As we countdown the final few days of 2021, another year dominated by a global pandemic and lockdowns, the financial industry has continued to evolve to keep up with the new “normal” for banking and payments.
So, what does this mean for 2022? We’ve outlined below six trends that we believe will shape all things finance next year.
BNPL becomes ubiquitous
Buy Now Pay Later (BNPL) has become an increasingly popular payment option for consumers when purchasing online. This sector has boomed in 2021. There was tremendous growth for both the companies providing this staggered payment model and the types of outlets that have added the option to their online storefronts.
The global BNPL market is expected to reach a staggering US$ 20.40 billion by 2028, with data company, Equifax, estimating some 15 million adults in the UK alone are regularly using this deferred credit option when shopping online.
So, how will BNPL grow in 2022? Firstly, the types of goods you can use BNPL to pay for will expand. As Harrods, a high-end luxury brand, showed when it announced BNPL as a new service, it will no longer be favoured among the lower value retail goods.
And it won’t be limited to the retail sector. Are you looking to purchase expensive theatre or concert tickets? No problem – BNPL it. Want to go on a luxury holiday after two years at home? BNPL can help you spread the payments.
With this ubiquity, increased regulation and security will also help tackle cyber fraud and protect both outlets and consumers from falling foul of payment pitfalls.
More traditional banks go digital
What happens when a global pandemic sees bank branches shut or significantly reduced in opening times and services? Consumers turn to digital. Just as we saw a meteoric rise in online shopping during the last 24 months, so has the growth of online and digital banking with consumers.
A recent survey by financial publication PYMTS and MX found that 20% of consumers are very interested in switching from their traditional bank to the open platform offered by digital counterparts.
So, 2022 could be the year of reckoning for many high street banks; adapt or become extinct. Many of these banks already have digital brands (and we are proud to say some of them built their banking apps on the Pismo platform). Others will likely follow in 2022.
Embedded finance steps into the spotlight
Embedded finance allows banks to embed their digital services directly into the platforms of non-banking businesses. So they can offer financial products such as credit cards and loans to the customers of these platforms. Embedded finance typically uses Banking as a Service (BaaS) as the underlying infrastructure.
Financial services in non-financial apps are convenient for consumers who are becoming confident with using digital and online banking apps. It provides many more competitive options based on their individual needs and lifestyles.
A recent study into BaaS by Technavio highlighted the growth potential for this market as it increases by US$ 3.04 billion between 2020 and 2025, with Europe enjoying the highest growth and a 33% market share.
In 2022, we expect to see many companies from all industries, including retailers, airlines and even small businesses, partner with financial platforms and start to offer more and more financial services embedded in their websites and apps.
Whatever next year has in store for the world, one thing is sure: the hyper-growth of modern banking and payments is here to stay, and we’re excited to be at the forefront of the revolution!
The rise of new payment methods
Among the myriad trends which COVID-19 has accelerated is a move away from cash and even credit and debit cards. Open banking has taken off across the world, and customers are experimenting with new ways to pay without the presence of cards at all.
In 2020 cards eclipsed more than half of all transactions in the UK for the first time. Of the 17 billion payments made with cards, 7 billion were contactless. As consumers disassociate the mechanism of payments with the physical sensation of punching in a PIN or handing over cash, they will warm to cutting-edge new ways to pay.
New real-time cardless transactions made possible through open banking will make fresh headway in the market, offering consumers and businesses a chance to exchange data and payments without having to search for their cards.
Users can send payment requests through SMS, WhatsApp, or with a QR code. They access the transaction through API connections and tokenised security. Hence they only need to authorise the payment with their bank.
API connections and swift services are our bread and butter. Pismo has been built from the ground up to be modular, flexible. Our clients can be ready to connect to new trends in the market when they occur, rather than wait months or even years to tap into new methods and trends.
Core systems shift to the cloud
Financial institutions have long been gradually shifting to the cloud. Yet the last 18 months have shown market participants realising a redeployment of their computing infrastructure, which can become a fundamental baseline for adopting new technology.
Google data shows that 88% of the finance firms are planning to adopt a multi-cloud strategy in the future, with 83% stating they already deploy at least one system on the public cloud. Despite this, many core functions remain in-house, deployed in costly racks of servers and tended to with substantial maintenance costs.
Only around half of the firms in the industry deploy a significant portion of their workloads on the cloud. Core banking (40%) and data reconciliation (48%) are ranked as the systems least likely to be deployed in the cloud.
In 2022, financial services firms will continue to maximise the potential of the cloud by migrating more core workloads and services. The cloud has become a benchmark for digital disruption and innovation. Furthermore, the pandemic has showcased how an ability to create, deploy and scale new digital products quickly can be a real differentiating factor.
The year of the multichains?
According to a report by Grand View Research, the global blockchain market is valued at US$ 5.88 billion and expands at an annual rate of 82.4%. It is predicted to reach US$ 394.6 billion by 2028. Part of this explosive growth is happening because people went crazy buying NFTs. But, of course, other financial services are also using blockchain technology.
This fast growth brings scalability challenges. For example, some transactions performed in Ethereum, the second-largest blockchain network (after Bitcoin), have become relatively slow.
Companies are working with two possible solutions for this scalability problem. The first one is interconnecting several blockchains to create multichains (also called crosschains). In 2021, we saw several multichain aggregators emerge. In 2022, this solution may be widely adopted.
But there is another option, specifically in the case of Ethereum. Its creators are upgrading this network to make it more scalable and secure. If Ethereum 2.0 (ETH2) succeeds, maybe multichains will lose their necessity. No doubt we will see what solution the market turns to in the coming year.