Moving From the Physical to the Digital Economy: Top Fintech Trends of 2022

  • Stuart Barclay, Head of Growth, Financial Services at Trustly

  • 11.01.2022 02:35 pm

The fintech sector has undergone massive growth over the past 18 months and shows no sign of slowing down. According to KPMG, global fintech investments during the first half of 2021 reached a record $98bn up from $87.1bn in the same period in 2020. Throughout the pandemic, the sector has proved resilient. As the world experienced a mass shift to online — from shopping, to payments, banking and more — the fintech sector, capable of quickly catering to our ever-changing consumer preferences, saw immense growth. 

Whilst we hope 2022 sees a return to safer physical interactions, digital is here to stay with new and exciting business models cropping up to cater to these changes. For fintechs to remain competitive, it’ll be important they keep pace with the following trends we expect to see exponential growth in in the next year.

Prediction One: Merchants will take open banking payments global

Global Open banking payments are expected to be valued at $116 billion by 2026. Open Banking is growing exponentially in Europe and the US and it’s set to explode even further over the coming 12 months. The key to this growth will be in how we transform open banking into a complete payments solution — one that is able to provide, among other things, high coverage, seamless reconciliation, instant payments and instant refunds. 

Providers able to deliver these features will drive this growth and enable merchants to shift to payment methods that offer a compelling alternative to cards, and deliver meaningful benefits to their consumers. 

Merchants are starting to realise the largely under-reported benefits of this transformation to their business model. Providing consumers with a seamless, instant way to pay will increase customer acquisition and lifetime value. For example, 56% of European investment customers would add more funds to their account if funds were credited instantly and 58% would add more if they could withdraw funds instantly. Moreover, these revenue driving benefits can be achieved with lower direct and indirect costs versus card.

Through open banking, merchants are able to support a better customer experience globally, which supports them in building brand trust and loyalty. Customers want the reassurance that their funds are safe, not at risk of fraud, and that they can get immediate refunds. Open banking also offers these capabilities when it comes to cross-border payments, which further lays the groundwork for the exponential growth we will see.

Prediction Two: Payments will replicate the immediacy of physical cash transactions, online

One major result of the pandemic is the accelerated move to a more digital economy. The call to reduce physical contact included avoiding cash-in-hand and acted as a catalyst for digitising economies around the world. In fact, by 2023, Sweden aims to become the first digitised economy, with only 9% of Swedes stating that they prefer physical cash payments. The UK is rapidly following suit and according to Merchant Machine, could be fully cashless as early as 2026. 

As consumers increasingly embrace this digital economy and shift to online payments, we’re going to see an increasing demand for alternative payment methods (APMs) which are optimised for the online world, unlike the card, which was designed for use offline. 

A great example of this opportunity for APMs is Amazon, which recently reported that it no longer intends to accept Visa credit card payments, owing to the rising costs of transactions relative to the value provided. Consequently, the APMs that flourish will be those that can deliver instant security, immediate payment transfers and instant refunds.

We’re seeing consumers increasingly demanding financial services that can provide the immediacy that physical cash transactions once did. In a recent e-commerce survey conducted by Trustly, 65% of consumers stated that the speed and ease of refunds determines where they shop, whilst 95% stated same-day refunds would determine their loyalty to a merchant. It’s clear that there’s a real demand for the replication of the physical transfer of payments in the digital world, and the ease of digital, in the physical world. 

Prediction Three: Fintech organisations will need to align with consumer values

Conscious consumerism has been a major by-product of the shift towards sustainable shopping in 2021 and is projected to define shopping habits in 2022, particularly amongst millennials and Gen Z. Conscious consumerism is not a passing fad, rather it is the “new normal” in sustainable shopping. Consumers are increasingly willing to invest their money and loyalty into brands that are invoking positive, societal change. Millennials and Gen Z typically research whether the goods and services they consume align with their ethics and passion for sustainable development. 

But, consumers also expect to be able to make sustainable payment decisions. We’ve seen the rise in buy-now-pay-later (BNPL) services with PayPal reporting that volumes surged 400% alone on Black Friday. Yet, there are real concerns that the boom in this payment method will see consumers taking on increased personal debt, without even realising it. 

As greater awareness around the challenges associated with BNPL services increases — from increased personal debt, to the challenges associated with poor regulation — we’re going to see greater demand from consumers for the ability to pay with the money that they actually have. For example, according to our research, some 71% of consumers prefer to pay with debit and are searching for alternative, debit-based transactional platforms.

These three major trends are set to revolutionise the fintech sector. The pandemic has created an overwhelming increase in push-button consumerism, where banking, shopping and much more can all be done on phones and laptops. 2022 will be the year in which the move toward a global, digital economy, will be defined through customer demand for instant, secure and transparent financial transactions. Ultimately, consumers are demanding the replication of the physical transfer of payments in the digital world, and the ease of digital, in the physical world.  

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