Fintech predictions and opportunities for 2023

Which sectors have the greatest potential?

Victoria Treyger 12 hours

Contributor to Victoria Treyger

Victoria Treyger is a Managing Director at Felicis Ventures.

It's been quite an eventful year. Fintech is a long way from the highs of 2021, and while 2022 was largely about resetting the funding environment, 2023 will be a year of recalibration for fintech companies.

The good news is that large and medium-sized companies care more than ever about the impact on their bottom line. As revenue growth slows, cost savings and efficiency have become essential. Large companies are more likely to reduce internal innovation efforts and technology investments that are not essential to the business.

This opens the door for fintechs that can make real improvements to the bottom line by eliminating manual processes and saving their customers money.

First, let's look at the sectors likely to be the most challenging: lenders, neobanks and fintechs serving SMEs.

Online lenders

Loans are going to be hit hard. Lenders have to navigate three major tailwinds in today's market:

Increase in delinquency rates and write-offs. Higher cost of capital for the debt they lend. Decreased customer demand due to higher interest rates.

Focus on how technology can solve tough problems, and don't worry so much about finding what's cutting edge in fintech.

Rising chargeback rates and defaults from non-paying customers will be difficult to manage for new fintechs that have been in operation for less than five years. These start-ups don't have models fully designed to predict which customers are most likely to default.

Managing risk during a recession can be brutal, and lenders will feel it more acutely.

Neobanks

Neobanks have transformed the customer experience of traditional banks by offering better digital products at lower cost. While big players, like Chime, which have raised big capital, will be fine, expect to see consolidation among smaller neobanks.

The reality is that many neobanks have customers with small average deposit balances, and deposits are critical to long-term banking business models. Neobanks will also be victims downstream of layoffs: if one of their customers is laid off, banks will see their direct deposit flows decrease.

Fintech at the service of SMEs

Small businesses are more likely to close shop during a recession. In turn, fintechs that serve SMBs rather than large and medium-sized enterprises are more likely to lose their SMB customers. That's why you already see companies like Brex moving away from SMEs.

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Opportunities for fintechs in 2023 are in “boring” areas like fraud, compliance, payment transactions, tax and infrastructure. CFOs will be more focused than ever on impacting the bottom line. Fintechs that can demonstrate a measurable improvement in authorization and payment reconciliation rates or a reduction in fraud will be able to weather the recession and grow.