Not surprisingly, the pandemic has prompted business owners to accelerate their digital transformation journeys. Digitization seemed obvious and inevitable with all the shutdowns, restrictions, and hybrid business models being imposed globally. All in all, the BFSI sector has done a very good job, quickly adapting to the new normal and embracing the latest digital banking trends.
So, where do banks invest their money? And what should those seeking stability and business continuity expect next?
Going into fintech or not is no longer the question
The statistics don’t lie, and fintech is thriving in the next generation of banking systems:
- FinTech Providers Receive a Stunning $50 Billion in Funds and Over 500 New FinTech Companies Are Launched Annually
- Global investment in fintech for 2020 alone reached $44 billion amid the pandemic
- The US Fintech Industry Raised $12.8 Billion in the First Quarter of 2021
- The Fintech market is expected to reach nearly $310 billion in 2022
We must admit that fintech is working and there is no reason to believe that it will slow down any time soon. Our future is Generation Z who are willing to spend more only when they get more comfortable. So, FinTech solutions have it all because they make our lives so much easier. But what is there?
Top 3 Corporate and Retail Banking Trends and Forecasts to Watch in 2022
We can agree that things like AI, ML, and RPA are no longer the future – they are the present. We have seen the BFSI segment dominate the RPA market with a revenue share of 29 percent in 2020. Meanwhile, 40 percent of financial institutions are planning to invest more in intelligent process automation in the next few years. So, if these technologies are present, what are those technologies that will drive the future?
Forrester suggests that leading banks will shift their focus to digital transformation to hire the best engineering talent and build safer financial systems. But is that all? Not even close. So, let’s see what initiatives deserve your attention in 2022.
1. Sustainable financing products
What is sustainable financing? Refers to investment decisions that take into account environmental, social, and governance (ESG) considerations. Currently, the European Union has a set of rules to regulate the Sustainable Finance Disclosure (SFDR). And banks, at their discretion, have fully embraced their social responsibility.
Finance and sustainability are expected to go hand in hand in the short term. Therefore, it is not surprising that sustainable finance is among the hottest trends for the BFSI sector. Together with fintech, banks will have an ideal opportunity to adapt to the new requirements of SFDR by creating sustainable and future-oriented financing products. We should expect more social impact initiatives, improved access to environment-related investment opportunities, new transition financing guidelines aligned with net-zero targets, and other sustainability-related bonds.
2. Open Banking
This trend was supposed to take off in early 2020, although it didn’t. why? One reason was that 41 per cent of European banks missed the March 2019 deadline for the PSD2 open banking pilot. Also, the banks that later met the June deadline for open banking API testing did not offer high-quality interfaces.
But here comes 2022, and the trend is more promising than ever in terms of collaborative approaches and communication between banks, fintech vendors, and regulators. What is open banking in simple words? It is a concept that obliges financial institutions and banks to give regulated third parties access to the financial data of customers. Of course, this access is provided only with the permission of the customers and will be used to develop new applications and service platforms.
Open banking means better transparency for consumers and more opportunities for market players ready to revive the BFSI sector. Financial institutions will be able to offer the full range of customer-centric banking capabilities as a service and remain competitive. Finally, the global open banking market share is expected to reach more than $43 billion by 2026. Meanwhile, 90 percent of financial leaders expect the open data economy to boost organic growth by 10 percent.
3. Buy Now, Pay Later (BNPL)
Initially, the BNPL boom started in e-commerce, but now it is rapidly invading the BFSI industry as well. Investors poured nearly $4 billion into BNPL companies in 2021. Speaking of the most popular now-pay-later apps, there are pioneers like Afterpay and Klarna partnering with Stripe. Affirm has agreements with Shopify and Amazon. Apple Pay is promoting the trend in collaboration with Goldman Sachs. Meanwhile, Splitit takes advantage of Mastercard and Visa to provide buy now and pay later without a credit check.
This market trend offers customers financial transparency, no additional fees, installment plans, and a great alternative to traditional credit. Therefore, the growth will only continue as online shopping booms. Moreover, the list of providers expands monthly with Buy Now, Pay Later in catalogs that now include 10 plus companies. So, this is an ideal opportunity for traditional banking institutions to discover new sources of value and keep pace with customer requirements.
Trends in Financial Services in 2020-2021
It is worth noting that some of the technological developments that we only expected before are now ubiquitous in financial processing procedures. These developments will be:
- Excessive automation and RPA
- Wealth Tech
- Increase cyber security
- SupTech and RegTech
- cloud computing
- new banks
- Embedded Financial Services
- decentralized finance
- Big Data, AI, ML
- Digital Banking (Non-cash)
We also continue to see the rise of banking as a service, banking that supports video and voice, and the acceleration of cross-border payments.
We are all aware that banking institutions face significant digital challenges amid the ongoing pandemic, frequent shutdowns, and economic volatility. All of this requires rethinking the overall operational strategy, creating mutually beneficial partnerships with fintech vendors, and enhancing engineering capabilities across organizations. But what we do know for sure is that we are going through unique transformations and the technological future can still have a few tricks up its sleeve.