Top 5 Fintech Trends
Fintech, or financial technology, is fast transforming financial services, producing new infrastructure and platforms for the next generation of the sector.
Much remains to be seen, but here are the top trends we think will impact fintech in the coming year and beyond:
1. Embedded Finance is Here to Stay
Customers are increasingly seeking access to products and services that are all in one place, prompting businesses to offer financial services through partnerships and white-label initiatives.
A loan, a bank account, a line of credit, or a payment option can be integrated into the business model and platform of health care, consumer products, and technology enterprises. For many players, this means large-scale ecosystem upheaval, but it also creates a possible opportunity for businesses who provide personalized client experiences. This also opens up the option of providing customized services to specific groups based on their financial circumstances.
2. A Super App to Rule All
We also expect the growth of “super applications,” which combine multiple apps with diverse purposes into a single ecosystem. In Asia, WeChat is utilized for texting, payments, restaurant ordering, shopping, and even scheduling doctor’s appointments.
In the United States, the adoption of super apps has been slower, but finance and payment companies and apps such as PayPal Holdings’ PayPal and Venmo, Block’s Cash App, Coinbase Global’s cryptocurrency wallet, Robinhood Markets’ trading app, buy now, pay later firms Affirm and Klarna, and neobank Chime are expanding their capabilities. Payments by QR code, peer-to-peer transfers, debit and bank accounts, direct deposits, stock trading, crypto trading, and more are all common features of these super applications.
3. DeFi Gains Further Acceptance
According to PitchBook data, over a third of all venture capital fintech investments raised in 2021 went to fund blockchain and cryptocurrency businesses. According to data from The Block, this includes $1.9 billion in investments in decentralized finance (also known as DeFi) platforms. DeFi has the ability to not only disrupt but also dramatically reshape the financial services industry because to the significant structural changes it might bring.
DeFi is a blockchain-based alternative to the present financial system that is open and worldwide with no central governing organization. The Ethereum network and numerous cryptocurrencies are used in the majority of existing DeFi initiatives. Instead than relying on an intermediary, users can trade, lend, borrow, and exchange assets directly with one another through decentralized apps. According to The Block, the net value locked in DeFi protocols increased from $16 billion in 2020 to $101.4 billion in November 2021, proving its potential.
4. Digital Wallets
Apple Pay and Google Pay are becoming more popular as alternatives to cash and credit cards, and we expect this trend to continue. According to Bloomberg, digital wallets are utilized for 45 percent of e-commerce and mobile transactions, but only 26 percent of physical point-of-sale purchases. WorldPay predicts that by 2024, digital wallets would account for 33% of in-person payments globally, while cash usage will decline to 13% from 21% in the following three to four years.
Countries such as China, Mexico, and the United States are beginning to seriously examine releasing digital currency, which may substantially diminish the need of cash.
5. Regulators Catching Up to Fintechs
Regulators have been playing catch-up with fintech innovation for a few years now, but 2022 may be the year they make some progress. Because of the significant expansion of “buy now, pay later” adoption, the Consumer Financial Protection Bureau started an investigation into five businesses in late 2021 and announced its intention to regulate the industry.
During a 2021 investor advisory committee meeting, Securities and Exchange Commission Chair Gary Gensler revealed the agency’s intention to regulate cryptocurrencies. In 2022, the acting chair of the Federal Deposit Insurance Corporation has placed a high priority on regulating crypto assets, citing the dangers they bring. In January, Michael Hsu, the Acting Comptroller of the Currency, stated that crypto has become mainstream and requires a “organized and collaborative regulatory approach.”
Other government entities are also looking at the use of artificial intelligence and machine learning in financial services.
Other factors influencing the fintech industry include automation, artificial intelligence, increased focus on environmental, social, and governance issues, and labor shortages. However, as the year progresses, we’ll be keeping a careful eye on these five main themes.
Source: Bank Director