The global fintech space is scaling rapidly. With a CAGR of 20.5%, the market is expected to reach nearly $700 billion by 2030. However, recession concerns and geopolitical events cloud some economic forecasts, implying that financial trouble may be on the horizon for 2023. Despite this, we foresee the fintech space thriving next year and beyond.

Why might the fintech industry excel as other industries struggle with low performance? The pandemic accelerated digital momentum. As a result, millions of users now rely on mobile wallets or digital services to accomplish tasks they traditionally handled inside a brick-and-mortar bank. And as smartphones become increasingly ubiquitous, this transition is only natural. 

Let’s dig into the fintech trends we expect to drive industry growth in 2023 and their implications for traditional financial institutions (FIs).

Leading FIs will reinvest in fintech

It’s inevitable: uncertain economic conditions will soon persuade some banks and credit unions to reduce digital spending. In so doing, they’ll naturally reduce the number of new features added or enhanced within  their digital platforms. Nearly 80% of Americans now prefer to use digital channels to interact with their bank, so the losses associated with a scaled-back online presence could be massive. Since experts estimate digital banking will only grow from here, those losses may be devastating. Statista predicts that 216.8 million bank users will go digital by 2025.

Knowing this, high-performing FI leaders will choose not to scale back their digital spending. Instead, they will reinvest in value-add benefits for their mobile users in 2023, offering services like credit score solutions and financial wellness tools. This innovative strategy will drive more traffic towards mobile wallets (and away from competing fintechs that may dilute an FI’s ability to advertise and finance with their users).

Although a digital-first approach to banking is always prudent, it’ll prove especially crucial next year as economic outlooks remain cloudy. Innovative FI leaders are currently searching for the biggest bang for their buck. The crowded digital space presents an opportunity for traditional FIs to focus their revitalization efforts on the most users at the best time.

Early fintech adopters will start to outpace competitors

Just as banks and credit unions that didn’t have an aggressive digital strategy over the past decade are still trying to catch up, institutions that pull back on digital investments during next year’s economic uncertainty will face challenges in years to come. On the other hand, those institutions that backed digital branches during the Great Recession are far ahead of those that did not. This trend will continue well into 2023 as early adopters of fintech solutions begin to pull away from their traditional competitors.

The market will see this play out in a couple of ways. Most notably, innovative FIs will switch their focus from digital implementation to digital excellence. In other words, they’ll stop focusing on simply having a digital platform and instead focus on crucial requirements like user experience (UX) and user interface (UI). Highly customizable and easy-to-navigate apps are critical. Many consumers crave an all-in-one financial destination where they can perform traditional banking tasks such as sending checks alongside modern offerings like tailored financial wellness tips and information. FIs that provide a digital financial ecosystem will outperform competitors that offer more limited functionalities.

Fintechs driving improved UX and UI through graphical improvements and value-add services will see gains from this trend.

Fintechs will need to demonstrate more bite than bark

Consumers are overwhelmingly going digital and asking more of their banks. As a result, FI leaders must strongly consider investing in financial wellness products. But they will also need to practice caution and remain informed before choosing a product. Fintechs that provide a clear ROI and strengthen consumer-bank relationships will ultimately pull ahead.
Regardless, the pandemic accelerated fintech developments, and that momentum will continue. More and more consumers rely on technology and apps to get the financial advice they’re after. In fact, in 2021, over 40% of core retail banking sales started through digital channels. This trend will contribute to major fintech growth beginning in 2023 — and continuing well into the future.