At the end of 2020, the global fintech sector was worth an impressive $110.57 billion. Analysts have predicted this will grow at a compound annual growth rate of around 20.3% between then and 2030, reaching $698.48 billion by the end of the decade. As a sector, fintech includes applications, computer programs, and other forms of digital technology that are used to facilitate or support financial services. This includes online banking apps, digital payment apps, and businesses working with digital currencies. The industry is constantly growing and evolving as new technologies disrupt the status quo. For example, crypto and blockchain have dramatically changed the industry, as have other technologies like AI, big data, and biometrics. But what are the big trends for 2022? Four months into the year, we can now look ahead to see which technologies will dominate the industry now and into 2023.
Increase in mobile payments
At least two billion people around the world regularly use mobile payments, a number that is steadily increasing in the regions like the entertainment industry. Millions more start using mobile payments every year – the industry is growing rapidly in Southeast Asia and South America, for example, which are both incredibly populated regions. This growth has been fueled by increased accessibility to affordable smartphones, free WiFI, low-cost internet connections and a tech-savvy population. Today, many see mobile payments as a better way to pay than physical cards or cash. For example, payments through a QR code, sending app-to-app payments, or using payment links are just some of the ways people today pay their bills.
However, this development is not without problems. For example, the rise of mobile payments has raised concerns about money laundering and how to prevent it. When payments were mostly face-to-face and required a pin or signature, it was easier to determine if a transaction was genuine. But via mobile, this can be more difficult because pins, signatures, or even the view of the person are no longer necessarily part of the process. For those who work in financial or fintech institutions, understanding how money laundering happens and how to prevent it is essential, which is where resources like Advice from SEON for AML in banking come, alongside formal training. Staying aware of money laundering risks is essential, as failure to control money laundering can lead to significant compliance fines, which can also damage your business reputation.
Also known as an electronic wallet or eWallet, a digital wallet is an application that you have on your mobile, tablet or computer. It allows you to store all your payment information and passwords in one place, linking all your accounts. Beforehand, you must enter all your card and account information, including name, card number, expiration and security code. Then you simply use the digital wallet to make the purchase and select the payment method you prefer. This means that when it comes to making payments, you don’t need your card at hand. This information is securely stored where only you can access it. Common authentication includes a fingerprint or PIN, especially with mobile devices. At the end of 2020, there were at least 2.8 billion mobile wallets in use, with a forecast that will exceed 4.8 billion by the end of 2025.
This demonstrates that digital wallets are here to stay and are an essential part of fintech that you need to get to grips with in 2022 and beyond. Currently, PayPal is the number one digital walletfollowed by Amazon Pay and VisaCheckout.
Central bank digital currencies
A central bank digital currency is a digital coin pegged to fiat currency and issued by a national bank. Several countries around the world have already taken the plunge and are offering digital currencies, while others are in the works. They were developed because even though some people are still skeptical of cryptocurrency, they recognize the value of digital currency as people increasingly prefer to transact digitally, using e-wallets and online accounts. Another benefit of using digital currencies is saving governments a fortune by printing and issuing physical money. For example, a $5 bill costs 10.8 cents to create, rising to 14 cents for a $100 bill. When you consider over 50 billion banknotes in circulation in the United States, you begin to see how the cost mounts. Countries with CBDCs already launched include the Bahamas, several Caribbean countries and Nigeria, UK, US, China and many others currently exploring the possibility.
Buy now, pay later
Buy-now-pay-later (BNPL) is a type of short-term financing where customers can purchase items and pay most of the cost at a later date or pay the cost in smaller installments. Typically, they make a small upfront payment and then repay installments periodically over a period of time. These can also be called “point-of-sale installment loans”, but BNPL rolls around a little easier. This type of payment has grown significantly in popularity over the past few years, thanks to a number of savvy fintech startups. One of the greatest BNPL companies in Europe are Klarna. Launched in 2005, the company has amassed a valuation of over $45.6 billion, processing millions of transactions in the region and beyond.
While initially serving the EU market, Klarna now offers services in the US and has even created its own credit card. It is only one of the many operators in the sector which benefits from the notoriety of the BNPL. It is a growing sector with a lot of potential and one that remains highly regulated, mainly due to fears that consumers will go into significant debt. Concerns have also been raised about cases where BNPL companies have been used in incidents of identity theft and fraud, requiring tighter controls.
Of course, we never really know what new technologies await us. We may be surprised and have the rest of 2022 dominated by something we didn’t previously believe possible. Stay tuned.