Web3, environmental, social, and governance (ESG) frameworks and embedded finance top the C-suite investment agenda for 2023 according to research released by FIS.

The inaugural 2023 Global Innovation Report asked c-suite and senior executives in financial services (banks, insurers, capital markets firms, and fintechs) and non-financial businesses (retail, restaurants, travel, gaming, digital and technology providers) globally about their key areas of financial investment in 2023.

According to the study, most executives across the globe say they expect a major or moderate impact from the following areas of fintech in the coming year: ESG (84%), embedded finance (84%), decentralised finance (DeFi) (82%), the metaverse (80%) and cryptocurrencies (77%).

These projections are largely mirrored by UK executives, who expect innovation in these spaces to impact their business in 2023: ESG (84%), embedded finance (84%), DeFi (81%), the metaverse (81%), and cryptocurrencies (73%).

UK Firms are Planning for Digital Assets and Next Generation Internet

The next generation of the Internet, referred to as Web3, centers around decentralised infrastructure like blockchain technology and includes innovations such as cryptocurrency, DeFi and the metaverse. According to the FIS research, the UK is keeping pace with other countries’ investment in Web3 as organisations around the world look for the next growth opportunity.

  • While more than half (59%) of respondents expressed no current interest in developing cryptocurrency services, only 17% of non-financial firms and 4% of financial services firms told FIS they do not anticipate offering such capabilities in three years’ time. Financial services firms cite a lack of
  • clarity around regulations (25%), lack of interoperability between platforms (22%) and a lack of ecosystem services to support crypto (21%) as barriers to wider adoption of crypto in their organisation.
  • Non-financial services firms shared similar concerns, however, 24% noted a lack of crypto services from banks and other financial services providers as a barrier.
  • 55% of financial services firms are actively researching potential opportunities in the metaverse, while 58% of non-financial businesses say it will be strategically important to have a presence in the metaverse in the next three years.
  • More than half of UK financial services firms (51%) recognise DeFi to be a major growth opportunity for their organisation, according to the recent study.

Meanwhile, 51% of firms in this study say their risk management frameworks are incompatible with most digital assets, which could be roadblock for wider adoption of DeFi in the UK.

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By GlobalData

Embedded Finance to Empower UK Businesses in 2023

Embedded finance is when consumers have unique, tailored financial services delivered to them at their point of need by non-financial companies. Embedded payments are most familiar to consumers, enabling the speed and convenience of paying for goods and services in an app, with just a single click. New use cases across banking, lending and investing are emerging and the drive to deliver embedded financial services is on the rise in the UK.

  • Over 8 in 10 (84%) UK companies say embedded finance will impact their organisation as consumers demand more convenient ways to pay, bank and invest, in the next 12 months
  • 38% of financial services and fintech firms will invest significantly in developing embedded finance products within 12 months, according to the study.
  • Meanwhile, 55% of non-financial firms that see an impact from embedded finance on their business told FIS they will respond by increasing their tech or research and development budget this year.

“While the macroeconomic environment in the UK and around the world poses a real challenge to businesses of all kinds, those that invest in evolving their technology capability to serve tomorrow’s consumer will find ways to thrive. What’s clear from our research is that a wide range of business leaders see embedded finance, Web3 and ESG as drivers of growth despite recessionary headwinds,” says Silvia Mensdorff-Pouilly, SVP Banking and Payments, Europe, at FIS.

“At FIS we view early adoption in these innovative spaces as critical to success over the next few years—the businesses investing now will be the ones succeeding in years to come.

She adds: “It is going to be a very busy couple of years in fintech. I am excited that ESG is at the top of everyone’s agenda but ESG is very broad so executives will have to figure out how to communicate on it and what initiatives to put into effect.

“These developments are all quite complex and it is so important not to leave people behind. As we implement these complex financial products, we need to be able to offer them to people who understand what they are buying.

“If we do not, then we are on shaky ground. It is super important that financial education is a priority especially as we digitise more and more.

So I made a new year’s resolution that I will lobby governments across Europe to include financial education within the school curricula.”

ESG is Widely Seen as a Competitive Must-Have in the UK

ESG is the systematic consideration of environmental, social and governance factors alongside financial factors when making decisions about investments, business practices and commercial relationships. If supported by the right technology, ESG can open new growth opportunities and competitiveness in the UK market.

  • 60% financial services firms in the UK say ESG offers an opportunity to improve their competitiveness in the market.
  • 41% of financial services firms told FIS they are developing new ESG products and services.
  • To address difficulties in accessing and analysing ESG data, 56% of financial services firms say they are investing in technology to improve reporting and disclosures, giving clients more transparency into ESG scores and/or providing more granular ESG ratings of assets and securities.