Fintech Industry Review 2023: Instant Payments, BaaS, and GenAI

2023 has been a year of transformation for the fintech and banking sectors, witnessing disruptive innovation and significant developments across various aspects of their services. FinTech Futures takes a retrospective look at this eventful year, featuring insights from industry giants like JP Morgan Chase, Citi, IBM, Nova Credit, and Arteria AI.

Artificial intelligence (AI) has firmly established its presence across all facets of financial services. In particular, the emergence of generative AI (GenAI) has propelled AI into credit decisioning, operational efficiency, risk management, anti-fraud efforts, and more. Notably, Arteria AI, a startup automating manual documentation processes, raised $30 million in a Series B round in October. Shelby Austin, Arteria AI’s CEO, described 2023 as «a formative year in the world of fintech.» Despite AI’s meteoric rise, challenges such as a demanding macro environment and increased capital costs for startups persist.

Nick Levy, consulting partner at IBM, emphasized the remarkable surge in AI adoption, driven by the fintech and banking sectors’ pursuit of intelligent technologies for innovation. Regulatory support for AI, including GenAI, has also grown, with IBM introducing its compliance toolkit, Watsonx.governance.

Europe has been at the forefront of facilitating instant payments, with a focus on unifying payment systems to realize the SEPA Instant Payments system. Regulators mandated that banks and payment service providers offer instant payments, extending these benefits to consumers and businesses across the continent. The final rules received approval in November. A parallel initiative in the United States, the FedNow system, has gained traction, boasting 331 participating institutions.

JP Morgan Payments, among the first participants in FedNow, launched a Tap to Pay on iPhone offering to streamline omnichannel payment acceptance. The South African Reserve Bank introduced PayShap, a real-time rapid payment platform, while the Central Bank of the UAE launched Aani, its instant payments platform, in October.

BaaS and embedded finance have emerged as convenient options for fintechs and non-bank players to offer banking services without navigating licensing hurdles. 2023 witnessed several notable developments, including Griffin obtaining its banking license, FIS acquiring BaaS startup Bond, Monese launching a «coreless» banking platform, and Citi introducing embedded digital payment products.

Regulators have closely monitored BaaS, issuing guidance to manage risks associated with third-party relationships. Grasshopper, a digital commercial bank in New York, observed a sector downturn due to regulatory pressures but expects the resilient players to emerge stronger.

Promoting financial inclusion remained a significant trend in 2023. Consumer fintech startup Salmon launched in the Philippines, providing underbanked individuals the ability to spread payment costs at the point of sale. US bank Chase reported increased engagement with its Score Planner tool, offering credit score improvement recommendations. Nova Credit emphasized the need for innovation in credit underwriting, highlighting the US Consumer Financial Protection Bureau’s rule to promote open and decentralized banking.

Efforts were made to address the cost-of-living crisis and empower consumers to maximize their savings. The UK’s Financial Conduct Authority took action against disproportionate interest rate rises for savers, prompting startups like Kroo and Raisin to enhance their savings offerings, aiming for transparency and better value.

2023 has been a productive year for the fintech and banking sectors worldwide. The year showcased the power of partnerships, with a growing emphasis on consumer-centric solutions. Regulatory support has extended to protect both industry players and consumers, ensuring the delivery of timely and effective financial products and services.