By EWN • 04 February 2022 • 14:47
Table of contents:
2022 ushered in a number of great expectations and some trepidation, as technology takes center stage and drives changes across every sector of society. There are 5 big trends for FinTech in 2022 that we can expect to take place: cashless society; buy now, pay later; real-time cross-border payment applications; digital-only banking; and the rapidly growing algorithmic trading technology . Notably, almost all of the changes have been fueled by the economic consequences of the COVID-19 lockdowns and the ensuing economic slowdowns that characterized 2021.
As more and more people stayed home and interacted with the world outside of their homes via computers, digital cash became king . There are now a plethora of apps that allow us to have almost any service done for us for a fee (e.g., grocery shopping, food delivery, ordering goods). Moreover, as people continue to remain cautious about human contact and the spreading of COVID-19 variants, increasingly fewer people want to handle cash. Instead, the preference has been to use credit cards, debit cards, mobile phone apps, and online payment systems like PayPal.
To gauge the ubiquity of this impending new norm, let’s look at some notable firsts in 2021. For the first time in Germany, the value of cashless transactions exceeded cash transactions. In China, the land of the mobile payment app WeChat, most people don’t use cash at all, but pay with an app on their mobile phones. Moreover, mainland China has become the battleground for digital real-time cross-border payment apps, which are now aggressively competing for the loyalty of mainland Chinese consumers. Lastly, BNPL programs have swept the globe and become some of the most frequently used digital payment apps in the world.
Buy Now Pay Later (BNPL) is a program that lets consumers apply for a consumer loan to pay for goods and services from a retailer and approves the digital consumer loan in minutes. These loans let consumers buy goods and services on the spot and pay for them later using an installment plan that fits their budget. These services have exploded as many people experienced financial instability and were short of funds in 2021. BNPL also appeals to people with little-to-no credit history, poor credit, limited-to-no work history, no assets, and limited financial reserves. Moreover, people who do not qualify for bank loans or credit cards can easily get approved for a BNPL loan.
These programs are expected to continue to grow as large numbers of people still face financial instability and have not recovered from their 2021 financial woes. Also, the ease with which the loans can be obtained makes them especially attractive to people who want to purchase something now and not wait until payday or a time when they have saved enough money to buy it using their own funds. And merchants love it! They can make sales on the spot and bank the revenue from the sales immediately. So, expect more BNPL programs to be launched and gobbled up by consumers.
The growth of blockchains and borderless cryptocurrencies has spurred more great innovations in digital finance. Just like blockchain transactions, real-time cross-border payment apps can quickly transfer money from a sender to a receiver in a different country using a mobile phone app. These transactions take minutes instead of days like bank transfers. They are also a lot cheaper, less likely to be declined, require no paperwork, and can be immediately used after receipt.
In the USA, 40% of businesses are already using these apps. As for Asia, real-time cross-border payment apps are aggressively competing to capture the interest and loyalty of people who want to send money to mainland China in a hassle-free, cheap, quick way. As the apps become more commonly used by consumers and businesses in 2022, you can expect them to be the preferred way to send money from one place to another.
Digital-Only banking (a.k.a. neo banking) is not new. There have been strictly online banks for years (e.g.,NEAT, Orange). The difference is that banking regulations have been relaxed in many countries and companies are now using blockchain and crypto to provide banking services. Companies have launched blockchain-based digital-only banking platforms that perform almost all the same services as a brick-and-mortar bank. Plus, some of these platforms offer cryptocurrency and fiat currency services to their customers. The industry was worth more than US$30 billion in 2020.
Customers using digital-only banks may be able to:
These banks are popular with crypto enthusiasts, people who want to engage in cross-border transactions, and unbanked populations. The unbanked global population has about US$1 trillion in purchasing power that can be harnessed by digital-only banks. So, expect these banks to aggressively market their services to them. Industry observers expect digital-only banking to have a compound annual growth rate (CAGR) of 47.7% over the next several years.
Look for algorithmic trading to be a booming business in 2022. There were some hiccups in 2021 when stock markets around the globe severely dipped in response to the reduced economic activity that followed the early COVID-19 lockdowns. To remedy that problem, companies stepped in and fixed the algorithms. Now, they are able to function under a broad range of economic scenarios and better able to execute trades using a wider range of triggers. For example, they have been programmed to assess increasing and decreasing liquidity in the market and track prices across a larger number of markets.
If you need further proof of their usefulness, some large trading houses offered their traders free Python coding classes so that they could better understand and utilize the power of algorithmic trading with the help of automated Python trading bots . Algorithmic trading is particularly well-suited for working with large data sets that are entered into trading programs. For this reason, it is anticipated that large trading houses and financial institutions are likely to drive its growth in 2022.
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