OpinionWhat’s in store for the fintech industry?
Opinion
What’s in store for the fintech industry?
“The fintech trends of embedded finance, co-opetition, consolidation, capital efficiency, and AI-driven risk management are set to reshape the financial industry in 2023 and beyond,” writes Or Liban of Airwallex
The world of finance is undergoing a dramatic transformation, driven by the rapid advancements in financial technology. As macroeconomic changes continue to shape the financial landscape, the importance of profitability becomes increasingly evident. In this article, we will delve into the key fintech trends that are poised to revolutionize the industry and discuss their implications for the Israeli ecosystem.
1. Fintech co-opetition driving profitability
Co-opetition, the concept of collaboration and competition among fintech companies, will be crucial for achieving profitability in the ever-evolving financial industry. As the market becomes more saturated, fintech companies will need to find innovative ways to stand out and meet customer needs. Strategic partnerships and collaborations will pave the way for mutually beneficial growth and allow fintech firms to leverage each other's strengths. By embracing co-opetition, Israeli fintech players can foster a more vibrant and competitive ecosystem. Those most likely to benefit? Infrastructure players.
2. Embedded finance defies the downturn
The appetite for Embedded finance and Banking-as-a-Service continues to grow as businesses seek to attract and retain high-quality and stick revenue. Payments and lending are being offered as upsell and cross-sell opportunities to clients.
This is largely driven by the economic downturn as companies want to build a worldwide presence so they can react quickly to recovering markets or better support shifting supply chains thanks to re-globalisation.
Likewise, 2023 has also seen the emergence of fast followers who are now implementing embedded finance in more competitive and imaginative ways, building on the use cases of the early adopters. The market is also widening. Israeli businesses must recognize this trend and adapt swiftly to remain competitive in a landscape where everyone can be a fintech player.
3. Consolidation: Key to surviving a challenging market
In 2023, the industry finds itself between a rock and a hard place: the need to cut costs, and less appetite for series B+ investment. The current economic climate is arguably the worst the industry has faced since it emerged at scale.
It means pre-pandemic VC-funded businesses are facing an uncertain future, having already been through rounds of cost savings. By embracing consolidation, Israeli fintech companies can secure their position in a highly competitive landscape and tap into new growth opportunities. Collaboration and consolidation will be vital for survival and sustainable growth in the coming years.
4. Capital efficiency and the rise of treasury products
Margin protection also gives rise to the next trend. Businesses are keeping a firm eye on cash flow predictability and capital efficiency. With high-interest rates making capital more expensive, it’s making treasury products far more attractive to the C-Suite and board beyond the CFO.
For global businesses, keeping control and visibility of their worldwide funds will be all the more important as currency fluctuations join rising interest rates making the conditions all the more challenging. Israeli businesses should explore these offerings to optimize their financial operations and unlock greater potential for growth.
5. AI-driven risk management in the fight against financial crime
Generative AI burst onto the scene this year with ChatGPT but, more worryingly, it has also garnered much attention among criminals who seek to use advanced AI - such as deep fake technology - to bypass traditional fraud detection. Generative AI also provides a solution, too. Like machine learning, generative AI can use large datasets to teach itself fraudulent patterns and it can build new fraudulent patterns on which to learn. It’ll make fraud teams proactive, rather than reactive. Embracing AI-driven risk management for Israeli companies will be pivotal in ensuring a secure and resilient financial ecosystem.
The fintech trends of embedded finance, co-opetition, consolidation, capital efficiency, and AI-driven risk management are set to reshape the financial industry in 2023 and beyond. Financial institutions, fintech companies, and regulators alike must adapt to the changing landscape, seize the opportunities presented by these trends, and collaborate to build a more prosperous future. By embracing fintech and its transformative potential, we can pave the way for a thriving and resilient financial industry in Israel.
Or Liban is Airwallex’s Head of Israel and the Middle East
