Fintech trends for 2022 are influenced mainly by the world pandemic. The past two years showed us how financial institutions have to change and what vector we should choose to improve the financial sector. Statistics show that digital banking and stepping away from traditional financial services are both getting popular around the world. A growing number of businesses have started to increase productivity and competitiveness through the implementation of new financial technology.
So what are the new major fintech industry trends, and what gets a boost of improvement to fit in with the new technology-orientated society?
#1. Neobank is the new bank
Today, many banks are shifting from conventional banking to the only-digital banking model, which allows for seamless online consumer experiences and low-fee services. The fast-moving digitization of banking gave birth to a brand-new concept — neobank.
At its core, neobank is a fintech provider that offers digital solutions which help streamline mobile and online banking. Built around the mobile-first design principle, a neobank will either focus on a particular financial product, for instance, a savings account, or combine a range of banking features. These banking apps are more user-friendly, agile, and transparent than traditional financial institutions, and they provide numerous benefits both to businesses and customers.
For starters, neobanks enable customers to open an account in a couple of clicks, eliminating the need for visiting a brick-and-mortar branch and sorting out tedious paperwork. Next, they enable the consumer to easily use a lot of functions. Streamlined payments, savings accounts, loans for customers’ cars or mortgages are all literally at your fingertips.
This trend has been steadily growing in the past few years, and, even throughout the notorious 2020, neobanks managed to drive over $2 billion in venture capital on a global scale. According to PitchBook analysts, the number of users of neobank apps will approach a whopping 145 million by 2024 in North America and Europe. Without any doubt, neobanks are here to stay.
#2. Embedded finance is turning banking into a service any company can provide
The main idea of embedded finance is to give non-fintech firms the ability to provide financial services for their customers. It’s a new fintech trend, the phenomenon of Banking-As-A-Service. There are a variety of financial services that companies can provide for customers with embedded finance, from embedded payment to embedded insurance.
With Banking-As-A-Service (BaaS), businesses allow their clients to get banking services that include making a payment, taking a loan for the purchase, getting insurance, managing their expenses and finance directly on their platform without involving a third party (which would be the traditional banks). Although BaaS shares some common features with open banking, it allows banks to offer services instead of only giving access to data. These services can include payment processing, KYC verification, lending, and others.
Similar to other “as a service” approaches, implementing BaaS means considerably lower costs as you can skip the need to develop and maintain the infrastructure. Consequently, you get a higher chance of bringing a fintech app to the market faster and offer unique features in one convenient package at a fraction of the cost.
Building BaaS APIs is one of the accelerating trends in fintech today. For example, Railsbank provides an API platform that allows companies to directly embed financial services into an application and deliver seamless digital experiences to their customers.
Companies orientated on providing the best customer services should invest in embedded financial services, as it levels up your business by making your audience more loyal, reliable, and more dependant on your brand.
#3. Open banking is getting a boost in popularity
Open banking is a banking practice that provides third-party financial service providers open access to banking transactions and other data from banks and financial institutions through the APIs (application programming interfaces).
It connects banks, third parties, and technical providers – enabling them to simply and securely exchange data to their customers’ benefit and allowing them to initiate transactions from a customer’s account, such as sending payments or withdrawing money.
Open banking is a way for traditional banks to deliver better financial services and provide their clients with great possibilities not available with a centralized approach. It is a convenient tool for launching financial services in a more modern way.
Given that banks are extremely secretive about their financial data, you might ask yourself: why do they agree to this? The answer is simple — to stay competitive.
Imagine that all your data on accounts, transactions, receipts, expenses are in one place – you accumulate all your data in one mobile application and manage finances in a convenient way. Once a financial institution has access to this data, they will be able to carefully analyze it and offer you a more customized product. For example, this can have an impact on cheaper loans. Given the online access to customer data, there is a severe risk for traditional banks to lose their monopoly on customers and this would give fintech companies, on the other hand, the opportunity to create more relevant products. Obviously, the client will choose the one who has the best service and product.
The most dynamic in the development of open banking is the United Kingdom. In 2016, the CMA (Competition and Market Authority) forced the 9 largest financial institutions to give open access to their APIs, which led to their transformation from banks to service providers. Banks onboard clients and open accounts for them, and fintech companies provide various services and develop new products. Open banking is becoming a significant source of innovation that reshapes the banking industry.
#4.Financial solutions based on Artificial Intelligence and Machine Learning
Artificial intelligence (AI) and Machine learning (ML) as a part of autonomous finance is one of the major trends of upcoming 2022 that is winning customers over with a convenient finance management experience. Autonomous finance uses AI and ML for taking charge of financial decisions on behalf of the customer without human interference.
How can customers and businesses benefit from AI and ML? Through AI and ML, customers can define their goals and needs. Using that information, banks can regulate financial situations and provide customers with personalised and optimised financial services. Think about it as putting your finances on “auto-pilot” mode that will protect your interest and act in a beneficial way: eliminate human error and wrong decisions made on nerves or in a bad mood.
By using intelligent systems, customers can track their income, control current expenses and manage spending patterns. That strategy allows people to create a plan for optimising their financial situation. An example of it could be a chat-bot driven by AI on your mobile bank application that will automatically generate a financial solution for your specific problems without contacting a specialist.
From a business perspective, a banking application that uses autonomous finance can better control risk management, calculate a credit score, select high-risk or trustworthy clients, which will help optimise the time and quality of financial services you’re providing.
#5. Biometric identification solutions will improve cyber-security
Biometric identification technology plays an increasingly important role and is about to upgrade cyber-security in the financial sector.
Biometrics refers to the use of physical characteristics, such as voice, face and fingerprints, to authenticate users. It’s a big jump for the financial services industry. Using biometric data, machine learning and algorithms, biometric identification solutions can assist in preventing fraud, data security and user access management.
With biometric solutions, banks can make verification procedures like KYC (Know Your Customer) more efficient and easy to use. The most significant advantage is that biometrics will reduce identity theft as it is almost impossible to bypass.
For example, voice biometrics authentication in banking has many different use cases, but the most noteworthy feature is probably the ability to detect and stop attempts at identity theft. Therefore, banks can use voice biometrics to secure operations that are most exposed to fraud attempts, such as call centre conversations, banking app usage, confirmation of money transfers, and more.
Further development of biometric identification technologies can help businesses track customers emotions, mood and satisfaction level, build comprehensive marketing strategies, add value to provided services and increase the average check.
#6. Intensifying of fintech regulations
The interest of fintech regulators towards fintech companies and new technical developments is growing. Regulators are giving some space to the fintech industry to progress on new inventions, but they’re actively watching.
The more significant of a role fintech companies play in society, the more of the regulators’ attention they receive. The primary responsibility of regulators is to create the necessary conditions for the market’s growth and its players’ protection. While fintech regulation is quite different from region to region, it is difficult for startups to enter a new market and scale.
Bringing to market new financial technologies can be considerably slowed down by the current regulatory framework. For instance, new concepts such as e-wallets and cryptocurrencies don’t comply with the conventional legislation of financial institutions just because they didn’t exist before. But legislative changes are already underway. There are already some companies that specialize in ensuring compliance and bringing cryptocurrency into the legal sphere.
Without a doubt, laws need to be changed to catch up with the blistering pace of technological advancement. Of course, creating and passing new laws and regulations is a long-hauling process compared to the fast-paced development of innovative fintech tools. For that reason, it can be hard to achieve a clearly defined model for running fintech services within the legislation of a certain country. However, this challenge is expected to be effectively tackled in a couple of years.
Talking about fintech regulations, we can’t miss the EU’s General Data Protection Regulation (GDPR), the comprehensive law which came into effect on May 25th 2018. GDPR enhances individuals’ control and rights over their data and sets guidelines for collecting and processing personal information from individuals who live in the EU (in the United Kindom GDPR is retained as the UK-GDPR).
Next May will mark four years since GDPR has been in effect. So what do we have to look forward to? In 2022 we can expect to see additions to the GDPR regulatory, especially regarding consent on first-party IDs and hashed IDs, as well as new AI and ePrivacy regulations.
#7. Decentralized finance at the peak of growth
Talking about top fintech trends, we can’t miss DeFi.
DeFi (Decentralized Finance) is a blockchain-based ecosystem of financial applications and protocols that does not rely on central financial intermediaries such as banks or brokerages to offer traditional financial instruments and instead utilises smart contracts on blockchains.
Simply put, the whole paradigm of DeFi is to step away from the traditional banking ecosystem when all financial processes are centralised. Blockchain is a great digital solution that ensures that the data is saved and delivered fast while performing financial services.
In a traditional centralised system, the process could take up to days and, using blockchains, it would only take a few seconds to transfer the data. In a world where customers and businesses alike want to have an efficient and quick way to perform financial services, DeFi has vast potential.
Since cryptocurrencies are getting increasingly popular, more and more businesses are starting to accept them as a payment method. Consequently, this calls for the increased role of decentralised finance. DeFi streamlines interoperability between blockchains, making crypto available to a larger pool of users.
In November 2021, the total value locked in DeFi protocols has reached an all-time high of $236 billion.
#8. Establishment of cryptocurrency custody services
While all previously mentioned trends were oriented on getting away from real-life banking and financial institutions and towards a digital analogue, this trend is the opposite and brings the traditional feel to a digital problem.
With cryptocurrency going strong in our financial world, there is a high demand for creating a custody service for it.
The primary purpose of cryptocurrency custody solutions is safeguarding cryptocurrency assets. Keys for conducting transactions with cryptocurrency are complex combinations of alphanumerics. They are complicated to remember and can be stolen or hacked.
Cryptocurrency custody solutions are independent storage and security systems used to store large quantities of tokens. These services are chiefly aimed at institutional investors, such as hedge funds, who hold vast volumes of bitcoin or other cryptocurrencies. Crypto custody services require a technological solution that unites speed, operational flexibility, and scalability, while maintaining robust security.
A wide variety of financial institutions, including major banks and exchanges, are seeking to provide investors with the ability to store, buy, and sell digital assets securely. The availability of crypto custody solutions is extremely important for the continuing expansion of cryptocurrencies and all digital assets.
Wrapping it up:
All in all, notwithstanding some significant challenges, fintech will see even more spectacular growth in the near future. And this is only fair, seeing as the link between businesses and technological advancement will only grow, creating the need for more efficient financial solutions based on AI and blockchain technology.
Security remains a mounting concern of the financial institutions and one of the top trends in fintech today, stimulating the development of new technologies that can ensure a safe environment for financial operations.
As we’ve seen, the industry keeps on growing, and other significant breakthroughs are just around the corner.
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