Financial technology companies (Fintech) and traditional banks are competing to create new standards in the industry. However, when new technologies develop, conventional banks will need to change rapidly to meet the needs of their consumers. Consequently, this will trigger the development of novel business models across the financial services industry.
Traditional financial service providers must completely reevaluate their business models in light of customers' continued adoption of new methods for accessing and using financial services. Because of technological advancements and sociological shifts, consumers have become the primary agents of transformation.
As expected, the pandemic has altered our lifestyles, workplaces, and consumer habits. Therefore, conventional banks and Fintech need to find innovative ways to gain a competitive edge in this environment. As we look forward to 2023 and beyond, we can identify seven fintech trends that will be major drivers of this transformation.
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1 - Mobile Wallets Eliminate The Internet Barrier
There's no denying the rise in popularity of digital payment trends and mobile wallets. In 20222, the total value of all transactions made using mobile and digital wallets is predicted to reach approximately $14 trillion. And at the rate at which Fintech is developing, a trillion dollars in sales is a mere blip. The United States lags behind China, Norway, the United Kingdom, and Japan in mobile wallet acceptance, although this might change as technology improves.
More and more places are beginning to accept payments made using mobile devices and digital wallets, not only in physical stores. Today's most popular mobile payment and digital wallet platforms support in-app purchases. The ability to transact through a web browser and other online payment options are characteristics of several of these programs. Mobile wallets can increase their web presence as their use becomes more widespread.
2 - Machine Learning And AI Are Armed And Ready For Battle
Card-not-present fraud alone is expected to cost retailers $130 billion worldwide over the next four years, which is large enough to impact financial institutions and cripple certain businesses3.
Up-and-coming protection against payment fraud is artificial intelligence (AI) and machine learning. These systems are designed to examine activity patterns and identify outliers in the payments processing environment. The result is that digital payment trends like real-time fraud detection are quicker and less likely to generate false positives.
The difficulty currently, says the auditing company Deloitte5, is in integrating new technologies into the established payments environment. Payment processors are already using artificial intelligence and machine learning. For instance, research published in the Journal of Payments Strategy & Systems indicated that fraud detection rates rose by 5% using AI-driven solutions, while false alarms decreased by 30%.
3 - Wallets With Store Names On Them Make Great Strides
In 2018, there was a rise in trends in digital payments, like digital wallets branded by certain retailers. Forty percent of the 55 million customers who used a mobile wallet to make an in-store purchase in 2016 are projected to have used the Starbucks mobile payment app6.
There's the future growth potential for retail-themed mobile applications, albeit some may thrive more than others. Walmart, like Starbucks, is trying to establish itself as a separate player in the payments market, as does Uber. Target may still need to fine-tune a few things before it can capture the market share7, even though it launched Wallet in 2017. The retailer just stated that it would begin accepting payments made using wallets not affiliated with Target.
4 - Next-Generation Security Digital Payment Trends Inspires Trust
Improved payment security benefits both consumers and business owners. Greater client confidence in the payment system may boost earnings and reduce refund requests. Consumers may feel more at ease regarding the safety of their data. Tokenization, biometrics, and EMV (the chip that allows users to pay with credit cards by putting them into a card reader rather than swiping them) are examples of new payment security technologies that have emerged to meet these demands.
There is a rising pattern, as measured by these statistics. According to the National Retail Federation, EMV adoption8 has reached 99 percent among big shops and 81% among small businesses. Only a few years ago, less than 400,000 stores in the United States accepted EMV cards; now, that number has skyrocketed. More than 22% CAGR growth is forecasted for the tokenization industry from 2018 to 2023, bringing the overall market value to $2.67 billion as retailers invest in cutting-edge payment security solutions9.
Both organizations and individuals see fingerprint and face recognition technology as a promising new frontier in the fight against identity theft. According to a recent survey, sixty-three percent of Americans would rather use biometrics than signatures, PINs, or passcodes to protect their credit and debit cards10.
5 – Gen Z Goes Entirely Digital
Gen Z, iGen, or post-millennials—whatever you want to call them—are already affecting the financial services sector. The eldest members of Generation Z are now in their early to mid-20s, and being the first real digital generation, their spending and financial habits reflect this.
The apathy of today's youth about cash reflects a greater trend away from cash and toward digital and card payments. Compared to earlier generations, those born in the 2000s are four times less likely to pay using cash, with just 6% of transactions conducted using cash11. In contrast to 201512, when just 24% of Americans reported never using cash, this figure has increased to 29% today.
6 – Alternative Payments Acquire Swift Popularity
With an anticipated retail transaction value of over $1 trillion worldwide13, contactless payments may be the swiftly arriving dark horse of the payments arena. A.T. Kearney, a consulting company, projects a significant increase in contactless payments over the next several years as the technology becomes more convenient and faster. Over 95% of all new payment terminals support contactless payments, and the company expects this trend to accelerate further by 202214.
Over 75% of millennials and 69% of Gen Xers utilize P2P payments using platforms like Zelle and Venmo to send and receive money. Competitors for the P2P sector are expanding, with applications like Square Inc.'s Cash poised to enter the fray15.
7 - Intelligent Vehicles Automatically Pay At The Gas Station
One of our last fintech trends is already used in "smart" homes, IoT is finding its way into automobiles. With the advent of the "connected automobile," it may soon be possible to fill up without ever having to take out your Wallet.
While Jaguar and GM were among the first to use in-car payment systems, current leaders Honda and Hyundai are pushing the technology to new heights. Hyundai is working on linked vehicle technology that would give a comparable range of functionality16 to Honda's Dream Drive, allowing drivers to make petrol, parking, and food purchases via voice commands.
See also: Post COVID-19: The Rise or Decline of Fintech?
In the coming year, these fundamental shifts will pave the way for even more innovation and the creation of new business models in the financial services industry as technology and markets mature. Due to these developments, banks and Fintech may work together and expand their services in payments, loans, digital banking, fast credit, and more.
In other words, buckle up because the proliferation of mobile devices like smartphones and tablets has sparked a technical trend that has led to explosive development in online shopping (also known as "e-commerce") and mobile shopping (also known as "m-commerce"). These seven tendencies in payment technology are only the tip of the iceberg.
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