In our new series, we’re talking to our VCs and investors to hear their insights and market predictions for fintech, ecommerce and tech in 2023.
We spoke to Tom Mendoza, Partner at EQT Ventures, to hear what we can expect from the fintech sector this year.
Before joining EQT Ventures, Tom managed the international expansion of HotelTonight across the UK and Ireland and founded his own business, Tep, which he sold in 2018. At EQT Ventures, Tom focuses on fintech and crypto opportunities.
2023 looks to increase the adoption of tools and services that support businesses’ finance functions. Within this challenging economic climate, companies will turn to fintech to help them navigate the coming year.
“Working capital is the number one challenge of most SMBs, and it's only going to get worse as suppliers increase payment terms and others go bankrupt,” says Tom. “SMBs are going to do all they can to recover receivables fast but undoubtedly will need to tap into debt and alternative funding sources to make it.”
Securing funding in an unpredictable economic climate can be challenging, but it’s by no means impossible. Alternative sources of funding that don’t rely on traditional business loans and overdrafts from banks will become increasingly popular. Crowdfunding, revenue-based financing, and credit lines from financial services like Juni look to give businesses other options to free up working capital and continue their growth trajectory.
Financial automation could be the answer as teams become smaller and businesses focus heavily on optimising working capital.
Tom predicts that we can expect more “automation of critical processes like accounts receivable and payable.” The result? “This will enable leaner finance teams and lead to improvements in working capital.”
By automating time-consuming tasks like accounts receivable and payable, finance teams save valuable hours that can be spent elsewhere and are likely to have fewer errors.
One of the most significant threats to working capital in ecommerce is the gap between producing products and selling them. Instead of spending time gathering the right data to report on to know where pain points are coming from, automation enables finance teams to move faster and more accurately so they can find the right solutions.
“The economic downturn will inevitably make financial planning a higher priority for all SMBs,” says Tom. “As inflation soars, payment and financing terms worsen, and revenue growth slows down, SMBs need to have a tighter grip and optimise their finances to make it through the recession and come out on the other side stronger.”
Tom anticipates the adoption of next-generation financial planning and analysis (FP&A) in the coming year. “Finance teams will drive more accurate forecasts and budgets, helping to steer the right actions at C-level during turbulent times.”
When focusing on financial planning, teams want to deliver high value. Instead of simply giving numbers, finance teams will take an advisory role by providing insights. The goal is for technology to enable teams by automating information gathering and reporting. Then, people can add value by turning data into useable information and strategy to inform C-level decision-making.
Blockchain has become a buzzword you will most likely associate with Bitcoin and cryptocurrency. But, it has some interesting implications when it comes to more familiar financial services this year.
“Once the regulation comes into place, we expect the blockchain to play an increasing role in cross-border payments and parts of the capital markets,” says Tom.
After a recent delay, European Parliament officials are expected to vote on the Markets in Crypto Assets (MiCA) bill in April 2023. The bill aims to create a regulatory framework for the crypto industry. As a result, blockchain could be used for more financial services.
Blockchain is essentially a record-keeping system, or ‘public ledger’, split between different computers. One of the main benefits is that it acts as an absolute log, as the system is created to show a consensus between records. If anyone edits them, it’s easy to see if someone has manipulated the history.
Blockchain can offer almost instant cross-border payments without needing intermediaries. Meanwhile, it could provide a new way of managing data and sharing across capital markets.
Generative AI is set to impact a wide range of industries, from marketing to healthcare. But, it’s within financial UI that Tom places his predictions.
“Generative AI will drive innovation in the UI for both consumers and SMBs,” says Tom. “Models for banks and wealth management could see big changes from generative AI, while AI-powered automation can revolutionise customer support and fraud detection.”
It’s easy to see how generative AI could improve customer support – many companies are already using chatbots to manage customer interactions. The sophistication of generative AI will only enhance the experience, benefitting the business and its customers. But, the implications are even more interesting when it comes to fraud detection, wealth management and banking.
Generative AI could analyse customer data and not only identify fraud when it happens but also predict the likelihood of it happening in the future. Beyond fraud, there’s the potential for generative AI to offer banks and finance teams summarised insights thanks to its natural language processing capabilities.
Automation is set to play a vital role in fintech this year by transforming how companies manage working capital, avoid fraud and do their financial planning. This year’s challenges are driving innovative solutions that will benefit businesses beyond 2023.
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