It’s been a hectic couple of years for the fintech sector – and the transformation has just begun. Here’s what the experts expect in 2022
The fintech industry moved at break-neck speed in 2021, with pre-pandemic days feeling like ancient history. Expect an even faster pace of change in 2022, according to industry experts.
Covid sparked a whirlwind of chaos for fintech firms and prompted a range of responses, like the £45 contactless limit introduced in March 2020. Today, even such recent developments seem to belong to another era.
2021 was a record-breaking year for fintech growth, notes Dorel Blitz, vice president strategy and business development at artificial intelligence (AI) specialist Personetics. In the UK, fintech investment hit £17.7bn in the first half of the year, he notes, while 33% of all new unicorns – private companies valued at more than $1 billion – around the world have been fintech-focused over the past three months. “We’ve also seen a huge number of fintech IPOs as well as influential M&A,” Blitz adds.
The coming year is likely to see advances in new ideas, along with refinements to old ones. Critical areas like mobile payments and user security will be honed, while issues such as sustainability and diversity will be given some overdue focus.
“The growth opportunity for fintechs is greater than ever,” notes Blitz. “But this is making market competition hotter. The challenge for fintechs in 2022 will be standing out and prioritising customers - otherwise they’ll fall into a death zone.”
The impact of the Kalifa Review will also be a major focus for fintech firms in 2022. The report into UK fintech needs was commissioned by the chancellor at the 2020 Budget and led by Ron Kalifa, chairman of payments company Network International.
The report’s recommendations included improving tech visas to appeal to global talent, amending listing rules to encourage UK IPOs, and introducing a Centre for Finance, Innovation and Technology, allowing for improved industry-wide cohesion across the nation.
“The review delivered an ambitious roadmap for UK Fintech,” says Christian Faes, co-founder and executive chairman of LendInvest, as well as chair of the industry group Fintech Founders. “However, unfortunately not many recommendations have been actioned yet. Those at the coalface of building the UK fintech industry are hopeful that the government will finally turn the talk into real action for our sector.”
While debit and credit cards have effortlessly flipped over to the digital wallet world, that’s not been true of Buy Now Pay Later (BNPL). But the opportunity is firmly there in 2022, predicts Christer Holloman, a fintech entrepreneur and author of How Banks Innovate. He says that in 2022, BNPL providers – who last year accounted for around $97bn (about £70bn) of all global e-commerce transactions, according to Worldpay – should look for ways to incorporate their current processes into digital wallets.
“BNPL is arguably the fastest-growing, most popular form of payment,” says Holloman. “Yet it’s stuck in the pre-wallet era, and this is the first threat to its long-term survival. Digital wallets are created to hold pre-existing debit and credit cards, tickets and so on. By definition, BNPL is not a pre-existing facility – the customer has to complete an application form, with digital wallets not designed to support that type of user journey.”
Unlocking this potential will essentially be an arms race for BNPL providers in 2022. “They have to follow their customers to stay relevant,” says Holloman. “If they can spot this opportunity and make the most of it, it could be a very exciting time for BNPL.”
Payroll processes will also take a step forward in 2022, predicts Myles Stephenson, founder and CEO of Modulr, a payments platform for digital businesses. Payroll-synced payments, a move to Faster Payments over Bacs, and the increasing trend for SMEs to outsource payroll to their accountants and payroll bureaus will all dominate in the new year.
“Joining up two traditionally separate processes – payroll and payments – will have huge efficiency-gaining consequences on how businesses think about paying salaries,” Stephenson says. “The ability to hold on to cash moments up to the payroll run will give the business more financial flexibility, while also giving their finance team more time to work on other business critical activities. But the key to the success of payroll-synced payments is control.”
Most payroll and payments integrations come with robust authentication approval processes if required, Stephenson adds. Businesses that opt to outsource their payroll to their accountant or payroll bureau can request to be set as the final approver, he adds, “and receive a notification to check all is well before hitting ‘pay’.”
With the UK already a recognised leader in the field, the innovation surrounding open banking will also continue to evolve in 2022. This is partly due to the Covid-driven acceleration in the adoption of digital banking services.
“Banks will continue to offer more comprehensive embedded services to their customers, with a focus on increasing use of analytics and automation,” notes Faes. “The benefits of faster transactions and a more personalised experience across all areas of financial services are two key positives that we can expect within the next year or so.”
A personal touch
Tailored customer journeys will be more prominent in 2022, with fintech companies embracing a Netflix-type approach, offering clients personalised recommendations.
“Modern consumers want an experience where banks and fintechs can think on their behalf,” explains Blitz. “The burden of finance is increasingly moving away from the customer to the latest tech, which can automate managing personal finances and actually help customers with their overall financial wellbeing.”
As well as helping clients to tackle their financial stresses head-on, this will allow fintech companies and banks to analyse client activity. It will particularly help small business owners.
“Business owners have a lot on their minds and tend to think about their business operations in terms of workflows: order-to-cash, procure-to-pay, record to report,” notes Blitz. “If fintechs and banks can think on behalf of businesses in this way, it will benefit both parties.”
Holloman anticipates that niche ‘neobanks’ will enter the arena, created for people who are united by a common cause or interest, be it sexuality, career, or hobby. This desire for a tailored over a generic banking experience could have deep roots, he says, stretching back to our caveman past.
“When we evolved from solitary hunters to living in communities, the need to express ourselves and be understood became a necessity to survive,” he says. “Over time we have embraced the tools available to help us achieve that. It can be through our choice of clothing or the music we listen to, and increasingly we will be able to also signal who we are and what we stand for through our choice of bank.”
The industry is arguably saturated, so standing out from the crowd will be vital in 2022. Hiring the right people for the right roles will be key. Alya Dikouchine is people lead at 3S Money, a UK bank challenger. She expects to see more designers and developers in demand in 2022, with the roles being crucial to automation and aesthetics.
“Sales and marketing can also add huge value and fintechs shouldn’t rule out creativity when hiring for these roles,” she says. “Having a clear approach when it comes to promoting and selling the business will help fintechs remain competitive.”
Dikouchine predicts that roles within financial crime, compliance and anti-money laundering will also see significant growth, “particularly with financial institutions soon being expected to monitor fossil fuel activity in line with the UK’s government announcement at COP26. This is a function that will only get more complex.”
Fintech gives back
The opportunity for fintech firms to give back is just as exciting as the expanding job market. It adds a personal element to an industry that might be viewed as soulless.
Green technologies and sustainable investing will be another key industry trend, suggests Devie Mohan, co-founder and CEO of fintech research company Burnmark.
“Whether we look at challenger banks, traditional banks, wealth management firms or insurance firms, this is a clear emerging trend, with products and processes heavily aligned towards global sustainability goals,” she explains. “There are several ESG funds and robo-investors that are currently outperforming traditional funds; there are also several challenger banks that have launched carbon emission tracking or reduction tools. This will be an interesting development to watch out for.”
After the incredible challenges presented by the pandemic, the charity sector will also feel the benefit of fintech.
“The more we can promote ‘fintech for good,’ the better,” says Matt Crate, CEO of charity donation platform Toucan. “It’s not necessarily about dispensing with the old ways of doing things but supplementing them with modern digital solutions, and to mobilise a community of people collectively doing good.”
An estimated 91% of charities were negatively impacted by the pandemic, according to recent research from the Charity Commission. Fintech providers that focus on giving will be critical to helping such organisations get back on their feet.
“Digital transformation is long overdue in the charitable sector,” Crate notes, adding that there’s still too much reliance on “old school forms of giving: bucket rattling, supermarket token boxes or web-based single transactions. Instead, 2022 will be about modernising the giving experience for digital-savvy donors, who want to make a difference to the causes they care about the most.”