The Fintech Lesson 2023: Of Turkeys and Thanks
The year 2023 brought a mixed bag of successes, challenges, and cautionary tales for the banking and fintech sectors. With interest rates rising, the end of easy capital for startups, and the continued evolution of consumer behavior, financial services have been navigating through a transformative period. This blog highlights key insights and fintech lessons 2023, focusing on the ups and downs of the fintech space and what they signal for the future.
The Age of Consumer Fintech Hits a Roadblock
The once-thriving era of consumer-focused fintech faced significant hurdles this year. High-profile partnerships, such as Goldman Sachs’ collaboration with Apple Card, faltered under the weight of unrealistic expectations and rising costs. While the venture aimed to showcase how big banks could embrace fintech, the numbers told a different story, with massive losses overshadowing early optimism.
This trend reflects a broader struggle within consumer fintech. Rising interest rates and tighter investor scrutiny have exposed vulnerabilities in startups built on unsustainable models. Companies like HMBradley and Petal faced challenges, with some pivoting away from direct-to-consumer services to infrastructure solutions. The honeymoon period of easy capital and rapid scaling has ended, demanding more robust strategies from fintech players.
Fintech Partnerships: Between Turkeys and Triumphs
Partnerships between banks and fintechs were once heralded as a seamless solution to modernize banking. However, the reality has proven more complex. While these collaborations promised easy deposits and innovative customer experiences, they often required substantial effort and delivered mixed results.
Banking-as-a-service (BaaS) emerged as both an opportunity and a regulatory challenge. Initially praised for its potential, it came under intense scrutiny as regulators cracked down on transparency and accountability in these partnerships. For banks, especially smaller ones, the takeaway is clear: collaboration must be approached with careful alignment of goals, compliance, and customer needs.
The Return of Interest Rates—and Its Ripple Effects
For years, financial services operated under a Zero Interest Rate Policy (ZIRP), creating a false sense of security around asset sensitivity and funding models. As interest rates rose, the industry faced a rude awakening. Some banks, unprepared for the shift, struggled to adapt, revealing cracks in strategies that thrived in a low-rate environment.
The transition wasn’t just challenging for institutions. Consumers also grappled with new dynamics, including higher borrowing costs and an increased focus on savings products. Interestingly, the spotlight returned to certificates of deposit (CDs), as consumers sought higher returns on their savings. While CDs may not capture mainstream excitement, their revival highlights a shift in consumer priorities amid economic uncertainty.
Fintech Lessons 2023 From Regulatory Changes
This year also brought significant regulatory developments. The Consumer Financial Protection Bureau (CFPB) introduced new rulemaking efforts aimed at modernizing outdated financial laws. Meanwhile, the FDIC faced criticism, not just for its handling of institutional risks, but also for its internal culture, raising questions about governance within regulatory bodies.
For fintech and banking leaders, these shifts underscore the importance of anticipating regulatory changes and fostering transparent practices. The days of flying under the radar are over, and those who proactively adapt to new standards will find themselves better positioned for long-term success.
Contagion, Relationships, and Risk Management
The banking sector also witnessed instances of contagion, where issues at one institution rippled across the industry. The collapse of Silicon Valley Bank triggered fears that spread to Signature Bank and beyond, even in cases where connections seemed tenuous. This phenomenon highlighted the risks associated with relationship-driven banking models and the rapid dissemination of information in today’s interconnected world.
To mitigate these risks, banks must reevaluate their reliance on specific client segments and build diversified, resilient portfolios. Transparency and communication during crises also play a critical role in maintaining trust and stability.
The Role of Technology: From AI to Real-Time Payments
This year saw rapid advancements in technology, with artificial intelligence (AI) taking center stage. While some hailed AI as a transformative tool for fraud prevention and customer engagement, others approached it cautiously, recognizing the challenges of implementation and data management.
Real-time payments (RTP) and the Federal Reserve’s FedNow system also made headlines. However, adoption has been slower than anticipated, leaving questions about their long-term impact. Despite the excitement, these technologies require significant investment and cultural shifts within institutions to realize their full potential.
Looking Ahead
As we reflect on 2023, one thing is clear: the financial services industry must remain agile in the face of change. Rising rates, shifting consumer expectations, and evolving regulatory landscapes demand a new playbook—one built on collaboration, innovation, and resilience.
While this year brought its share of “turkeys,” it also offered reasons for optimism. From renewed interest in savings products to the potential of bank-fintech partnerships, the future holds opportunities for those willing to learn from the past.
By embracing these lessons, the industry can navigate the next chapter of financial innovation with confidence and purpose. To learn more, listen & subscribe to the Breaking Banks podcast.
