are changing so much that it’s hard to keep up with the latest trends shaping fintech. Everyone has heard about artificial intelligence or blockchain. We’ve heard so much about these technologies that they have become buzzwords, “empty” trends that sometimes companies don’t know how to apply. But these technologies, and many more, are indeed changing fintech. At Plug and Play, we’re in touch with the startups and corporations driving change in this industry. We know what’s happening and have a more accurate idea of what will happen.
With fintech innovation hubs stationed around the globe, we’re very conscious that trends vary from country to country and region to region. Different cultures create different regulations and customer expectations too. That’s why we have interviewed experts from numerous fintech office locations at Plug and Play and asked them about the specific trends they see in their respective countries and regions.
Smart Finance Trends in China
Chinese financial institutions have made significant technological investments in scenario and green finance in recent years and are seeing high success rates. According to our forecast, the technology investment of Chinese financial institutions in 2022 is expected to exceed $40bn and maintain a high growth level.
From a business standpoint, we have observed that more financial institutions in China are beginning to conduct differentiated corporate financial services. These are from the perspective of the industrial internet, combining customers' balance sheets with digital reports to boost the development of corporate financial services. China's industrial internet has just started and belongs to the blue ocean market. Many traditional industries now strongly demand technology to improve production and operation efficiency, including coordination of production, transportation, sales, and management. Financial institutions can share their technological capabilities with traditional industries to help them promote industrial transformation.
Digitization
With the sweeping digital wave, industrial finance based on industrial digitalization may gradually move towards industrial digital finance. Digitization brings immense possibilities to the industry. Transferring business information online and creating digital connections can revolutionize the entire industrial chain — unlocking tremendous added value across its upstream and downstream processes. On this basis, the model and logic of industrial finance will undergo iterative changes along with industrial digitization. The traditional industrial financial model directly faces single-point core customers and provides single or integrated financial service products based on their order and asset information. With industrial digitization, financial institutions can check their business data, dig into their potential data asset value, and create more asset space for financial institutions.
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In recent years, many financial institutions have made innovations in the industrial internet, such as using satellite remote sensing technology to help agricultural development, the creation of an online industrial supply chain financial platform, a financial business support platform combined with blockchain and the internet of things technologies and so on.
Green finance
China is also taking drastic steps toward sustainability to confront the ongoing global climate crisis. Green finance has become a pinnacle of focus for financial establishments in this process by providing policy support and guidance through strategic formulation, credit regulation adjustment, industry combing research, product innovation, and personnel training.
Chinese financial institutions use technological means to start green finance, such as using environmental, social, and governance, or ESG, scores to assist financial institutions in identifying and screening green, or environment-friendly, customers. Changes in risk control methods brought about by big data and artificial intelligence for meteorological and climate monitoring can empower financial institutions to manage credit risk control, or insurance companies can design more innovative green insurance products. The technological capabilities of using blockchain technology to record the carbon trajectory of green customers will help financial institutions better understand green customers.
Smart Finance Trends in the US
Over the last decade, consumers have been steadily increasing how they use digital payments daily, and 2023 will see a significant boost in digital payments usage. Here are some smart finance trends in the payments space this year:
Later this year, the U.S. Federal Reserve is launching a new real-time payments network called FedNow. It'll enable individuals and businesses to send instant payments through their depository institution accounts in the U.S. We expect that many fintechs will also benefit from this payments network and launch new digital payment products.
SMB tech
2023 will start the growth in small and medium-sized business technology, better known as SMB tech. The digitization of business-to-business, or B2B payments, is precisely one of the areas to look out for. B2B payments providers allow businesses to cut costs, have a better overview and management of their cash flow, and can help with payment-related fraud mitigation. To mention a few, Quickly is an earned revenue access company that lets small and medium-sized businesses take control of their working capital by providing next-day access to their verified receivables, and Hopscotch (gohopscotch.com) is offering a Venmo-like platform for SMBs with instant, fee-free payments, invoicing, and cash flow management.
Embedded fintech
Through embedded fintech, companies continue to embed digital wallets into their services to strengthen their product suite and generate new revenue. We also see vertical finance solutions providing payment services for specific and sometimes niche audiences. For example, Bushel Wallet offers a payment platform for anyone involved in the agriculture industry, whether you are a farmer or a business selling fertilizers or seeds. And recently, they launched an embeddable wallet for enterprises to offer payment services to their end users.
New forms of payment operations are also on the rise as companies are launching solutions that automate the money movement workflow of these operations, from payment initiation and processing approvals to reconciliation and managing direct debits — an exciting space to keep a close eye on. I would like to highlight Atlar, Statement, and Nilus are just a few that are solving pain points in this space, amongst others.
Smart Finance Trends in South East Asia
The burgeoning fintech industry in Southeast Asia (SEA) is being propelled by several key elements, from the immense population of young and tech-savvy citizens to higher mobile/internet access rates. This region has seen an upsurge in middle-class consumers across countries like Indonesia and the Philippines — making it a hotspot for financial technology innovation.
Digital payments
The adoption of digital payments has been on the rise in SEA, driven by the increasing use of smartphones and the launch of mobile wallet services. Government initiatives to promote cashless transactions have also helped to boost this trend. Examples include Singapore’s PayNow, e-wallet startups like GoPay, Grab Financial, and QR code payments. Peer-to-peer (P2P) lending platforms have become increasingly popular in SEA. They are approaching saturation as a way for borrowers to access credit and investors to earn higher returns on their money.
Digital banking services have been gaining traction in the region, with many traditional banks launching mobile apps and other digital tools to attract and retain customers. There’s also the launch of digital banking licenses in Singapore and other SEA countries for digital-only banking players to enter the market.
SEA’s growing middle class and increasing focus on financial inclusion have also led to the development of robo-advisers and other digital wealth management services. The Web3 and digital asset space also has mainstream attention despite the crypto bear market and blockchain technology remaining a disruptive force for financial services. For additional insights into how digital payment solutions are changing, be sure to check out our recent video below.
ESG reporting
This subsector promotes environmental and social sustainability and good governance by developing impact investing platforms, sustainable banking services, and socially responsible financial products. They use technology like data analytics to monitor investments' environmental and social impact and address the growing demand for sustainable investment options and regulatory requirements for ESG reporting. This market will likely grow in the future due to increasing awareness of the importance of considering ESG criteria in investments and the need to transition to a more sustainable economy.
Overall, the fintech sector in SEA is still in the early stages of development; however, the current pandemic forced digital adoption, which could be an excellent opportunity for fintech companies to grow in the region.
Smart Finance Trends in France
Fintech is one of the leading sectors of French tech. It relies on high-performance infrastructure, internationally renowned talent, and a structured environment. In fundraising, fintech startups set a new record in 2022 in France, reaching €2.92bn, showing an increase of 28% compared to the previous year. However, there are significant disparities between the first and second half of the year. During the first half of the year, companies in the fintech sector raised €2.2 bn, while in the second half, they raised €704m, which is three times lower. The economic downturn, macroeconomic uncertainty, unpredictable global context, and the wait-and-see position of investors could explain this. Nonetheless, the number of fundraisings also grew significantly in 2022 and totaled 146, compared to 93 in 2021.
There has been a growing recognition of the importance of ESG considerations for businesses and financial institutions' roles in promoting sustainable practices in recent years. Many financial institutions are starting to incorporate ESG criteria into their operations and are offering products and services that align with these values. This trend is expected to continue as more and more consumers, and businesses prioritize ESG considerations in their financial decisions. Some startups illustrating this trend in France include Fingreen AI, Greenly, and Sopht.
Cybersecurity
Cybersecurity startups are a vital component in the growth and protection of the fintech industry. They provide innovative solutions to protect against data breaches, secure mobile transactions, and meet regulatory requirements. These startups can identify and prevent cyber-attacks before they occur. They defend financial institutions and customer information and provide peace of mind for customers increasingly relying on digital devices. Additionally, cybersecurity startups offer valuable insights into the evolving threat landscape, helping financial institutions and their clients stay ahead of potential attacks. In France, 166 startups were recognized in 2022, against 150 in 2021. Cybersecurity startups are critical in ensuring the secure growth of the fintech industry, including some French startups, including Bodyguard, Dattak, Ledger, and Yogosha.
Open banking
Open banking gives consumers more flexibility and control over their financial data (payments, personal financial management, credit decisions, etc.). Fintechs can offer innovative financial products and services, increasing competition and lowering consumer prices. The benefits of open banking include increased customer engagement, improved customer experience, and increased revenue streams for businesses. A few companies showcasing these trends in France are Algoan, Bridge, Swan, and Treezor.
AI and ML
Artificial intelligence (AI) and machine learning (ML) also have the potential to revolutionize the financial services industry. Using machine learning algorithms, AI systems can analyze large amounts of data and make decisions with a level of accuracy and speed that is difficult for humans to match. Risk assessment and fraud detection are among the most promising applications of AI in finance. AI systems can analyze patterns in financial transactions and identify unusual activity indicative of fraud.
Blockchain
Blockchain can disrupt several industries, including the financial sector. This technology has already been successfully implemented in the financial industry for tasks such as trade finance, working capital, cash-cycle improvement, capital planning, and performance, settling financial transactions, and facilitating the exchange of assets. New use cases for blockchain technology will likely emerge as the technology continues to mature. Potential growth areas include using blockchain for identity verification, supply chain management, and creating new financial products and services.
Savings management platforms
This includes savings management platforms that allow users to track their financial information in one place and make informed decisions. Impact investing also will enable consumers to invest in companies and projects that positively impact society and the environment. Other trends include cryptocurrency, which offers a decentralized, digital alternative to traditional currency, investment options, and real estate so that individuals can pool their money to invest in small portions of a real estate property.
These new-generation savings products are often accessible through fintech platforms and mobile apps, making them more convenient and accessible for consumers. In addition, they often offer higher returns and lower fees compared to traditional options. This makes them an attractive option for consumers who want to grow their savings. Some companies illustrating this trend in France include Bitstack, Finary, Goodvest, Livret P, and Beanstock.
Smart Finance Trends in Brazil
The financial sector in Brazil remains the most sought-after segment by VCs, reaching 40% of all investments made in the country. Currently, Brazil has almost 1,300 fintechs, with the most well-known companies ranging from neobanks (Nubank, Neon), lending (Creditas), and payment processors (Cloudwalk, one of our portfolio companies).
The country remains at the forefront of financial innovation, especially in Latin America. With a large population of consumers and businesses still underserved by financial products and the continuous push for new regulations made by the Brazilian Central Bank, it is undeniable that the fintech ecosystem is ripe for growth in 2023.
One of the essential innovations pushed by the Central Bank was the creation of PIX, the instant payment system launched in November 2020. Built-in partnership with all financial institutions (fintechs, legacy banks, and payment providers), PIX became a world-class payment system, surpassing one billion monthly transactions across customers and businesses. This payment method became deeply entrenched in the Brazilian economy, fostering the creation of startups built on top of PIX, such as BNPL (Pagaleve) and improvements on UX for online payments (Noh). For 2023, we expect more innovative solutions that apply PIX differently, especially cross-border payments.
B2B fintech models
B2B fintech models will continue to gain traction in the Brazilian financial sector, mainly due to improvements in fintech infrastructure and the lack of products serving SMBs. Even in large state-controlled banks (Banco do Brasil, Caixa), small businesses are still underserved, with less than 40% able to take loans and scale their operation. Fintechs are trying to tackle this large market by bundling ERP solutions into their products, creating a better way for SMBs to manage their finances, and building a specific dataset of their customers to offer more customized financial products.
Also, due to improvements in regulation, Brazil will see growth in open finance usage by financial institutions and in other segments that can take advantage of open data to understand its customers better, providing them with more suitable products. Open finance will be the next stage of open banking, allowing information from a broader range of sources to quickly and securely flow between different apps and digital solutions, including financial and non-financial data. Infrastructure providers in this space (i.e., Pluggy, our portfolio company) are building new standard rails to enable the safe access and interpretation of data.
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In addition to that, the Brazilian Central Bank is advancing discussions to implement “Real Digital,” a CBDC solution for the Brazilian economy, building an ecosystem that can revamp the financial system and create solutions to improve the currency’s interoperability across the globe, including DeFi protocols and public blockchains. In the following years, we will see more startups aiming to create solutions to facilitate money flow while complying with the Central Bank’s guidelines.
Smart Finance Trends in Spain
Spain is well-positioned to become one of Europe’s leading fintech ecosystems with a combination of tech innovation, investment, and a supportive legal environment.
Spain's fintech sector is seeing significant growth and has proven to be the perfect testing ground for disruptive solutions in the personal banking, payments, and SME space. As of October 2022, the Spanish fintech ecosystem comprised over 490 startups (70% founded in Spain), with over 100 new startups in the country in the past two years. It is also the sector with the most capital deployed, with €210m recorded investments, as of October, in a total of 31 public operations.
Spain boasts a 56% fintech adoption rate by consumers and is currently ranked 21st globally and seventh in Europe. Neobanks already have a 30% market share of Spain's digital banking market. Successful fintechs such as Verse, Goin, and Housers provide easy-to-use financial tools particularly attractive to Gen Z and Millenials. But, B2B solutions are increasingly growing in the ecosystem. This year, we expect to hear more from companies developing tools around open banking, AI, big data, and digital payments.
The Spanish government has also shown strong political will by approving a draft law known as the Startups Law, which aimed to make Spain more entrepreneurial and attractive to international investors and innovators. The law will make it much more accessible for start-ups to form legal entities by reducing the required capital from €3000 to €1 and placing all the application work online. The process will take just a few hours compared to the current six weeks, greatly incentivizing the creation of new startups. The Startup Law will make Spain even more attractive to investors and innovators and provide additional tools for companies to attract top global talent. We can hear more from the B2B space, bringing innovation to be large, traditional corporations and SMEs.
Smart Finance Trends in Italy
Italian fintech startups raised €646m in 2022, representing around 32% of the total amount raised in the country (+€2bn). In 2022, fintech led the way in investment rounds, with clean tech and life sciences close behind. This surge of capital culminated in two major "mega-rounds" — Scalapay's €200m raise followed by Satispay's staggering €320m. Italy now has either two or three unicorns based on whether you count Facile.it or not.
The country of SMEs and bureaucracy
Italy is widely known for its bureaucracy and strict rules, but it doesn’t seem to stop fintech startups from thriving. This translates into an opportunity for startups that simplify and streamline financial processes, reporting, and applications for benefits and bonuses. In addition, Italy counts 3.6m of SMEs out of the 23.1m in Europe, and our economy relies on those companies. Hence, we see an intense concentration of fintech startups that try to solve SMEs’ financial pain points with different approaches.
Other trends in line with the European ones
However, other fintech trends are similar to the ones observed at European and global levels. From payments and cards to lending, insurance, and wealth management: embedded finance represents a rapidly growing sector. Payment innovations such as account-to-account transactions, B2B financing, and checkouts are also on the upswing. CFOs now have access to an array of cash flow management tools, while regtech is making compliance more manageable by providing solutions for regulatory reporting, identity control & data privacy. Finally, Web3 has opened new doors in verifying identities, staking assets, or tokenizing digital currencies. At Plug and Play, we are proud to back Italian startups shaping these trends, such as Sibill (cash flow monitoring), Togggle (Web3, identity management), and one to be announced (embedded finance, BNPL).
Our predictions for 2023
Given the rising interest rates, our prediction for 2023 is that all fintech sectors will see merger and acquisition activity increase. This is because lending business models which do not own their balance sheet will suffer, and financial institutions can exploit this opportunity to increase their customer audience.
Smart Finance Trends in the Middle East and North Africa
With a connection to markets like India, Pakistan, Bangladesh, Sri Lanka, and the Philippines, the MENA area is home to some of the most extensive remittance corridors globally. The United Arab Emirates (UAE) and Saudi Arabia represent $78bn in payments. Indispensable, cross-boarding amounts are among the most embedded elements in economic proliferation and financial inclusion.
Cryptocurrencies
The amount invested in cryptocurrencies in MENA has soared to $187m, nearly double the previous high. According to a government official, the UAE is poised to issue federal licenses for virtual asset service providers by the end of the first quarter to attract some of the world’s biggest crypto companies, which will further develop the crypto taxonomy. Concrete examples of digital assets adoption, such as buying real estate with bitcoin & ethereum from property development company DAMAC or paying for flights with Emirates using crypto, are there. The only missing piece is the buy-in from the central banks, which are currently trialing central bank digital currencies, or CBDCs. CBDCs can be built on them to create wholesale, retail products that can come in handy for banks, fintechs, and members of the public.
Fintech is the fastest-growing startup industry in Africa, with over 5,200 companies spread across the continent last year. African fintechs secured nearly $900m from local and foreign investors in 2022, with 25% allocated to South Africa. Startups that can build solutions that offer low-code/no-code infrastructure for entrepreneurs will be of growing significance in the new year. Mobile network operators (MNOs) will become more active and critical to watch. The banking sphere is competitive, and should the MNOs be granted a mobile money license; competition will become even tighter. Much research indicates that West Africa will focus on growth within mobile and online banking instead of traditional banking institutes as this is lower cost to the average consumer.
In 2022, at least two digital banks were granted a banking license, paving the way for more significant growth in the sector. Zand, a digital banking startup, obtained regulatory approval in June. The company offers corporates a range of services, including easy onboarding, fast account opening, and automated loan approval, and aims to launch personal banking solutions in the coming months.
Furthermore, new digital banking players can tap into opportunities in fields such as Islamic finance, cross-border payments and remittances, and e-commerce and small and medium-sized enterprises (SMEs), which still need to be explored despite having witnessed growing demand. ML, AI, and data analytics proliferation are prominent macro drivers.
Smart Finance Trends in Germany
Trade Republic, N26, Mambu, and Solarisbank are just a few German fintech superstars recognized globally. Germany remains a top European destination for fintech founders and investors. Though the local ecosystem has very different dynamics than the UK or France, the market holds vast potential and requires innovations. Germany has more than 700 active fintechs, making the industry one of the strongest in the innovations ecosystem. 2023 will bring higher adoption, more innovation-friendly regulations, and new fintech success stories.
Payments innovations enabled by open banking and boosted by EU regulations (e.g., PSD II) are underway in Germany. It is not a secret that cash transactions play a considerable role in the local ecosystem. That, however, leaves room for the innovators to disturb the status quo and build customers’ trust around faster and more convenient ways of transacting. In 2023, we see more people transacting using well-known payment methods like PayPal and exploring opportunities delivered by the A2A providers and instant payments. This is a long-term trend caused initially by the COVID-19 pandemic but also by the development of open banking adoption and payment infrastructure. Digital payments will account for €239bn in transactions and constitute a leading sub-segment of the German fintech ecosystem. The growing adoption is also reflected in the number of users, which are expected to hit 70 by 2027.
B2B payments
B2B payments follow the trend of B2C and P2P transaction digitization. COVID-19 pushed businesses online, boosting business-to-business payments growth throughout Europe. The trend is visible in Germany as well. PayPal for business, Mondu, Billie, Monite, and Get Paid (stealth) are examples of locally-focused innovators revolutionizing business transactions. The most compelling use cases cover B2B checkouts, enabling multiple payment methods, including instant payments and transaction financing at the Point of Sale. Other innovative implementations focus on E2E payment orchestration, allowing businesses to aggregate all payment operations in one place and automate payables, receivables, and invoicing. European startups in the space include Paddle, Payer, or Bits Technology.
Sustainable fintechs
Sustainability-oriented fintechs are getting the attention of conscious customers, especially young people. Tomorrow is one example of the green neobank aiming at clients concerned about their impact on the planet. It enables them to perform traditional banking transactions and invest their money in ESG-friendly products. On the other hand, players like Ecolytiq or Connect.earth (portfolio company) enables conventional financial institutions to embed sustainability in their offerings, addressing modern consumers' needs. Considering the German population is one of the most sustainability cautious in Europe, traditional institutions are urged to follow the wave.
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Decentralized finance (DeFi)
DeFi is an emerging trend boosted by blockchain developments and public discussion on the Central Bank Digital Euro. Companies like Cashlink, Micobo, and Bitbond are developing advanced technologies to enable tokenizing assets and processes in financial institutions, making them more transparent and accessible and transactions cheaper and faster to perform.
Investing and saving apps
Investing and saving apps for beginners and underserved groups are also gaining momentum. In Germany, like in the rest of the EU, the share of household-held assets invested in equity is far below 50%. A minority of Europeans invest in the stock market, which we expect to change slowly but steadily. Considering growing inflation, an aging society, and a switch in the mindset of people under 30 (from saving to investing), we expect growth in the number of retail investors. Starting from the more experienced users — Trade Republic, those willing to save long term — Vivid Money, and those willing to learn the basics of investing — Vitamin or Beatvest, everyone can find something for themselves.
German banks, regulators, and consumers understand the urge to innovate and adapt new technologies in the financial sector. Though the adoption is slower than in UK or France, we can observe a positive trend. The local market gives a huge opportunity to the founders considering the stable regulatory environment, high investments, demography, and subsequently changing consumer behavior, representing more openness to finance digitization.
Trends keep changing, but innovation is always there. At Plug and Play, we driveinnovation in financial services by cutting-edge startups and the largest corporations. Join our platform today.