Ten FinTech Trends to Follow in 2022
The pandemic provoked a crisis in many industries, including FinTech. Due to quarantine measures, banks, credit institutions, and insurance companies had to close their branches temporarily.
Despite the obstacles, the new realities have become an incentive for the financial industry development, financial software development, and digital services. Since the outbreak of the pandemic, 42% of Americans have used at least one FinTech platform. People are downloading financial software 26% more often.
To stay in the market and provide customers with relevant digital services, organizations are catching up with the wave of changes, modernizing their businesses. Let’s consider FinTech trends that determine the development of the industry in 2022.
FinTech Industry Statistics in 2021-2022
The consulting company Accenture has analyzed the state of FinTech during the pandemic. It predicts that companies that have already invested in digital platforms, those ambitious businesses having the right tools and reliable partners are more likely to become market leaders.
According to Venture Scanner, investments in FinTech in 2021 grew by 144% compared to 2020. The consulting company BCG has found that in 2021, there were three times as many startups launched globally as in 2019. Moreover, the maximum number of projects (10,605) was in North America.
Considering these trends, research organizations like Research and Markets predict that the global FinTech market will grow to $31.5 billion by 2026. This is almost four times more than six years earlier.
The development of the FinTech industry depends on the technologies underlying financial products and services. Let’s take a look at the forecasts of leading technology companies (McKinsey, Accenture, Deloitte) about the development of the industry and FinTech trends in 2022.
McKinsey believes that the potential of open banking is revealed only by 10%. It is a promising financial technology. Users are gradually realizing the benefits of working with open data since information exchange encourages scientific research, software development and improvement of financial services.
Open API, or open banking, works on the principle of providing bank client data to third parties with the consent of the owner. This format of information exchange is beneficial for the bank user. For example, a regular customer is satisfied with the reliability and stability of their bank and doesn’t want to change financial institutions. But the bank is quite conservative and many digital services that are available from competitors have not yet been implemented. The client wants to connect analytics tools to financial data to track spending and consumer habits. The bank does not want to lose a regular customer. Thus, with the help of an API, it provides the owner’s data to a third party that deals with analytics. It is done through the API. Thanks to open banking, the account holder receives regular reports on the balance, expenses, and savings.
Thanks to open API, the bank provides information about the client’s finances to insurance companies, shops, and other organizations. They need to verify the client’s solvency before effecting insurance, providing a loan, or allowing payment by installments. Open banking is transforming the market, allowing users to pay for goods online in a few steps, pay for services in one swipe, and receive a loan in a couple of seconds.
According to Statista predictions, 63.8 million people will use open banking in 2024. This is almost five times more than in 2020.
The internet of things
Connected wearables perform many useful tasks in FinTech:
- Through mobile banking applications, financial institutions monitor customer behavior to decide what relevant services to offer.
- Mobile point of sale (POS) systems replace traditional POS systems.
- The protection of banking network devices is based on the IoT. The system monitors and controls devices and disables unmanaged equipment.
- Smartphones, bracelets, smartwatches are used for payment instead of a bank card.
- Connected speakers and smart refrigerators order goods and pay for them on their own.
- Wristbands and smartphones are used for biometric authentication.
FinTech companies are increasingly using connected devices to gather business-friendly customer insights and make more informed decisions. The increased interest in IoT will see the wearables market grow from $48.89 billion in 2021 to $118.16 billion in 2028.
Regulatory Technology (RegTech)
The work of financial institutions is subject to many laws, standard acts and regulations that one needs to know and follow. Companies need to keep accounting records, reports on taxation, income, and customers. They submit the necessary documents to the regulatory authorities according to the schedule. They check the data and confirm the legality of the activity. The situation becomes more complicated when an organization operates in the international market. There, other rules apply, and their implementation is difficult to monitor. This is where regulatory technology (RegTech) comes to the rescue.
RegTech is a platform that helps organizations to comply with complex industry regulations. Regulatory technology finds issues that do not comply with the rules and makes them compatible with the system. Special software automates repetitive tasks, monitors data security, warns bank employees and users about fraud. Fines for non-compliance are measured in millions of dollars. For example, the Bank of America Corporation was once forced to pay New York State $42 million for superficially explaining to clients how their share orders were processed.
Given the relevance of RegTech, it is not surprising that Grand View Research predicts a 52% growth in the technology market by 2025. By then, the value of the compliance software solution will be $55.28 billion.
Cybersecurity professionals consider biometric authentication to be more secure than regular passwords and PINs. Dr Thirimachos Bourlai from West Virginia University states that biometrics can reliably protect personal data from fraud or theft. One cannot fake unique fingerprints, iris patterns, face or voice. That is why FinTech companies rely on this financial technology.
As the BPI Network has established, users dislike multiple passwords and consider biometric authentication to be the best form of identity verification. They do not need to remember combinations of letters and numbers, and change the password once a year. Confidential information will remain safe even when your smartphone or laptop is stolen.
With 93% of users consideringthe protection of financial accounts the most important issue, FinTech is becoming a priority industry for biometric authentication technology. According to Statista researchers, the global biometrics market will grow from $36.6 billion in 2020 to $68.6 billion in 2025.
The financial industry generates large amounts of data. FinTech is one of the five areas with a high Big Data growth rate.
The industry needs a powerful tool to collect, structure and store information. One of these is artificial intelligence (AI). According to McKinsey, every year, it generates up to $1 trillion of added value for the global banking industry. Smart algorithms improve many processes of banks, credit, and insurance companies:
- Artificial intelligence “studies” the typical behavior of users in a banking application. If a fraudster gains access to the platform AI notices aberrant behavior and alerts the client and the bank to the threat.
- Based on AI, smart virtual assistants are created. These are chatbots that help customers to solve problems around the clock.
- The technology analyzes user habits, offers personalized financial advice on more favorable terms for the client.
- An AI algorithm helps to predict business results, so the manager can adjust the company’s development strategy. Focusing on the AI predictions, the manager improves the work of the organization and operations to lead the company to the desired goal.
According to Mordor Intelligence researchers, AI will become a defining technology for the industry. By 2026, the market will grow more than three times.
“Distributed database”, or “electronic ledger” – this is what blockchain technology is called. Each transaction is recorded in a separate block attached to the previous blocks of the network. It is available to all participants. It is impossible to change, delete or forge the information entered by users. A transaction is possible only if one gets the approval of more than 50% of the participants. It is impossible to “open” such a decentralized network because each block has a unique hash, and verification is needed to complete the transaction.
Blockchain establishes procedures within the bank:
- It helps to keep an automatic record of data: how the money came, where it came from, how it was used and what it was spent on.
- It protects the bank from fraudsters because every transaction is recorded and cannot be changed. This means that it is easy to identify a hacker who is trying to commit a financial crime.
- It protects users against errors in financial transactions because they are checked by all nodes in the network.
- It allows you to make international payments and transfers faster and with a minimum commission.
In the financial sector, banks are more actively implementing blockchain than insurance and credit organizations. Analysts at Statista predict that the technology market in FinTech will grow from $0.28 billion in 2018 to $22.5 billion in 2026.
The pandemic has demonstrated to financial institutions how important mobility, remote work, and digital interaction with customers are. With social distancing, supporting businesses has become possible thanks to cloud services.
Public, hybrid and private cloud services were known before. According to McKinsey, in 2020 and onwards, the following services will become relevant:
- edge cloud, a cloud ecosystem that includes storage and computing resources;
- cloud containers as a service (CaaS);
- cloud microservices architecture;
- integration of artificial intelligence into the cloud.
With the cloud, financial companies get scalable storage and large computing power at competitive prices. The cloud supports open banking and the digitalization of the FinTech industry. That is why Markets and Markets predicts an average annual growth of the financial cloud services by 24.4%.
Virtual cards are becoming a guarantee of safe payment for goods and services on the Internet. The user pays for goods without indicating the information of a physical bank card, but only a 16-digit number of a temporary digital analogue. Such cards are stored in a digital wallet on the phone. They are used for contactless payments in both physical and online stores. The card can be freely blocked without losing access to the main physical bank card.
The virtual card is safe. A special number is generated for each purchase, and it doesn’t work after the payment. Even if a hacker steals the code, they won’t be able to use it. This is how people reliably protect money from online scammers.
Forbes analysts believe that virtual cards give financial institutes great benefits:
- cost savings by reducing the issuance of physical cards;
- productivity increase as the result of reducing the payment processing time and streamlining other operations;
- protection of confidential information from fraudsters.
These and other advantages contribute to the popularity of virtual cards. Juniper Research analysts predict that the global value of digital transactions will increase from $1.9 trillion in 2021 to $6.8 trillion by 2026.
Robotic Process Automation
Financial software development companies create software robots that mimic human actions when working with apps. A “robot” takes on repetitive tasks:
- it enters data;
- generates reports;
- manages financial information;
- checks the bank’s client for solvency;
- handles insurance claims;
- manages requests and complaints from customers;
- registers consumers;
- evaluates business risks;
- performs tasks according to strict regulatory requirements.
Robots are faster and more accurate than human employees. Juniper Research analysts see RPA as the key to FinTech success, predicting 400% revenue growth for the industry by 2023.
Statista predicts that by 2025 there will be more voice assistants than people worldwide – 8.4 billion devices. People like to use connected devices to search for information, listen to music, manage their homes, and order goods. FinTech companies want to expand the use of digital assistants by introducing them in financial management:
- Voice biometrics will become reliable protection of the user’s data.
- The owner will be able to pay for goods, check the balance by voice command, while simultaneously doing other things. Manual data entry is not required.
- Voice technologies will improve the accessibility of financial services for people with disabilities.
Researchers from Capgemini Digital Transformation Institute found that 44% of users are interested in banking with voice assistants. Capital One Corporation is actively developing voice payments and has long launched Amazon Alexa which helps customers to pay bills by credit card. Other FinTech companies are implementing voice assistants that serve as an alternative to chats, managers, and call centre operators and advise clients on complex issues. The trend is that the global market for voice and speech recognition technologies will almost triple by 2026.
The 2022 trends listed above are becoming the engines of the FinTech industry development. Technologies have enabled mobile and cross-border payments, BNPL, financial software development and super-apps. Thanks to modern technologies, banks and credit institutions are expanding opportunities, improving the availability of services, maintaining the brand and attracting customers. By relying on IT, banks and lending firms save money, reduce operational errors, and protect customer privacy. By following FinTech trends, businesses maintain a competitive edge in a volatile market.
Name: Alexandr Khomich
JOB / EXPERIENCE
Significant experience with generating actionable insights from large scale data sets. Enjoy working on complex problems with little direction that require significant planning, critical thinking, and unique insights to solve.
My name is Alexandr Khomich, and I have data with a diverse set of interests across machine learning, finance, and technology. Currently, I work as a CEO at Andersen. Being a part of the IT family for years, I aim at transforming IT processes in support of business transformation.
Author's Linkedin: https://www.linkedin.com/in/a-khomich