Technological progress is driving FinTech development. Amid the growing bonhomie between financial services and technology, industry insiders have dubbed 2022 as “the year of the value chain disruption” powered by technologies such as Artificial Intelligence (AI), smart contracts (blockchain), Robotic Process Automation (RPA), etc.
Although disruptions by technology in the financial services value chain have been in the works for a while now, the spotlight would be more on such activities making value chain disruption in FinTech even more profound in 2022. Digital wallets are on the boom as countries across the globe scramble to set national regulatory standards. Let’s look at how technology will shape FinTech and banking in 2022.
Top Banking and Fintech Trends 2022
1. Digital-Only or Neo-Banks
Digital- Digital-only or neo-banks build retail banking experiences from scratch and exist only in the virtual world. Digital-only banks offer financial services such as global payments, P2P transfers, and trading in cryptocurrencies. Neo-banks, such as Varo, Chime, and Aspiration, are already operating in the US.
Modern-day consumers are also expecting more from their banks. And they are not taking much time shifting to the competition if their expectations are not met. Neo-banks are thriving because they are offering something that customers have always wanted from their traditional banks. However, these conveniences come with a few riders. According to Cyber Security Statistics by FinancesOnline, financial fraud is globally the leading internet crime. Although digital-only banking services offer affordability and convenience, they are susceptible to risks with financial fraudsters lurking over the internet.
Furthermore, banking involves many physical touchpoints, as trust is a significant factor. What happens in case a customer runs into trouble with a transaction? Visiting a physical brick-and-mortar branch is the only solution in such a scenario. Phygital banking is a business model that offers a mid-way approach wherein physical and digital banking collide to deliver enhanced customer experiences.
2. BNPL - Another Interesting Story That’s Still in Its Early Stage
The buy-now-and-pay-later or BNPL industry is booming. Consumers seem to be falling for the immediate benefits that BNPL schemes offer. It’s emerging as one more line of credit for modern-day consumers and aims to simplify the shopping experience for the customer. When the BNPL benefit or scheme is activated, the customer does not have to worry about the cash or entering their credit/debit card PINs and other details to complete the purchase.
Now, if we look at some of the fast-developing countries like India, BNPL is in its early stage. According to Redseer, the largest internet-focused advisory firm in emerging markets, the buy-now-and-pay-later industry in India will touch $45-50 billion by 2026 from the current $3-3.5 billion. The research firm also estimates that the number of BNPL users in India may rise to 80-100 million from the existing 10-15 million users.
3. Global Financial Services Make-Over with Blockchain
The US is leading the world in blockchain usage, ensuring its widespread adoption across all quadrants. According to Statista, Blockchain.com had 63 million wallet users as of December 2020. Blockchain technology remains on the path of completely changing the face of financial services worldwide, owing to its genuinely global outreach and highly-affordable processing fees. In the US market, next-gen blockchain companies are on the road to improving the cost and functioning of core infrastructure by focusing on specific use cases. Blockstream, R3, and Symbiont provide general solutions, Securitize and Global Debt Registry focus on capital markets, and ConsenSys and The Interface Financial Group target supply chain finance.
And, let’s also not forget the smart contracts (a key component of a blockchain ecosystem)
Smart contracts can be defined in multiple ways. But they are essentially self-governing and self-executing contracts that are written as code and are, in many ways, transforming the banking and financial services industry. Smart contracts are increasingly automating many manual and mundane processes across banking and financial services and reducing operational costs and improving efficiency. In 2022 and beyond, smart contracts will witness an increased adoption rate in the industry.
4. Banking-as-a-Service (BaaS)
All banks need to build an infrastructure or partnerships to support basic functionalities such as storing money, payment processing, and remittances. New-age banks have turned this idea into a product. Banking-as-a-Service (BaaS) is a FinTech innovation and end-to-end process that empowers FinTech companies and third-party organizations to connect with a bank’s system through APIs. BaaS helps financial services companies build their services on a bank’s regulated infrastructure while enabling open banking services.
Many US-based banks empower neo-banks to gain access to cost-effective deposits and rich revenue sources in the process. For example, Cambr and SynapseFi build API platforms for digital-only banks.
Similarly, Prime Bells sells BaaS enablement software to various banks. Green Dot, The Bancorp Bank, and BBVA Open Platform have launched their own BaaS platforms.
5. AI a Must for Financial Institutions
Among the first to embrace Artificial Intelligence (AI), the sector continues to witness a much wider AI adoption with banks fine-tuning their AI strategies. According to projections AI will help banks reduce their operational costs by 22% around 2030, leading to savings of around $1 trillion. In addition, AI is poised to equip financial institutions with the capabilities to deal with the growing menace of cybercrime and financial fraud. AI is already commonplace in the financial services industry for providing customer support services by leveraging chatbots and other smart systems. Popular AI-driven customer service software includes Zendesk, LiveAgent, Freshdesk, and Vision Helpdesk.
6. AI-Powered Voice and Speech Recognition
AI-powered voice and speech recognition software and solutions are witnessing an increased adoption by leading banks and financial institutions worldwide. As a result, modern-day consumers are getting increasingly well-versed with voice technologies. Over 51% of consumers are already using voice-enabled virtual assistants via their smartphones. So, it’s only a matter of time before customers would be able to use voice technologies to interact with their banking and finance apps.
HSBC has already introduced voice recognition capabilities in its products released to its customers. Now, according to the bank, their mobile banking customers no longer need to struggle to remember their passwords or other relevant data to get access to their accounts.
7. Hyper-Personalization for Ensuring a New and Improved CX
A Deloitte report, ‘The future of retail banking: The hyper-personalization imperative November 2020,’ stresses that “Hyper-personalization is imperative for banks, enabling them to respond to customers’ manifest and latent needs.” And AI can be proactively leveraged to design and deliver hyper-personalized CX or customer experiences. Hyper-personalization is growing in importance across banking and financial services sectors and involves steps to acquire a comprehensive view of the customers and leverage data and analytics to provide personalized and contextual offers.
In an age where most banks are still using mass-marketing campaigns to attract and convert their customers, the forward-thinking organizations stand to gain significantly from employing AI-based solutions and a myriad of other technologies to build deeper customer relationships and drive up sales and conversions.
Besides the top 7 trends we shared in this blog, there’s another trend that has been catching steam in recent years: Tech companies entering the banking space. Modern banks are a combination of data and technology companies. There is a stark similarity between banking and software engineering processes and fundamental concepts such as transaction tracking, ledgering, and predictive modelling. Following suit with their East Asian counterparts, several American digital-first tech companies have forayed into financial services and banking.
By launching Apple Card in collaboration with Goldman Sachs, Apple Inc. has reinvented the credit card ushering in a new phase of branded FinTech experiences. By introducing shopping on Instagram and testing payments on WhatsApp, Facebook has already signaled its entry into the financial services space.
Banking and Fintech in 2022 and Beyond: Embracing Disruption
Technology is fast disrupting the entire business value chain in the banking and financial services space reshaping the role, models, and competitive environment for financial institutions and the markets and communities they serve. As the dust settles post-crisis, regulatory frameworks have fallen into place globally, with financial institutions reshaping their business models accordingly.
It has become abundantly clear that digital innovation’s accelerating pace is the most creative force and the most destructive one in the present time’s financial services ecosystem. As per the Subject Matter Experts (SMEs), these emerging technology trends shall continue to drive innovation in banking and fintech in 2022 and beyond.