Fintech’s set to have a big year in 2022 – here are three reasons why

It is fair to say that today fintech is firmly entrenched in society and our economy. I would say it “crossed the chasm”: as founders, we spent the early days explaining to people what fintech is, what our product is and why it was worth listening to us.

That chasm in understanding fintech, other companies, and the public was bridged some time ago. But this does not mean that the industry has finished developing. Last year we saw extraordinary levels of investment in UK fintech companies breaking records. Here are three main trends that indicate that 2022 will be another significant year for fintech.

Embedded financing will be everywhere

2022 will be a big year for embedded finance, the term used to describe the act of (often non-financial) companies integrating financial products or services with their existing businesses. A bicycle retailer, for example, might see bicycle sales as their main source of income – but could supplement this by offering bicycle insurance products as well.

But why will 2022 be such an important year? Two converging trends point in this direction.

First, we’ve seen fintech companies increasingly focus on developing services that are provided through APIs. An API is code that allows two apps to talk to each other, and in practice this allows businesses to easily integrate features like payments, credit, and insurance to existing apps or services their customers already use — like paying bills through an accounting package, or trading stocks within your banking app.

The second is the unprecedented digitization that we’ve seen over the past two years. This means that there are now many companies that have a strong digital platform on which they can promote financial products or services.

If you also take into account the need for companies to identify new sources of income in the wake of economic turmoil, it is easy to see why embedded financing is so attractive.

“The Great Deconstruction” is turned upside down

Over the past few years, companies from fintech sub-sectors like Insurtech and richtech have come out of the gate in what you might call the Great Deconstruction – niche service providers that offer a single service that specializes in insurance or wealth management, and don’t do much else.

Increasingly, we see that logic has been flipped. In fact, the big disassembly became the big reassembly. Now these same specialists are beginning to expand their offerings – such as Wealth Technologies that have won customers over with a basic proposal that now offers other banking services.

Some forward-thinking industry commentators believe that the future of financial services lies with companies best able to organize and deliver a selection of high-quality services and APIs to customers — not necessarily companies developing proprietary proposals.

This means that many companies that were once happy to sit side by side with other specialized service providers are now competing for the same customers. Whoever wins will play a huge role in defining the shape of the fintech industry.

DeFi apps emerge in the real world of crypto mania

Few would be surprised if the cryptocurrency continues to rise this year, despite the inevitable continued volatility. Perhaps the most interesting aspect of this is the companies, governments, and other groups that offer more practical use cases for cryptocurrency and other forms of decentralized finance, or DeFi.

We have already seen increased support for bitcoin as a legal currency in Latin America after its adoption by El Salvador, a move that was derided by some but ultimately implemented as a game to address import-induced fluctuations in local prices.

We have also seen that the UK government continues to make noise about the development of a British CBDC – ‘Bitcoin’. A relatively unproven concept, digital central bank currencies nonetheless is a tantalizing prospect for many: Central banks could acquire a very sharp monetary policy tool, unlike anything they have today, with the ability to apply different interest rates across different parts of the economy.

Of course, cryptocurrency is just one application of DeFi. By removing intermediaries and enabling financing to become a procedure taken directly between two people, or indeed individual companies, DeFi could have massive effects on banks and other financial institutions, with the potential to revolutionize everything from music royalties to contract law.

When fintech works well, so does society

Back in the past 24 months, I feel a little rude when making bold predictions for the next 12 months – you never know what might happen next.

But if the past has taught us one thing, it is that the FinTech sector has been able to triumph and even rise above the challenges. This year, we will have another big year. This is something we should all celebrate. When the fintech industry does well — whether it’s a company that helps money move more easily around the world, or a company that helps prevent financial crime — society often benefits too.

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