Over the last decade, the FinTech industry has grown steadily, but the last year has seen more innovation than ever before. For starters, global FinTech funding has increased by more than 96 percent over the previous year. More FinTech companies have become 'Decacorns' (companies valued at more than $10 million) than ever before, with more than 65 percent of early stage deal activity occurring outside of the United States.
We mentioned the rise of FinTech as a Service (FaaS) platforms, the rise of digital-only banks, and the increased use of biometric technology in financial onboarding when we summarized our FinTech predictions for 2021 at 10Clouds last year. All of these happened to varying degrees, but we also witnessed a significant rise in autonomous finance, and embedded finance, which are likely to be the key areas of growth for the coming year.
So what else will the future hold for FinTech in 2022? Below are my top five predictions.
Embedded finance has taken over the financial world, and its expansion is expected to continue well into 2022. The term refers to the seamless integration of financial services into what was previously a non-financial platform. It enables customers to access financial services while continuing to do what they are doing. An online taxi app with an integrated payment solution is a good example.
Buy-now-Pay-later, which is well on its way to becoming mainstream in 2022, is a key component of embedded finance, with solutions such as PayPal, Klarna, and PayPo providing customers with exactly what they need in online shopping - transactions that are simple to execute and seamless in nature.
Embedded investment programs make the market even more accessible by providing simple and low-cost access to funds and stocks. Acorns, an embedded investment app that rounds up its users' spare change from purchases, automatically allowing them to save and invest, is a key player in this market. This is another area that is expected to grow rapidly in the coming year.
We predicted digital-only banks last year, but they are on a steady growth trajectory and will likely become much more mainstream by 2022. With the onset of the pandemic, there was a complete shift to digital banking, with brick-and-mortar stores closing in many parts of the world.
According to a McKinsey study, digital payment will be on par with the most important fintech products by 2021. By leveraging fintech solutions, new generation financial institutions solved the emerging challenge. They were able to provide convenient digital-only banking services, eliminating the need for face-to-face interaction. And, of course, there will be an increasing number of digital institutions that will provide fully remote services, which is great news for consumers.
We are all aware that Covid resulted in a significant increase in home deliveries, as well as a corresponding increase in international e-commerce. As a result, SMEs all over the world have a lot of room to grow. According to Accenture, total cross-border payment flows are currently growing at a CAGR of around 5% per year and are expected to exceed $156 trillion by 2022.
However, while customers are already being offered simple payment solutions for purchasing products from all over the world, many SMEs continue to struggle with foreign payments. When it comes to forex, they've been dubbed "the squeezed middle." This is due to the fact that there is still no global payments provision for SME clients, forcing them to rely on often prohibitively expensive solutions designed for enterprises.
Companies are unable to access services such as underwriting or invoice financing due to a slew of regulations. In practice, this means that SME owners face challenges in raising working capital and keeping operations running.
Fortunately, new solutions are emerging, such as BaaS platforms that provide foreign currency services, such as OpenPayd, Curve, Stripe, and Airwallex. The use of these platforms is expected to increase in 2022, as will the emergence of new market players.
4. Traditional financial institutions are looking into cryptocurrency and NFTs.
While many financial analysts are focused on how blockchain technology will disrupt banking, it is worth noting that a number of banks are actually jumping on the blockchain bandwagon, owing to the extreme yields that it provides in comparison to traditional channels. However, it has other applications in the industry.
BNP Paribas has announced that it will investigate the use of blockchain technology in its currency funds and order processing. At the same time, the NASDAQ OMX Group, a technology-focused stock exchange, has revealed that it is collaborating with blockchains to "reduce the time, costs, and points of friction across the capital markets."
Another advantage of blockchain is that it provides unrivaled security at both ends of the transaction funnel, especially when it comes to identity management. It is increasingly being used to combat fraud as well as to manage regulatory and audit issues.
Finally, keep in mind the speed of blockchain transactions. The technology can speed up asset transfers, payments, and even investments while eliminating errors that cause delays and costs.
Given these advantages, it’s easy to see why Blockchain is a trend none of us can afford to ignore.c
5. New Platform as a Service (PaaS) solutions
FinTechs are always trying to balance two essential sides of their offer to customers: efficiency and security. With evolving financial regulations in many parts of the world, customer data APIs appear to be a sensible solution. Platform-as-a-service provision essentially means that banks and FinTechs can adapt to regulatory changes with a customized infrastructure, enabling them to embrace the cloud.