APRIL 4, 2022
10 min read
The financial industry has rather successfully responded to the disruptive side effects of COVID-19, but it hasn’t come out of 2021 unharmed. Top fintech industry trends in 2022 are going to challenge it but also will make it stronger.
And though at least 50% of traditional banks are not covering their cost of equity, there is some good news, too. Global fintech investments in 2021 recorded 210 billion dollars with 5,684 deals, and this amount tends to be growing, with banking institutions investing in or forming strategic alliances with fintech businesses.
For sure, the fintech landscape is developing fast, so let’s take a look at the biggest trends in fintech industry for 2022.
Wealth management, consumer lending, insurance, and payments make together embedded finance, which is the integration of financial services used by non-financial firms.
Among emerging fintech trends embedded finance grows the fastest. Fintechs helped the embedded finance business grow to a global value of 43 billion dollars worldwide in 2021. The embedded payments sector is expected to produce more than 60% of the overall value related to embedded finance, expanding to 141 billion dollars by 2025. This is going to shape further future fintech and banking trends.
The merging of non-financial organizations and finance solutions has transformed the way people interact with money, products, and services. Fintechs like Europe’s Klarna alter the way loans are usually issued and become a common part of commodity bundle with embedded innovation in payments like buy now, pay later incorporated in virtually every online store.
Embedded finance trends in 2022 will grow further as more banks aim to become providers for non-financial companies who are looking to give financial products as a part of a bigger offering. For example, Starbucks could integrate a wallet for payments within its app, or Lyft may provide a debit card to their drivers. However, this does not qualify Starbucks or Lyft as fintech firms.
If you already have brand awareness among customers, it is easier than ever to integrate financial products into an application using these technologies and accessible APIs.
- In June of 2021, London-based fintech company 10x Future Technologies secured 187 million dollars to extend its portfolio, assisting existing institutions in developing next-generation services and solutions to improve the efficiency of outdated systems.
- The newest case of Spanish HUBUC startup, also known as AWS for financial services, has lately raised 10 million dollars in an early investment round for its embedded finance API.
Still, don’t underestimate traditional banks, which are beginning to challenge, acquire, or collaborate with the fintechs that are disrupting the industry.
Banks are starting to realize that the risk is that they’ll be reduced to commodity status and lose their consumer relationship. The progressive ones already have set up their own IT companies or engaged in digital enterprises or brands. These banks possess access to a large number of clients, financial services, brand trust, and brand awareness, and now they want to implement embedded financing to strengthen their offers.
Fintech Regulation Trends
Government regulation appears to be following close behind now that digitalization has become the norm. While many criticize government regulation as a stifling of innovation, increasing scrutiny is good for the software industry’s future. How so?
It is critical to understand that growing regulation is a reflex and acknowledgment of the enormous influence that emerging business technology trends in banking is making on industries and society.
Venture investors fueled this trend by facilitating the birth of tons of unicorns. The 3d quarter of 2021 alone witnessed the birth of 42 new financial startups. To survive, traditional banking institutions, insurance companies, and other businesses that protect security must compete with these inventive newbies, learn, and adapt.
This is pushed even more by the widespread use of technologies just like blockchain technology, DeFi, cryptos, and NFTs. Without adequate and balanced regulatory monitoring, as well as skilled managers capable of navigating these complicated ecosystems, these breakthroughs may collapse before achieving their full capacity.
If financial services regulation is the norm to be adopted, we may be approaching a tipping point in the technology industry. Greater government regulation demonstrates the importance of digital in our society and presents major opportunities for savvy businesses that can traverse a highly regulated environment with ease. In reality, entrepreneurs with the ability to foresee and plan for evolving regulatory needs in their products will have the best chance of achieving hyper-growth.
Regulators in Singapore, Australia, and the United Kingdom are actively seeking to establish sandboxes to test and explore how technology may solve problems. Regulators are figuring out how to be a part of the journey and facilitate it, rather than merely reacting to it.
Also, there is a lot of predictions about cryptocurrencies and what they can achieve. Lots of regulatory authorities are addressing this issue. Officials are keeping a close eye on matters while allowing the participants time to straighten things out.
The goal is to strike a balance between innovation, risk, and control. We, too, are at the first observer phase. There is currently no clear guideline in this area.
ESG Focus and Sustainable Initiatives
Given the rise of ESG, there will most certainly be growing interest in fintechs with environmental and social capabilities, such as enterprises focusing on changing climate, reducing emissions, and sustainable consumption. These are the hot topics of coming decades.
Currently, sustainable innovation is not often associated with revenue generation, but we believe this will open a new era in the future.
- ABN AMRO, for example, tries to use its expertise in real estate energy consumption to assist its customers with their endeavors.
As the macroeconomic business trends in finance and severity of global warming become clearer, there is a greater need for fintechs to address wider social issues such as renewable energy generation.
Renewed Focus on Challenger Banks
In 2021, investors shifted focus dramatically to huge challenger banks:
- Chime had raised large VC investment rounds of 1.1 billion dollars,
- Revolut had raised 800 million dollars,
- and Varo had raised and 510 million dollars,
as they strive for profitability. Competition for domestic market share remained fierce in the United States, despite the exit of challenger banks N26 and Monzo Bank from the sector, mostly owing to regulatory difficulty.
Future of information technology in online banking sector. Big tech is interested in challengers, too, though, with innovations such as the Apple Card, or Facebook’s Libra, it appears that big tech is gradually going into banking. So will we see a big tech bank in the future? The simple answer is “maybe”, but “unlikely”.
Moreover, big tech makes a lot of money from challengers and other financial institutions promoting on their websites, so it wouldn’t want to eat into that revenue stream. The same is true for all of the web services that large IT companies provide to financial institutions.
Expanding into other financial services, such as lending or savings, is not a viable large tech strategy since it necessitates the keeping of assets on balance sheets. They may instead choose to become one of the channels via which challengers are supplied.
Growing M&A Rise and Partnership between Banks and Fintechs
Partnerships are the future trends of banking and financial services. M&A activity accelerated in 2021 and have become the hottest macro trends in fintech, with a surge in interest from “super app” fintech businesses aiming to extend their capabilities, notably in the BNPL market.
- PayPal paid 2.7 billion dollars to purchase Paidy,
- while Goldman Sachs paid 2.2 billion dollars to acquire GreenSky,
- and Square paid 29 billion dollars to acquire Australia-based AfterPay.
International M&A in the fintech field recorded 275 agreements accounting for 36.2 billion dollars in deal value, while the total global fintech M&A deal value reached 83.1 billion dollars.
Bank and fintech partnerships will also grow in numbers and give exciting prospects. In recent years, a series of venture capital funds incorporating fintechs as main partners have emerged, including three in 2021. The aim of collaboration between banks and fintechs isn’t only to make a profit on one’s investment. Fund managers are also looking for interesting technology for their partners, particularly regional and local financial institutions, which do not have the means to locate such goods on their own.
Payment Services Directive 2 (PSD2) and open banking, which appeared before the epidemic, have now forced banks to establish open APIs in order to promote increased engagement with fintechs.
PSD2 is a guideline that enables banks and innovative financial service providers to exchange safe access to their customers’ banking and financial data. This leads to a smooth partnership between traditional banks and fintechs, resulting in additional alternatives for users.
The future of fintech and banking industry partnerships may be safe and secure with excellent cybersecurity asset management and several levels of protection.
New Security Threats and Solutions
The development of digital services has also resulted in an increase in financial fraud, cybercrimes, digital intrusions, and data breaches.
The latest global fintech trends may be Ransom-as-a-Service (RaaS). Reg-Tech, with the use of Big Data and Machine Learning technologies, can provide critical data on money laundering operations, hence lowering the risk connected with the company’s compliance department. Additionally, Reg-Tech can decrease administrative costs, assure financial stability, and safeguard clients.
Сyberattacks on banks extremely increased by 14 times in 2021 compared to 2020. Simultaneously, incidences of fraud increased by 238 %, and data leaks keep escalating. Finance had the second most expensive data breach. In 2021, financial businesses have lost an average of 5.72 million dollars due to data leaks.
Cybersecurity, insurance, and safety without exaggeration are the main trend in the future of fintech and banking industry in 2022. The transition to digital channels has significantly expanded the area vulnerable to attack as well as the number of touchpoints that must be safeguarded.
Hacker communities such as DarkSide are even offering RaaS, ransomware as a service. These skilled cybercrime crews function like any other business, replete with advertising, customer support, and negotiators who may manage communications with victims on their customers’ behalf.
These are bright new key trends in fintech. So, what can challengers and neobanks do? Preparing for a ransomware assault is the greatest form of defense. Collaboration is a win-win situation for the entire financial services industry and the larger fight against cybersecurity attacks. Awareness and knowledge exchange are crucial aspects of cybersecurity.
Knowing precisely who you are making a deal with is recent emerging trends in business finance. As a result, the globe needs integrated financial fraud and anti-money laundering (AML) verification solutions, particularly in light of recent sanctions imposed on Russian officials, although there are several causes for this process. As a result, businesses will increase the precision of their investigations and obtain more productive end-to-end global financial fraud compliance.
Rise of Cryptocurrency and Central Bank Digital Currency (CDCB)
Only 10% of financial institutions expect to provide crypto investment services in 2022, with another 13% aiming to debut in 2023. It’s a pity since the latest surveys in the US: 60% of American cryptocurrency owners would invest in cryptocurrencies through their bank. Only 4% of existing crypto owners stated they would not utilize their bank to invest in cryptocurrency since they would not move from their present exchange.
The big bank technology vendors join with US-based NYDIG to make it easier for mid-sized institutions to implement cryptocurrencies into their core and digital banking systems. Payment networks are also getting in on the game. Visa has announced the establishment of a cryptocurrency consulting service for banks and merchants.
In terms of cryptocurrency, around 1 out of every 10 banks and credit unions aims to introduce cryptocurrency investment or trading in 2022 which makes blockchain and crypto into fintech future payment trends.
Surveys show that:
- today, less than 1% of banks provide these services,
- banks aim to give cryptocurrency awards in 7% of cases, and crypto storage and safekeeping solutions in 8% of cases,
- 5% of credit unions aim to provide crypto custody and safekeeping services.
If central banks issue digital currencies, this viewpoint may shift. Even retail banking may change.
However, it would be significantly different from today’s traditional cryptocurrencies, such as Bitcoin, since many blockchain solutions appear as if they are re-inventing many facets of contemporary banking. We don’t know what the future holds with cryptocurrency, but digital assets are an area where we expect a lot to happen in the future.
Currently, many market inefficiencies emerge as a result of a lack of technical innovation. Settlement typically takes five business days with the present infrastructure, however, this will be substantially faster if the resources are tokenized. Moreover, if a digital currency such as a Euro stable coin existed, immediate settlements (with no time lag) would be conceivable.
What is the Future of Fintech and Banking Industry?
The current trends in banking and fintech, like those behind other fast-growing industries, present both possibilities and difficulties. Before implementing them into your business, consider several questions:
- Will these new tendencies replace or supply the current models?
- Is the advantage offered by the future trends of financial technology genuinely improving existing business, or are they simply adding complexity that no one is looking for?
- What kind of adjustments must be incorporated into strategic planning?
Traditional banks used to be able to withstand disturbance because of their scale and regulatory protection. In today’s climate, there is mounting evidence that these factors may be hurdles as well as assets.
On the other side, efficient fintechs will do things in a different way in decades to come. They will constantly shape their enterprises to meet the demands of their consumers, staff, and other parties.
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