What does it take to be a fintech analyst? You have to be willing to get things wrong on occasion. Along with that, you need to be able to admit when you’re wrong. This becomes most apparent every December, when it comes time to share predictions on what the fintech industry can expect in the coming year.
Many of my predictions for 2023, which you can find published in this month’s eMagazine, were shaped from looking back at the trends I predicted for the latter half of 2022. Here’s a look at some of those trends, along with an assessment of how I did and a prediction for how the trend will fare in 2023.
Prediction #1: Beginning the era of “neo super apps”
How I did:
Wrong. With every other fintech company claiming to be a super app these days, this prediction is slightly subjective. In my opinion, however, we haven’t entered an era of neo-super apps.
What to expect:
A year ago, I would have identified the first potential U.S. super app as PayPal. However, Walmart has been making strides in this area and is getting ready to compete in the fintech arena. As a bottomline, we are still a ways out from super apps taking over fintech.
Prediction #2: Accelerating M&A activity
How I did:
Somewhat correct. In comparing M&A activity to pre-pandemic 2019 levels, M&A activity has indeed increased. Though year-end data for 2022 hasn’t been published yet, according to FT Partners’ Q3 2022 Fintech Insights Report, there have been 998 deals so far in 2022. While this represents a slight increase over the 986 M&A deals conducted in 2019, it is a large slide from the 1,486 deals closed last year.
What to expect:
The recent economic decline is causing companies to watch their pockets closely and mitigate risk where they can. Many large fintechs have already made major layoffs in order to maintain their bottomline or reduce their burn rate. These factors will contribute to both lower deal numbers and deal volume in 2023.
Prediction #3: Dwindling conversation around digital transformation
How I did:
Correct. While the need for digital transformation across verticals has not subsided, the continuous pulse of conversation around digital transformation has eased up.
What to expect:
This does not mean that digital transformation is over. In fact, many of the conversations we can expect to have in 2023– such as embedded finance, banking-as-a-service, and personalization– are built on the foundation of digital transformation.
Prediction #4: More discussion around Central Bank Digital Currencies (CBDCs)
How I did:
Correct. In the U.S., the Federal Reserve has not taken much action toward creating a CBDC other than issuing a discussion paper on the topic. However, there has been a flurry of activity around CBDCs across the globe. In December of 2021, nine countries had launched a CBDC, while today, 11 have launched their own CBDC. Similarly, CBDC development has increased. In December of 2021, 14 companies had a CBDC in development, while today there are 26 countries with a CBDC in development.
What to expect:
In the U.S. the discussion around CBDCs will progress, especially now that the FTX scandal has brought to light the need for more governmental intervention and oversight.
Prediction #5: BNPL takes a backseat
How I did:
Wrong. Though there have been many publications warning consumers about the dangers of misusing BNPL tools, we are still seeing a regular pulse of new BNPL launches throughout the industry. And while the CFPB published a study on the growth of BNPL and its impact on consumers, the organization has not implemented any formal regulation restricting BNPL players’ movements in the market.
What to expect:
I’m refreshing this prediction for 2023. Consumers have over-leveraged themselves when it comes to BNPL, and it is not only starting to catch up with them, but it is also catching up with the BNPL companies themselves. According to the CFPB’s study, “Lenders’ profit margins are shrinking: Margins in 2021 were 1.01% of the total amount of loan originated, down from 1.27% in 2020.”
Additionally, though the CFPB has been vague on the timing, there is looming regulation facing BNPL tools. “Buy Now, Pay Later is a rapidly growing type of loan that serves as a close substitute for credit cards,” said CFPB Director Rohit Chopra. “We will be working to ensure that borrowers have similar protections, regardless of whether they use a credit card or a Buy Now, Pay Later loan.”
Subsiding talent acquisition
How I did:
Correct. Though companies will always face difficulties trying to secure quality employees, we are no longer seeing the tech talent war that we experienced in 2021. In fact, in the latter half of 2022, we saw the opposite. A handful of fintech companies, including Plaid, Autobooks, MX, Klarna, Brex, Stripe, Chime, and more, have laid off sizable portions of their staff.
What to expect:
The painful reality is that the layoffs will likely continue into 2023 as the economy continues to contract.