There was a huge likelihood that the financial technology (fintech) sector would experience a lull in activity due to COVID-19. However, 2021 surprisingly remained a booming year for this sector. KPMG’s Pulse of Fintech report estimated that the total UK fintech investment hit a whopping $37.3 billion (£29.57 billion) in 2021— up sevenfold from $5.2 billion (£4.13 billion) in 2020. Several new trends seem set to influence the financial services market this year, so it is worth knowing. Here are some of the top predictions for the fintech market in 2022.
- A decisive year for cryptocurrency
Finder’s February 2022 survey revealed that the UK’s crypto ownership rate is currently at 6.1%. Cryptocurrency undoubtedly remains one of the hottest financial services trends in recent times. It has been 13 years since the first-ever Bitcoin was mined, but many sceptics remain unimpressed. On the other hand, cryptocurrency enthusiasts view the crypto market‘s price turbulence as a slight distraction from the technology’s cutting edge applications. Many experts predict that both sides will have more proof to back their perspectives this year than ever. In addition, the authorities will take more decisive steps regarding cryptocurrency, making 2022 the technology’s “make or break” year.
- The continuous rise of artificial intelligence and machine learning
Financial organisations were forced to embrace more automation out of necessity because the pandemic forced several companies to adopt remote working. However, artificial intelligence (AI) and machine learning (ML) now play key roles in several financial institutions. Artificial intelligence can solve complex problems while machine learning studies data, and the combination of these two technologies is beneficial for the financial services industry. For instance, these technologies help financial organisations automate laborious functions and services previously handled by staff.
This automation process helps organisations broaden their capabilities by streamlining their services and freeing up skilled workers for more engaging tasks. For example, ML and predictive analysis can streamline typical insurers’ tasks like claims processing and pricing in machine learning and insurance digital transformation. This way, underwriters can focus on more complex applications, making better use of their time. Furthermore, many experts agree that AI has several use cases in financial services, from risk assessment to customer service. Therefore, it is expected that more financial sector organisations will adopt AI in 2022 as the technology’s use cases keep growing.
- The transformation of cross-border payments
The Bank of England forecasts that by 2027, the total worldwide cross border payments will reach £198.46 ($250) trillion, with business-to-business (B2B) payments constituting the largest share. The general rise in cross border payments is mainly due to more investment, ecommerce, and trade. However, it is no secret that these transactions are still expensive, slow, and inefficient. Cross-border transactions are so cumbersome because they exist primarily in outdated systems with different data in each jurisdiction and low competition in the field. The G20 pledged in 2020 to focus on making cross-border transactions more effective and to set up a practical plan and roadmap engaging with several stakeholders. The Central banks will need to upgrade their payment system based on this plan, while new private sector actors will have to adapt to it. Hopefully, 2022 is the year we will notice this plan in action, leading to cross border payment systems’ transformation.
- The rise of digital and neobanks
The banking industry has always been a monopoly with many high entry barriers. However, relaxed regulations worldwide have enabled neobanks to attract clients with convenient mobile banking, a better user experience, and lower fees. Neobanks, often called “challenger banks,” are fintech organisations that offer software, apps, and other technologies to boost mobile and online banking. These banks are becoming more popular in the UK, with Attest’s 2021 research revealing that 45% of UK consumers were considering opening a digital bank account in the next six months. With more and more people getting online globally, you can expect digital banking to overtake in-store services soon.
- Non-Fungible Tokens (NFTs) and the metaverse
The Collins Dictionary selected “NFT” as 2021’s word of the year for good reasons. The term was relatively unknown at the start of last year, but almost everyone had heard of it by the year’s end. It is already clear that NFTs will not evade scrutiny this year, given their interest and prices in the entertainment, arts, and sports world. NFTs may appear abstract to many, but the metaverse provides a practical use case. Admittedly, the metaverse is a few years away, but 2022 may see several fintechs and financial services providers take careful steps toward creating solutions and products for meta-commerce.