Reviewing our predictions for the digital banking trends that would shape 2021, we were pretty on the money. We predicted the rise of lendtechs for SMEs, and an increased prevalence of Fintechs who specialize in helping consumers with their financial health.
Significantly, we forecasted the continued rise of banking-as-a-service (BaaS) as a force that would usher in more ‘digital native’ banks and enable more emerging brands to offer embedded financial products. We saw it as an area ripe with opportunity in the world of online retail and that BaaS would define the industry standard long after 2021.
Now that BaaS is here to stay, we’re looking at five Fintech trends we see spinning off this as we go into 2022.
User experience is everything
According to recent Savanta research for Currencycloud, 60% of industry experts cited ‘improving customer experience’ among the top three benefits of embedded finance. And they’re right. If challenger banks are trending right now, it’s because they’re obsessed with exceeding their customers’ expectations and needs.
Thanks to BaaS enabling emerging brands to embed financial products, users now expect a frictionless, secure experience and show loyalty to those that provide it. As outlined in our case study, Revolut adopted a customer-first strategy from the get-go, it still plays a part in their phenomenal success. Exceeding customer expectations will be key to the success of any Fintech in an increasingly crowded market.
The world will get smaller; opportunities will get bigger.
In the increasingly saturated market that is the UK, US and Europe, Fintechs who develop products that appeal to a wider audience will nibble away at their competitors. As Fintech users are getting older, with more financial demands on their lives, they are going to look for more niche products to help them manage their funds – as seen in the rise of wealth management and investing apps like Plum and Wealthify. Research conducted by Currencycloud, interviewing 10,000 people, revealed that 55% would consider a specialist service over traditional banks for investments, with 52% saying the same for wealth management, and 52% for financial advice. Fintechs who develop products and services to appeal to these niche needs will be more likely to succeed in 2022’s ever-more crowded market.
Established players will continue to expand globally, targeting emerging markets with new and existing products. German digital bank N26 got its Brazilian banking licence in early 2021, and has plans to launch there in 2022. While Spanish bank BBVA is already using apps to access and operate in Latin America’s emerging markets.
The world’s two billion unbanked will continue to get more access to financial services through mobile phones in 2022, as the reach of 5G increases. Half of the world’s mobile money services are in Africa, where they are the go-to banking option. Beyond Africa, mobile-based money transfer services such as Kenya’s M-Pesa and China’s Alipay will continue to serve the unbanked globally in 2022.
Green is best
Today the love of the green dollar has shifted to a love of green Fintechs. In a December 2021 11:FS survey, 31% of respondents stated tackling climate change was a key area financial services needed to improve. The same survey revealed that 65% of 18-39 year olds in the US stated the pandemic had a positive impact on their finances because it put the brakes on overconsumption.
In 2022, the Fintechs who focus on ethical and environmentally-focused products or back environmental, social and corporate governance (ESG) investments will not only be aligned with a wider consumer mindset but will be more likely to thrive.
Almost 25% of the 40 startups tipped by Paris-based business incubator Station F to make an impact in 2022 were Greentech or had an eco or ethical ethos. These included startups such as Traace which helps companies reduce their carbon footprint, and Goodvest which develops a sustainable investment app. Established Fintechs like Starling Bank, Stripe and Tulipshare who give investors an opportunity to impact corporate environments, social and governance policies will continue to be relevant in 2022.
Legislation will spur embedded finance
Technology, smartphones, consumer expectations and the pandemic have all acted as catalysts for embedded finance’s success. But the legal environment in which Fintech sits is equally important. The 2018 Payment Service Directive 2 (PSD2) acted as rocket fuel to the engine of Fintech, giving rise to 247 new banks in EU and 61 new banks in the UK in just eight years. PSD2 levels the playing field for all payment providers, new and existing, supporting digital transactions by increasing consumer data rights and reducing online fraud. This legislation paves the way for an acceleration in the adoption of embedded finance across Europe in 2022 as consumer confidence increases.
Compare this to the Cryptocurrency and Non-Fungible Tokens (NFT) market which is still largely unregulated in the EU. In 2020 the European Commission proposed the Markets in Crypto-Assets Regulation (MiCA) which aims to introduce a harmonized and comprehensive framework for the issuance, application and provision of services in crypto-assets. This is still in the pipeline and when passed will form part of the EU’s Digital Finance Strategy.
Lendtechs: the first stop for SME loans
Lendtechs like Market Finance have been offering loans to SMEs since 2008, but we predict many new arrivals in 2022. Because they provide cash flow at the point of need for SMEs, lendtechs – like their BNPL counterparts in retail – are responding to a genuine financial problem in real-time, and as such will continue to grow as business owner behaviour aligns with consumer behaviour. A Centre for Economic Performance report predicted 15% of UK SMEs were in danger of closure as access to funds and loans dried up post-COVID. Fintechs have seen a problem and responded (see point 1 above). For example, Stripe and Klarna’s October 2021 partnership offers Klarna’s flexible payment options to millions of online businesses running on Stripe. PayPal and Amazon are offering loans to SMEs embedded at the point of purchase, with PayPal Working Capital already issuing over £400m in loans to UK-based SMEs.
Fintechs, the world awaits.
With BaaS permanently changing the landscape for Fintechs in 2021, it’s the Fintechs that exceed customer expectations, anticipate their needs, and embrace the greening of Fintech that will thrive in 2022. The world will contract with established Fintechs expanding into new markets, but with this will open a world of opportunity for the unbanked and the multinational alike.