Citizens of Uzbekistan will use online payments more often, more monopolistic ecosystems will appear on the market, and fintech startups will have to fight for their survival — here are five key trends that will change the financial technology industry in 2023.

1. An outflow of capital as a side effect of «black swan» events

A lack of norms is the new norm, as analysts were saying back in 2020 at the start of the pandemic. They weren’t wrong: every year brings a new wave of changes that are so global in their effect that simply recognising them takes at least six months. And every time a business prepares a new anti-crisis strategy, it constructs scenarios for successfully managing dilemma — until the next collapse arrives. 2022 is a good example of this. This year once again the balance of power on the global market was changed which led to inflation and a worldwide economic downturn. This, of course, is the “black swan” paradox, a theory formulated by analyst Nassim Taleb. Sudden events don’t just break a paradigm, they break it in a way that cannot be predicted.

This wave also affected the fintech market in Central Asia. In the first half of 2022, the region experienced a boom due to the growing number of migrants from Russia. Countries in the region were preparing for an influx of talent and capital but, ultimately, they ended up on the brink of economic stagnation. How did this happen? At first, the migrants deposited money into local banks, often substantial sums. Subsequently, however, they began to gradually and systematically withdraw it. The money did not remain in the economy, which led to a reduction in liquidity on the local market.

Regulators reacted quickly and began to introduce restrictions on cross-border transfers and payments, which ultimately had a negative impact on the investment climate. The influx of capital and people led to the introduction of tougher regulations. For example, banks in Uzbekistan began to ask people where their money was coming from when they attempted to take out more than $1,000.

Uzbekistan which had initially aimed at close integration with the global monetary system ended up taking a step backwards. When we were on the brink of a global financial crisis, no one was prepared to get involved in risky financial experiments. As a result, liberal reforms were pushed back, and the pace of economic growth slowed down. In 2023, the majority of Central Banks will continue to engage in anti-crisis management, and for business, especially in the field of fintech, this is probably bad news. Many companies are, however, psychologically prepared for this. Regulators are constantly introducing new initiatives, but compliance requires further resources.

2. A reduction in fintech diversity: strategies, not innovations, are going to prevail

The reduction in liquidity is functioning as an anchor for the economy; all the processes are slowing down and becoming more “grounded”, and scope for experimentation is narrowing. In 2023, launching a new fintech product will require more resources, and it’ll be more difficult to impress investors. The first to feel the effects of this will be startups in the field of consumer credit, since they require the most significant financial injection from the outset. In Uzbekistan, the number of companies that operate in this field has increased in the past couple of years, but this year they will have to fight for survival.

You can understand the viewpoint of investors. They operate based on straightforward logic: even if a startup doesn’t take off immediately, a growing economy functions as a driving force and pushes the product forward. During a period of stagnation and recession, startups acquire additional dead weight, however, and they need constant subsidies. For this reason, it is simpler for investors to favour straightforward products and business models that are guaranteed to work. Thus, during periods of crisis, it is easier to get another round of investment for a business that is already operating, rather than attracting funds at the pre-seed stage, even if the startup offers something revolutionary. Indeed, the very concept of “revolutionary” itself changes during times of crisis. Today, your technological base or the uniqueness of your development aren’t as important as a well thought-out strategy and tactics, a resilient business model or a non-standard approach to unit economics.

2023 could become a litmus test for innovations in the field of fintech. During the period of growth, companies launched experiments purely for the sake of experimentation and spent a colossal amount of resources on developing new technologies. For consumers, however, value is provided not by the development itself, but its usefulness and effectiveness. High-speed financial transfers to users within a small radius, bank branches in the metaverse and similar solutions are only of interest to the developers themselves, marketing specialists and senior management. But for users, they’re just an extra trendy feature that doesn't affect their behavioural patterns or their experience of using the product at all.

Customers care about both “how” and “to what effect”. And that’s true for most of the industry. For example, with EdTech, it’s not the platform on which you study that’s important, but the process of assimilating new knowledge. It’s important to remind newcomers who are planning on entering the market in 2023 of this.

3. From quantity to quality — the battle for customers’ attention

All the more frequently, fintech startups are going to be relying not only on quantitative indicators, but on qualitative ones too. From this point of view, a company’s success will be measured according to the extent to which it infiltrates the life of the user. Of course, quantitative supremacy has its advantages. For example, many startups in Uzbekistan don’t have sufficient data to construct complex analytical models and to launch new products on the basis of forecasts. The more users a company has, the more data it has, and thus the greater chance of offering a relevant service to its audience.

Moreover, however revolutionary a function the company may have added, within a few months, most companies will present their own analogues, with varying degrees of quality. Therefore, the most important tool in the battle of competition will not be the ideas and innovations themselves, but the approach to the way they are implemented.

In fintech, there are still enough unsolved problems with which few people have engaged. How to reduce the cost of attracting new customers, for example. And how to subsequently retain a user who can switch with ease from one product to another and usually gives preference to whichever is cheapest.

In these circumstances, one of the most viable models is a super-app: a range of services integrated into a unified ecosystem with a shared interface. Usually, the business model for a super-app is based on one or two anchor services. These might be taxi services, food delivery, payments, telecommunications or e-commerce. The modules feed off one another, and in this way they provide constant audience accumulation which could almost grow infinitely, as it encompasses more and more sectors and markets. At Humans, we’re working on precisely such a model. We attract and retain customers within our ecosystem. And our main challenge is not competition with other market players for the attention of users, but rather working on the proportion of the attention we get within our customers’ minds. The task of the modern fintech startup isn’t just to show that it is better than its competitors. It is important to show how the startup’s product changes the lives of its users for the better.

In the case of Humans, we are promoting a new model for the consumption of services, whereby one convenient super-app replaces dozens of apps with different interfaces and functionalities. To achieve this, we need to provide customers with a new experience, reduce the threshold for entry into the ecosystem and make our product as accessible and straightforward as possible.

This is how we’ll solve our main challenge: motivating users to return to the service again and again. With this purpose in mind, it isn’t enough just to set up the best terms for your card or to offer a programme of guaranteed cashback. You need to constantly be one step ahead by anticipating people’s needs. For example, we analyse activity on our Humans VISA bank cards, and we understand that many citizens of Uzbekistan postpone making even small purchases while they wait to be paid their salary. Launching a microloan service could partially solve this issue, so we are doing work in that area. Humans cashback can be exchanged for the most essential large purchases. For the time being, we offer the ability to exchange cashback for smartphones, TVs and smartwatches, but in the future, we’ll be adding household appliances, such as washing machines, fridges and dishwashers.

Nowadays, fintech companies shouldn’t limit themselves to classic mechanics that have been tried and tested by digital banks and payment services. For example, many such companies are implementing cashback and then offering the ability to spend it only on internal services. At Humans, we want to test new formats with product drops and freemium offers.

The more resources you have to experiment with in 2023, the more chance you’ll have to achieve success even in times of crisis. However, not all startups necessarily need to build ecosystems — sometimes it’s better to integrate into existing ecosystems at the right time.

Consolidation is going to increase on the market. For example, neobanks are going to merge with “buy now, pay later” services, which offer services for making payments in instalments. Marketplaces will continue to launch their own payment platforms, while fintech companies that operate according to a B2B model will help companies to establish financial processes remotely. This is more relevant than ever due to the increasing mobility of businesses.

This year, we will see plenty of mergers and takeovers, both on the global market and on the Uzbek market. The first instances of such deals are already appearing, for example, the incorporation of Kapitalbank into the Uzum ecosystem. In the next three to five years, we would expect two or three leading ecosystems on the Uzbek market that will encompass 95% of the market. Other market players will share the remaining 5%. However, their products may not be inferior in quality to those of the monopolies. It is simply that during periods of decreased liquidity, it will be easier for large companies to grow and scale up.

4. More digitalisation, less cash

In 2023, the pace of digitalisation will remain the same. Companies will gradually transfer their business onto a digital footing, and users will give preference to cashless payments all the more frequently. However, the process will not occur as quickly as one might like. For example, in 2022, citizens of Uzbekistan withdrew cash from their accounts in large sums, presumably over concerns about a crisis. Force of habit is persisting thus far, so the transition to predominantly cashless payments is unlikely to occur in the next two or three years — there are no potential driving forces that could speed up the process.

The “Digital Uzbekistan — 2030” strategy may somewhat affect the speed at which such tools are introduced. At the very least, the infrastructure will develop, and the most promising projects will receive state support, not only in the capital, but in the country’s regions too. However, for the time being, Uzbekistan still has a cash-driven economy, and major changes should not be expected until after 2025.

Nonetheless, digital services will infiltrate the lives of users all the more prominently, and more fintech services will appear. These won’t just be for making payments, they’ll be for saving and investing capital too. The popularity of cashback programmes will also increase. Banks, marketplaces and communications service providers will start to introduce them too, but the quality of offers will vary greatly. At the same time, the barrier to entry will be reduced for users with payments and transfers more accessible. In 2022, here at Humans, we abolished commission fees on transfers to any bank card, and in the coming months, some banks and fintech services will follow our example.

Despite the growth in popularity of fintech in the mass-market segment, the gap between regular customers and advanced users is becoming more pronounced. First and foremost, this affects cryptocurrency-based financial instruments. Although many banks are trying to launch cryptocurrency services, most people still don’t use them in everyday life. The world still hasn’t transitioned to crypto because the product doesn’t cover people’s basic financial needs. As a result, cryptocurrencies still remain a basic financial instrument for speculators who either make money on their volatility or use crypto assets to evade foreign exchange control. Thus, a niche has not yet been found for the average user, and the collapse of major platforms such as FTX has completely eroded faith in the industry.

This division into two diametrically opposing user groups can be observed in other areas too. This is a challenge for fintech companies, which need either to select a single focus, thereby cutting off one part of their audience, or to diversify their product line to serve the interests of radically different user groups.

5. The emergence of new “places of power”

At present, Tashkent remains the centre of development for fintech in Uzbekistan. It is in the capital where trends are being born, and the local residents are becoming the first users of new products. In 2023, however, fintech products will actively spread to other regions too, and companies will start offering their customers special services that account for specific details of their locale. One prospective location for fintech businesses is the Fergana Valley. Right now, this is a “blue ocean” of possibility, where a culturally homogenous and active local population is centred. This provides the perfect environment for rapid growth for fintech businesses. In a lot of ways, the situation is reminiscent of Asian markets, where the unbanked population of agricultural and industrial areas has transitioned from cash payments to digital tools, such as WeChatPay and AliPay in China, in just a few years. Regions such as these are skipping the classic stages of evolution. Local residents don’t need to go to a bank and set up a card; they just need a modern smartphone, and with a couple of screen taps, they can set up an account online, without having to leave their homes. Solutions such as this will enjoy huge demand, but again, it’ll be the companies that don’t just develop a product but also reduce the barrier of entry for users as much as possible that’ll achieve success. Either way, young startups in Uzbekistan should pay more attention to the country’s regions. Eventhough the market there is smaller, the growth multipliers on the geographical periphery of the country are significantly larger.

Predicting the trends for 2023 is becoming more and more reminiscent of some form of divination. Even if we rely on the most recent data, we still can’t say with certainty what awaits the industry in the coming 12 months. As a result my industry understanding doesn’t include categorical assertions, just directions and tendencies that businesses should pay attention to, regardless of the situation. A resilient business model, a well-developed ecosystem and a profound understanding of an audience’s needs are always beneficial, regardless of what global upheaval may occur in markets. Moreover, this knowledge can be adapted to any geographical context, whether it be Uzbekistan, Central Asia as a whole or any European market. The most important thing is to continually experiment and seek out new opportunities, even, and especially, during a period of crisis.