Dear Luc: What fintech trends should I prepare to see in 2022?
In Dear Luc, we answer the questions the industry’s fintech founders are too afraid to ask, and solve the problems they don’t want their VCs to know about.
From regulation readiness to technology teething troubles, our start-up agony uncle, Luc Gueriane, is here to help.
Luc has over seven years’ experience working with flagship fintechs like Revolut, Wise, Monzo and Curve.
His expertise and extensive work in the fintech ecosystem mean that Luc is able to offer unique insight into the building of a successful fintech company.
With the new year fast approaching, what fintech trends should I prepare to see?
The fintech sector, always a dynamic space, has undergone a rapid influx of developments in the last two years. First, with the pandemic, we saw a huge increase in e-commerce and a shift towards contactless payments. This year, not only have we’ve seen these trends become norms, but we’ve also witnessed a surge in buy now, pay later (BNPL) services and crypto offerings.
The fintech market is constantly changing and as new innovations come into play, here are four trends that I predict will occur in 2022.
In October, the limit for contactless card payments rose by more than half, from £45 to £100. And whilst we addressed the topic in our last article here, we only briefly touched upon the opportunities it will create.
An increase in the contactless payment limit inevitably raised public concern around fraud rates. And whilst it’s clear that fraud rates are low, (currently less than 2p for every £100 spend in the UK), banks and large fintechs alike inevitably have to address these concerns with creative approaches to increasing consumer safety.
Whether these safety measures include automated card blocks, triggered by suspicious-looking activity, or offering primary and secondary linked accounts to allow customers the ability to budget better and ringfence savings for instance.
With this, it’s clear that the payments sphere has even greater scope to evolve in this coming new year. The challenge will be for fintechs to bring unique offerings to the market to truly make them stand out from a busy crowd.
Open Banking has become a more trusted mechanism for speeding-up payments processes and the sharing of necessary information. As well as this, Open Banking has opened the doors for increased competition as more providers pop up. With more organisations and trusted brands adopting Open Banking capabilities in order to take regular and customised payments from customers’ accounts, we can expect to see more widespread adoption of this technology.
Retailers who would have put all their volume through UK debit cards pre-Open Banking will gradually see more customers requesting alternative payment methods, thus encouraging greater use of Open Banking. This means we’ll also see acquirers (who often manage the checkout page) prioritising Open Banking options over traditional payment options.
More new financial services propositions are bound to equal more regulations, to keep users safe. The fintech space is constantly evolving and regulatory bodies are constantly trying to keep up, to understand and to manage the market. Thus, as it becomes harder to fit all propositions into clear legislative boxes, the stricter regulations will become.
Take contactless payments for example. It’s safe to see we can expect more stringent regulations around contactless payments in a bid to prioritise the protection of consumers.
And while this does have the potential to stop fintechs in their tracks in bringing new ideas to market, some sectors will feel this restriction more so than others. For example, whilst crypto is not widely regulated just yet in the UK, regulators are constantly assessing how and when rules can be implemented.
Nonetheless, despite regulatory bodies trying to stay abreast of developments, 2022 will be the year we’ll see more financial institutions experimenting with various solutions and testing new capabilities to create a more open and collaborative environment.
Lastly, to operate as a fintech, resource requirements have got bigger and bigger due to stringent regulatory operating requirements. With this, the cost of creating new financial technologies will increase in the new year. And from a resource viewpoint, businesses that don’t work with external specialist providers and instead spend extra time and resources getting their product offering just right, will have a hard time competing for a space on the leader board.
This is why we expect to see a shift towards more fintechs working with specialist partners to support their business needs. In Moorwand’s 2021 Specialists vs. Generalists report, it is found that younger firms will launch into adjacent markets, and mature firms will look at SME or corporate markets. But to meet these ambitious goals, fintechs will need to partner with specialist providers to ensure their solutions are perfected for a quick go-to-market launch.
Plus, with the knowledge that those who use specialists can generate almost £1m more in annual revenues, expect to see more companies embrace this shift.
Overall, the fintech space will see a continued upward trajectory of movement in 2022 and indeed for the foreseeable future. Companies are working hard to make up for the effects of the pandemic and in most cases, CEOs are reporting recovery and modest growth This hard work will pay off, as the new year will see a continuation of sizable new investments and mergers.
Although preparing for changing regulations must be a priority and will almost certainly require additional investment, financial institutions have great scope to grow in 2022 and lead the charge for consumers and businesses alike to better manage their finances and experience a more seamless banking experience overall.
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what are examples of external specialist partners?