The fintech revolution: What will shape the industry in 2023

As we approach the end of 2022, it’s time to start looking ahead to the trends and developments shaping the fintech industry in 2023. The following year promises to bring challenges and opportunities to fintech companies and their customers, from new technologies and regulatory changes to shifting consumer preferences and business strategies.

In this article, some of the industry’s leading fintech experts will explore their predictions for 2023 and consider how they may impact the industry. From the ongoing implementation of making tax digital to the growing importance of environmental, social, and governance (ESG) concerns, there are lots to look forward to in the world of fintech.

In the big legislative race, Europe is playing catch up

Approaching 2023, Open Banking and tax are expected to be two key areas of change, driven by legislative changes or the lack thereof. In Europe, there is a need to catch up with other regions in adopting open banking, while tax is facing challenges such as implementing Making Tax Digital (MTD) and the deadline for BEPS 2.0 compliance. These changes will bring challenges and opportunities for fintech companies and their customers in the coming years.

According to Eyal Sivan, left, Head of Open Banking at Axway, Europe’s progress in open banking has been slow: ‘Although Europe pioneered open banking with their PSD2 regulations, their efforts have been considered by many to be lacklustre at best and an outright failure at worst. Balkanization of standards, inconsistent implementations, and tepid enthusiasm on the part of the incumbent banks have led them into Gartner’s Trough of Disillusionment.’

However, Sivan predicts that this will change in the coming year: ‘As the Europeans observed the successes of those that followed, notably in Brazil and the Middle East, they started to revisit their approaches. While PSD2 was centred around payments with data sharing added afterwards, the impending updates to legislation will more than likely have a broader focus on generalised data sharing, open finance, and even open data as Europe catches up to its peers.’

The same impact of legislation changing the game is valid for the tax industry. According to Russell Gammon, right, Chief Solutions Officer at Tax Systems, the effect of Making Tax Digital (MTD) on the tax industry is expected to continue into 2023: ‘HMRC and tax professionals will have learnt from MTD for VAT which has now become largely ‘BAU’ for businesses, and are now dealing with the next wave as MTD for ITSA takes centre stage for the next 18 months or so.’

However, Gammon notes that there is still a lack of clarity from HMRC on MTD for Corporation Tax: ‘MTD for Corporation Tax is set to pilot in 2024, yet there has been continued silence from HMRC for over a year now. This leaves many uncertain about whether they’ll expect to find out more about this legislation in 2023 or not until the year after.’

Gammon advises companies not to wait for this legislation but to use what has been learned from MTD so far to prepare for what’s to come: ‘For many, this will be very important – even with the best tech in the world, the implementation will involve a culture and process change… One thing for certain is a need for clarity on the reporting timetables and schedule – will HMRC press forward with quarterly reporting? This will be the cornerstone of the legislation and will drive the technology that is needed for compliance. A formal line in the sand is needed in 2023… With the importance that this strategy will have in many organisations, my advice is don’t wait for the legislation. Take what we have learnt from MTD so far and use it for CT returns so that you are prepared for what’s to come when it eventually arrives.’

As balloons will tell you, there’s a cost to inflation

As we head into 2023, businesses and individuals should be prepared for inflation pressures that will increase the cost of living and operating. Hugh Scantlebury, CEO and Founder of Aqilla, warns that it will be essential to monitor income and expenses to manage these changes closely and effectively.

‘The serious problem for next year comes from inflationary pressures, causing rises in food, fuel, energy, and resources. For businesses and individuals, the cost of living and operating will go up. Although salaries will rise accordingly, all those things must be accounted for, so we will need to keep a much closer eye on what’s coming in and what’s going out,’ he says.

He also emphasises the importance of having a solid analytical reporting system in place to identify changes and make necessary interventions. ‘Looking at the accounting space, it’s imperative that systems cope with those changes and monitor gross margins, month-on-month profitability costs and overheads. Having a decent analytical reporting system is essential in identifying heat graphs to show where changes are happening and make early interventions when necessary.’

However, Scantlebury acknowledges that managing these changes may lead to an increase in workloads. ‘The management of all this will, unfortunately, lead to an increase in workloads, but it’s imperative that it is done. We have seen the consequences if you don’t: things can get out of control very quickly – just look at Stripe, Amazon, Meta, and Twitter. It’s not just important to have a good business. You’ve got to run a good business. And that’s all down to accounting and finance – it’s tracking all the different activities, so you don’t suddenly discover big holes in your finances.’

The effects of inflation and the economy will also heavily affect the tax industry in 2023. According to Bruce Martin, CEO of Tax Systems, ‘2023 is going to be all about doing more with much less’. ‘Not only will all businesses be tightening their rising costs, but there is a severe shortage of skilled professionals in the tax industry’, he adds.

The demand for professionals with knowledge of technology is high, but the supply of quality developers is being stretched thin. To address this ‘war for talent’, Martin suggests that the finance and tax sector should undergo a digital transformation, automating manual tasks and focusing on training and development’.

ESG: turning the market from black to green

As we look towards 2023 and beyond, increasing environmental, social, and governance (ESG) pressures will push financial institutions and other large businesses to adopt net zero policies. According to Andrew Doukanaris, left, Business Director Fintech Europe at Intellias, ‘ever-increasing environmental, social, and governance pressures will drive financial institutions, like most other large businesses, to introduce net zero policies. Faced with the very real threat of climate crisis and plastic pollution, emissions will be minimised and the use of plastic reduced. In 2023 consumers will be encouraged to replace traditional plastic cards with e-wallets and mobile contactless apps instead.’

While younger generations, particularly Gen Z and Millennials, are likely to be the first to embrace these changes wholeheartedly, it is expected that older generations will eventually follow suit. Doukanaris predicts that it will take around 10 years for plastic cards to be completely phased out but notes that they will likely see a significant decline in circulation as early as 2023. ‘Plastic cards will not be eliminated completely in 2023, but in around 10 years from now, I predict there will be no plastic cards in circulation,’ he states.