If 2020 was the year of sudden upheaval and change for the world of fintech and payments, 2021 was the year in which consumers, merchants, banks, and fintechs addressed the challenges, pivoted priorities, and settled into change. Reactivity transitioned into proactivity and new innovations and regulations met the changing needs and expectations of consumers.
In the rapidly changing and evolving world of fintech and payments, predictions can become realities overnight. Before we ring in the New Year, let’s explore some of the growing trends and what to expect in 2022 for this exciting sector:
Continued Climb of eCommerce and The Embrace of Embedded Finance
As COVID-19 progressed, more businesses were forced to shift online and embrace digital commerce. According to Statista, pre-pandemic ecommerce sales made up about 11% of total retail sales. At the height of the pandemic, that percentage doubled to reach 22%. With eCommerce becoming mainstream, digital payment methods and embedded functionality will also become expected during the checkout experience.
As the pandemic progressed, consumer needs came into full focus. Payment options that increased ease of use for consumers, like embedded finance options including Buy Now Pay Later (BNPL), became more mainstream. This included a swath of BNPL technology to benefit both the consumer, who harnessed more flexibility in payment options, and the merchant, who maintained control over the customer's journey instead of outsourcing to a third-party.
Adoption of embedded technology started with BNPL but that certainly won’t end there. According to Finastra, with a $7 trillion market opportunity, embedded finance is expected to grow 25% in the next 3-5 year. This growth will increase exponentially as merchants understand the benefits of financing in-house and more consumers trust and embrace the technology.
In addition to BNPL, this could include point-of-service lending, integrated insurance services, and more.
Key Innovations in Contactless, Order-Ahead, AI, Automation, and Blockchain Technology
As a response to the changing environment and evolving consumer demands, new technologies have emerged—continued innovation and increased competition in these areas can be expected in 2022.
The finance world has spent the last two years accelerating its pace toward a digital-first approach to payments. Innovation in these areas will persist, even as effects of the pandemic lessen:
- Contactless payments-According to a study by Research and Markets, the global contactless market is expected to triple by 2026
- Order ahead-QSR Research in 2021 shows that consumers are keen on tech-driven ordering. Technology that helps QSRs, retailers, and grocery stores manage orders from multiple channels will continue to keep pace in 2022
- AI and ML-Machine learning, artificial intelligence, and robotic process automation will help businesses and consumers use financial data to manage risk, maintain privacy control, and improve operational efficiency
- Blockchain-Businesses based in blockchain and crypto technology will continue to surge and become increasingly mainstream throughout the year
The Proliferation of Real-Time Payments
Historically, the United States has lagged behind other countries when it comes to the implementation and adoption of real-time payments technology. While questions about efficiency and the infrastructure around payment rails still loom, 2021 was a tipping point for the adoption of real-time payments in the U.S. This was in part due to innovation but also the growing belief real-time payment optionality is essential to financial inclusion, reduced processing fees, and improved access to capital.
Innovations in real-time technology, like Trustly Instant Payouts, are not the only enabler of RTP—continued regulatory developments will be key to success in 2022. One of the most significant drivers will be the IS20022 standard, which will provide standard messaging for the proliferation of financial products, including payments, that utilize an RTP solution. In 2022, fintech and financial institutions who focus on compliance as well as the opportunities that ISO20022 presents, will succeed in the RTP movement.
Onwards and Upwards for Open Banking
According to research by Forrester, “2022 will be the year when open finance starts reshaping financial services for good.” The key driver of Open Banking will be consumer demand; consumers want better ways to manage their finances and use their money responsibly. The secondary driver, which received significant attention in 2021, will be the growing concern around payment processing costs among merchants like Amazon. The ecommerce giant announced that it would no longer accept UK-issued Visa credit cards starting in January 2022.
Similar to advancements in real-time payments, however, the success of initiatives in Open Banking will depend on both innovation and regulation. Regulatory changes, like UK’s FCA’s new reauthentication rules for FinTechs which mandates that fintech firms will no longer need to re-authenticate customers every ninety days for continued access to bank account data, will help reduce the friction for consumers looking to leverage Open Banking solutions. Additionally, the growing interest in embedded solutions among retailers and merchants will put pressure on banks to partner with Fintechs for the responsible use and implementation of open solutions.
Finally, the growing demand and popularity of use cases for Open Banking Data will surge among merchants and billers. Companies across a variety of industries will be looking to Open Banking for use cases such as instant account verification, real-time underwriting, fraud detection, and more. The payment and data use cases will continue to grow in the U.S. as well as globally—a report by Jupiter Research stated that the value of global payment transactions facilitated by Open Banking will exceed $116 billion by 2026, a 2800% growth rate over the next 5 years.
The team at Trustly want to wish everyone a joyful holiday and a Happy New Year! See you in 2022!