Scott Johnson, VP, Product Development, Western Union Business Solutions

When we made predictions for 2021 we anticipated a year of post-pandemic economic recovery. Instead, we saw more turbulence, highs and lows and another challenging year for individuals, businesses and industries. This has been another record year for digital transformation and advances in the financial services sector, but we have also fallen short in some areas including crypto, 5G and digital payments.

Looking forward, we can hope to finally kick-start some economic recovery, anticipate more innovation and growth from challenger brands and hopefully see a heavy emphasis on an improved experience for the increasingly demanding customer of 2022.

Here is what I believe we can expect to see from the financial services sector in the coming year:

The evolution of challengers

All eyes will be on the merger and acquisition space in 2022 and we can expect to see further consolidation of more established first-, and second-, generation challenger brands within the next year. But by no means is the FinTech space drying up. We’re heading into FinTech 3.0 –  a continually regenerating industry where the desire and drive to solve new problems remains strong.

The financial services sector has always been a David and Goliath industry, with a healthy mix of established traditional banking giants and the more agile, innovative challenger brands, that customers are becoming increasingly comfortable with when it comes to investing their money. In 2022, the small handful of midsize profitable companies will be the ones to watch, and we can expect this mid-market space to grow. Players within this space are uniquely positioned because their operating profit means they can invest, manage a stable cashflow and have the profitability to be able to react to pricing compressions as needed. But, unlike small start-ups, they don’t need additional funding to grow and there is no need to dilute equity.

In the next year, we can expect to see headline acquisitions, mergers and investments. Some challengers will thrive, and some won’t, but that’s what makes this market agile and exciting.

The Crypto hammer is still seeking a nail

The cryptocurrency market is diverging. Volatile assets that were once considered challengers are now becoming investment opportunities as they are just too volatile for anything else – and this unpredictability will be a key theme in 2022.

Stable coins and digital currencies will be an interesting area to watch and play in. There are still big questions around interoperability and the potential for stable coin and CBDCs to iron out inefficiencies in crucial areas, and these questions are likely to remain unanswered in 2022. Making money digital is going to create real value for stakeholders and the customers of these businesses so we can expect to see a continued focus here, but key players will remain cautious and the lack of consistency in approach will remain an issue – some are investing in creating wallets for consumers, whilst others are exploring creating efficiencies for real time gross settlement, for example.

Right now, the industry feels like a hammer looking for a nail. Cryptocurrency in its current state is not a suitable payment instrument – simply put, it is digital gold rather than digital dollar. For this reason, 2022 will not be the year where CBDCs become widely adopted. The central banks still need more reassurance and confidence before they will roll them out to the mass market. We are decades away from this becoming a reality globally, and for this to happen first, we need facilitators that are willing to enable these transactions.

Will it be the year of cross-border payment innovation?

The pandemic didn’t change the direction of the digital payments industry, it simply accelerated it. We will only see a true digital payments evolution when Request To Pay (RTP) becomes more mature and it becomes feasible to request payment through RTP services.

In 2022, the combination of RTP and the rich messaging capabilities of ISO 20022, which will take place next year, provides an opportunity for digitisation of receivables that will truly accelerate digital transformation. As a direct result of these innovations, we will see a lot of processes within the FS sector become fully automated and greater efficiency for customers.

Another focus area for 2022 is making payments as easy as clicking a button. For domestic payments, we are already there. But for cross-border payments, this will, and should, remain as a two-click process. Thanks to RTP networks between major payments providers, cross-border payments for customers will become easier but due to their complex nature it would be unethical and a disservice for it to be any less than a two-click process: given the volatility of FX rates, it’s important for customers to have a chance to review costs before committing to a transaction. In 2022, we can expect to see facilitators making improvements so it is an understandable and consultative process – an improved experience for all.