The State of Fintech 2022

The rise of fintech over the past decade has impacted virtually every aspect of the global financial services sector, from payments and infrastructure to lending, investing, and wealth management. Fintech products have proven highly popular with consumers, who are drawn in by lower transaction costs and intuitive user design. At the same time, investors searching for the next big thing have flooded the market with VC money, pouring a staggering $91.5 billion into fintech firms in 2021, nearly doubling the previous year’s figure. All told, the fintech market is projected to reach $324 billion in the next five years.¹

Perhaps most interestingly, the fintech revolution has placed innovation right at the heart of a sector that is by no means traditionally associated with agility and disruption. Recognizing the importance of new thinking, incumbents have adapted to the technological changes wrought by challenger banks and other digital disruptors with impressive haste. Goldman Sachs, for instance, has had more software engineers on its payroll than Facebook since at least 2015². The line separating traditional banks from tech companies has become even more blurred in the last couple of years, most notably since the onset of the COVID-19 pandemic.

As we’ll see, the way forward for fintech will most likely involve closer collaboration between startups and incumbents, as well as regulators, investors, and even consumers. The days of cutthroat competition between upstarts and legacy players could be over.

Technology is clearly driving fintech innovation, and will likely continue doing so in the near future. However, other factors, like strategic partnerships between firms and the emergence of post-COVID consumer habits, will also determine the direction the market takes as the entire fintech space evolves and matures.

Here are four trends that will shape the fintech industry in 2022.

Payment innovations

Source: ResearchGate

With trillions of dollars processed annually, digital payments are by far the largest fintech segment by transaction value³. Unsurprisingly, the underlying technology has become a focal point for innovation in the space. Silicon Valley darlings Stripe and Square have set the tone for next-gen payment tech by combining sophisticated digital payment software with sleekly designed hardware—for instance, payment terminals and card readers for brick-and-mortar retailers. These far-reaching technological changes have produced equally sweeping shifts in consumer expectations. Fast, cheap, and contactless payment options were already popular with shoppers before the pandemic; in 2021, they are the norm.

Looking ahead, innovations like “buy now, pay later” (BNPL) and mobile point of sale (mPOS) will continue to redefine payment processes for consumers and businesses alike. BNPL allows buyers to break up payments into installments, often without having to pay interest. Swedish fintech company Klarna offers customers a “Pay in 4” option, meaning they can split their purchase into four interest-free payments. While the feature has yet to go fully mainstream, it looks set to be a big hit with American consumers when it does. PayPal CEO Dan Schulman recently revealed that process volume through the company’s BNPL function saw 400% year-on-year growth during 2021’s Black Friday sales⁴.

Meanwhile, voice-enabled solutions that leverage existing smartphone voice recognition software are likely to make up the next phase of contact-free payments⁵.

Improved customer experience

Even JPMorgan Chase CEO Jamie Dimon, an icon of traditional banking if there ever was one, agrees that fintech firms have mastered the art of customer experience. “Fintech companies here [in the US] and around the world are making great strides in building both digital and physical banking products and services. From loans to payment systems to investing, they have done a great job in developing easy-to-use, intuitive, fast and smart products,” he wrote in his 2020 annual shareholder letter, under the heading: “Fintech and Big Tech are here… Big Time!”⁶

Intuitive, fast, and smart: these are the key qualities that distinguish payment platforms like Venmo and UK-based Revolut from older, less efficient financial services providers. By combining many of the functions of large financial institutions with the social media-influenced design principles of Silicon Valley, these startups have created extremely loyal user bases among their younger cohorts. Revolut goes a step further by investing in educational content aimed at introducing less experienced users to the fundamentals of stock investing, cryptocurrency, and more.

Increased collaboration between challengers and incumbents

An old Bedouin saying goes: “I against my brother. I and my brother against my cousin. I, my brother, and my cousin against the world.” In 2022, fintechs and incumbents may discover that they are, if not brothers, then at least cousins: bounded by a common set of interests, and defined by common enemies.

In this case, the enemies are Big Tech firms like Google, Amazon, and Apple, as well as their Chinese counterparts, Tencent (which owns the super-app WeChat) and Alibaba. Given their huge cash reserves, immense user bases, and diversified range of offerings, the tech giants of California and China enjoy a formidable competitive advantage that may have the effect of binding fintechs and incumbents closer in 2022 and beyond.

This new era of collaboration will likely mean more mergers and acquisitions in the fintech space, but it will also see new, innovative forms of partnerships arise, such as open baking solutions (see below). Going forward, there will be culture-related challenges to address, as agile, entrepreneurial neobanks and large, typically risk-averse incumbents struggle to move in unison.⁷ However, with so much for the taking, the benefits of such partnerships should more than outweigh the costs.

Open banking

Source: McKinsey

Originating in the UK, open banking is an exciting new development that enables banks to securely share their data with third party providers (TPPs), such as specialized fintechs ⁸. Open banking works through a process called account aggregation, which allows users to access several financial accounts in one place. This unlocks a host of benefits: consumers can move money instantly between different accounts, lenders can easily assess a client’s creditworthiness by accessing several financial records at once, and businesses can manage everything from payroll to audit preparation with unprecedented ease.

Incumbents will be particularly drawn to open banking in the coming years, as it will give them greater access to cutting-edge financial technology without having to give up their large, stable user bases. The pace of adoption for open banking is speeding up quickly; more than a dozen countries, mostly in Europe, have already granted licenses for open banking, with the US, Canada, and other countries set to follow ⁹.

Top Fintech Innovators To Watch In 2022

N26

• HQ: Berlin, Germany
• Main region served: Europe, US
• Category: Mobile banking

Founded in 2013, N26 is a fully licensed mobile-only European bank with more than 7 million users across 25 markets. The company offers a wide range of financial tools including a smart budgeting feature and advanced analytics solutions that give users actionable insights into spending, saving, and other financial activities.

By seamlessly moving the traditional banking experience online, N26 has made strides toward fulfilling its goal of “redesigned banking for the 21st century.” The quality of the company’s services were honored in July 2021 when Forbes magazine named it the “world’s best bank.”

In October 2021, N26 raised approximately $901 million in a Series E funding round, bringing total funding for the neobank to $1.7 billion.

Klarna

• HQ: Stockholm, Sweden
• Main region served: Europe
• Category: Online payments, BNPL

Why it’s an innovator: With its sophisticated payment solutions and beautiful design, Klarna has emerged as the face of ‘buy now, pay later’ technology in Europe.

Founded by Sebastian Siemiatkowski in 2005, Sweden-based fintech Klarna has emerged as the face of ‘buy now, pay later’ (BNPL) technology in the European market. The company’s core BNPL feature allows users to split purchases into manageable, interest-free installments. Klarna is not just a hit with consumers; online merchants, facing an average cart abandonment rate of about 70%, consider it a way to secure more sales.

Klarna has amassed some impressive stats: 90 million active customers, 250,000 merchants, and about 2 million daily transactions. In June 2021, the company raised $640 million in a SoftBank-led funding round, valuing the company at roughly $46 billion.

Plaid

• Main regions served: North America, Europe
• Category: Financial data aggregation

Founded in 2013 with the mission to “unlock financial freedom for everyone”, Plaid provides businesses with easy-to-use tools for building digital financial products. The company’s technology powers more than 5,000 apps and digital services across the US, Canada, and Europe. Thanks to its developer-friendly systems and beautiful design, Plaid has succeeded in establishing itself as a central node in the growing fintech ecosystem.

Plaid has proved a big hit with investors. Over seven funding rounds—most recently in August 2021—the startup has raised $734.3 million. In the same year, it appeared on CNBC’s Disruptor 50 list for the first time.

Trovata

• Main regions served: USA
• Category: Cash management, open banking

Trovata is a San Diego-based enterprise fintech startup that specializes in open banking solutions for treasury teams. The company pairs open banking APIs with automated cash management software to give businesses greater control and visibility over their various accounts. Leveraging machine learning and AI technology, Trovata also offers its clients real-time insights into cash flow data.

Founded in 2016, the company has since raised $30.6 million in funding over six rounds, most recently in January 2021.

Tink

• Main regions served: Europe
• Category: Open banking

Tink is a Swedish fintech that provides open banking services in 18 markets across Europe. Through a single API, the platform allows banking institutions, startups, and merchants to access and build upon aggregated financial data. Tink’s data-driven solutions make it easier for businesses to initiate payments, assess risks, verify transactions and accounts, and build financial tools of their own.

Serving more than 3,400 financial institutions, Tink is one of Europe’s leading open banking innovators. The company was recently identified as a leader in the space by research firm Forrester.

In June 2021, the company revealed it would be acquired by payments giant Visa for approximately €1.8 billion ($2.15 billion). Going forward, Tink will continue to operate as an independent brand within the Visa ecosystem while benefiting from the larger firm’s immense scope and reach.

Stash

• Main regions served: USA
• Category: Personal finance

Founded in 2015, Stash is a US-based personal finance startup that aims to make “investing easy and affordable for millions of Americans.” The company’s beautifully designed apps offer consumers a range of wealth building services from budgeting and stock picking advice to insurance access. With its low prices, educational content, and emphasis on “values-based” investing, Stash has proven particularly popular with the millennial generation.

Stash raised $125 million in February 2021, bringing total funding to about $427 million and propelling the company to unicorn status. CEO Brandon Krieg revealed in March 2021 that the app has seen record growth during the pandemic and suggested that an IPO may soon be in the cards.

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Footnotes

• Carlos Dafauce & Lourdes Lopez, Boyden, A View of Fintech Trends Post COVID ↩

• Jonathan Marino, Business Insider, Goldman Sachs is a tech company ↩

• Suprun et. al, E3S Web of Conferences, Competition and cooperation between fintech companies and traditional financial institutions ↩

• Kevin Stankiewicz, _CNBC, _PayPal saw use of its buy now, pay later option soar nearly 400% on Black Friday ↩

• Deren Cag, Fintech Magazine, 17 Fintech Trends You Should Know About: The Ultimate Guide ↩

• Jamie Dimon, JPMorgan Chase & Co., Chairman & CEO Letter to Shareholders 2020 ↩

• Jeroen van der Kroft, Ernst & Young, Collaboration at the core: evolving partnerships between banks and FinTechs ↩

• Ante Baus, Decode, Top 13 fintech trends for 2021 and beyond ↩

• Chandana Asif et. al, McKinsey & Company, Financial services unchained: The ongoing rise of open financial data ↩