As 2021 draws to a close, it’s safe to say that this year has been full of ups and downs. With the world very cautiously emerging from the global pandemic, one thing has remained constant: the innovation and growth the fintech industry continues to bring. While the year has been a whirlwind for most, the fintech sector has seen many challenges and opportunities that will no doubt continue into the next 12 months.
This December, The Fintech Times is asking industry leaders for their ‘View from the Top’ to gain an insight into the decisions behind the last 12 months. Today, we hear from Brent Jackson, Dr. Navneet Gupta, Rich Cooper, Maria Palmieri and Gary Allinson on their 2021 thoughts, plus a look ahead to 2022. Will there be a Happy New Year? Read on…
Brent Jackson is the Founder and Chief Executive Officer of Torpago. He said:
“We will continue to see rapid acceleration within the embedded finance space. In 2021 we saw significant adoption and growth within the embedded lending space, specifically with BNPL companies like Affirm, Klarna and others offering their solutions to consumers via pos and check out.
“In 2022 I anticipate that more software and technology companies will add financial service offerings to complement their core product and generate more revenue per customer.
“The financial services space is going through a massive transformation away from the legacy providers. I believe that the enablement companies powering these offerings behind the scenes, such as card issuing and banking as a service will continue to see rapid growth in 2022 and beyond.”
Dr. Navneet Gupta, Founder of YPay, shared insights on the Indian fintech sector.
He said: “The fintech industry in India has witnessed a compound annual growth rate (CAGR) of 24.56% according to recent market reports. The overall economy is now shifting gears from physical to digital- and this time not gradually. The ball was set rolling by demonetisation and has gotten a strong push during the pandemic, leading to digital transactions going up. This trend has only continued its upward trajectory in the past few months.
“Vertical payments industry has been on the forefront of taking advantage of this shift, spurring innovation and entrepreneurship in this space. Industry leaders, who have seen this increase in scope, have developed the embedded banking infrastructure for users wherein financial products could be accessed under the same roof on a device. This, along with the digital transition induced by demonetisation and spurred on by the pandemic, plus the need for contactless payment methods has led to a significant rise in digital payments over the past couple of years.
“On the future, there has been a growing movement towards convergence of various sectors and products of the financial services industry. So far, we have seen banking, insurtech, payments, and crypto being brought together effectively.
“However, the full scope of innovations and solutions in this space still await full exploration. Two points of concern also remain- first, physical methods and interfaces are still required at various points and modes of payment; second, the process of embedded finance is yet to be achieved completely.
“All indicators do point to both- 1. contactless payments over physical modes of payment, & 2. embedded financing- continuing on their upward trajectory of growth, though.
“Additionally, a new trend that has recently caught on is ‘finance for kids’. This space, neglected for the longest time, has now caught the eyes of many. Even traditional banks are planning innovations in these areas as the products targeted to this demographic require special security measures and features in terms of products. We do expect, in the next year, to see the creation of solutions and services that simultaneously provide financial autonomy and valuable lessons in money management to the younger generation.”
Rich Cooper, Global Head of Financial Services Go-To-Market at Fusion Risk Management, said:
We’ve seen the integral role third-party vendors play in determining the resilience of financial organisations. No bank or financial firm exists in a vacuum. They are part of an ecosystem alongside Financial Market Infrastructure (FMIs) and third-party vendors.
“The impacts of the pandemic highlighted the critical nature of third-party risk and made banks and other financial institutions realise proper due diligence is not a box-checking exercise and the acceleration of technology in the industry is rapidly changing the landscape. Historically, third-party risk management focused on risk assessments, due diligence, and contract management, but financial institutions came to realise these precautions are not failproof in today’s environment. Financial firms began to prioritise ongoing third-party monitoring. Signing a contract is no longer the endpoint of analyzing vendor risk; it’s just the beginning. Financial institutions have begun the journey to enforcing ongoing monitoring requirements to ensure adherence to terms.
“There is no one size fits all approach for financial firms or vendors. Vendor partnerships and collaboration in testing plausible scenarios is now a rapidly maturing best practice. Continuous monitoring and a closer partnership allows firms to understand the changing relationship as technology advances and ecosystems become more complex.
“Financial firms can expect to experience a greater expectation of accountability in minimising risk and meeting maturing regulatory expectations. One trend is the increased focus on cyber and technology risk. All firms with operations in the EU are closely following a new European legislative called the Digital Operational Resilience Act (‘DORA’). It’s designed to consolidate and upgrade ICT risk requirements throughout the financial sector to ensure that all participants in the financial system have the necessary safeguards in place to mitigate cyber-attacks and other risks.
“Another trend we’ll see maturing in 2022 is the need to integrate a comprehensive ESG framework into business operations. Customers, employees and investors are increasingly holding financial companies to account for their ESG practices around equality and diversity, for example, and climate change.
“Simultaneously, the regulatory discourse around the role ESG plays in risk modelling is getting stronger. The US House of Representatives recently passed legislation that, if signed into law, would require companies to report ESG metrics. In Europe, Sustainable Finance Disclosure Regulation (SFDR) continues to evolve. Financial organisations will need to fully understand the ESG issues that affect their company and ensure to embed them into their risk management and business operation framework.”
Maria Palmieri, Head of Public Policy at Yapily, thinks open banking has been a hallmark of the year.
“2021 was an exciting year for open banking. In the UK alone, adoption reached 4 million consumers and in Europe, the market increased from 12.2 million to 18.8 million.
“The implementation of VRP for sweeping was a significant milestone in the open banking journey and paves the way towards improving the financial health of consumers in the UK. As an ecosystem, we’re only at the beginning, but this is an encouraging first step for creating better financial wellbeing for everyone and it’s exciting to see where the next few years will take us.
“Looking ahead, the number of open banking adopters is set to increase. Covid made it abundantly clear that SMEs need real-time insight into their financial position to forecast cash flow and consumers need greater oversight of their personal finances to stay in good financial shape. It’s predicted that 71% of SMEs along with 64% of adults are expected to be open banking adopters by 2022, and by 2024 users worldwide will reach 63.8 million. But this is only the beginning. The true opportunity is open finance which we’ll slowly but surely see unfold next year.
“I predict regulators will work more closely with national governments to come to a consolidated approach to implement open finance, so the ecosystem can deliver and capitalise on the opportunities it can bring. The CMA is also set to publish an update on the future framework for open finance at the start of the year. Hopefully, we will start to see more and more third-party providers educate consumers and businesses on the benefits it can bring and help abolish misconceptions behind too much data sharing.
“And we’ll see this unfold globally. Joe Biden’s 2021 ‘Executive Order’ to push for a healthy and successful open banking and open finance ecosystem, is a clear example of the industry moving in the right direction.
“We’re also going to see an explosion of new payment use cases in 2022. New players are coming to the market at speed and competition is fierce. Europe must move fast and push forward quickly with initiatives, like the European Payments Initiative and the proposed digital wallet, to stay ahead of the game.
“The use of open banking in lending decisions is another trend to watch out for next year. New lending providers are taking the industry by storm using the initiative to better their services – take BNPL where more than 17 million people have now used the service. Ease of access to credit means more affordability and creditworthiness checks which can be done seamlessly.
“UK banks and building societies are also being urged by the FCA to alter lending criteria to help thousands of borrowers, who are currently unable to move homes to benefit from cheaper loans. Open banking accelerates application processes, giving lenders the ability to gather more accurate data to inform decisions at a much faster pace.”
Gary Allinson, Product GTM Lead, Cashflows said: “The first major fintech trend this year was the rise in cross border e-commerce.”
He continued: “The pandemic created an unprecedented increase in the consumer shift towards online shopping with its revenue expected to reach £124 billion in 2021 alone.
“For retailers looking to expand across borders, previous barriers such as currency conversion challenges and individual market nuances are becoming less of an issue due to innovation within the fintech space. The ability of fintechs today in enabling real-time international payments is gearing the industry towards further global e-commerce innovation, with cross border sales expected to account for 22% of all online transactions in 2022.
“Another trend that we witnessed was Banking-as-a-Service. BaaS models enable fintechs to deliver cutting-edge digital banking services quickly, in line with industry needs. For example, licensed banks in a collaborative space can provide access to their infrastructure with application program interfaces (APIs). In this situation, neobanks are able to offer a full range of BaaS models in markets where traditional banks are not able to operate without a partnership.
“Banking-as-a-Service is an example of how banks and fintechs are partnering to bring innovative solutions to the market. Through collaboration, they are providing an integrated service that works more efficiently than individual offerings.”
On the future, he said: “With interest in cryptocurrencies from consumers, businesses and governments gaining momentum in 2021, many financial institutions are looking for ways to provide crypto-based services for their customers in the year ahead.
“Stablecoins, for example, are tentatively emerging as an innovative payment technology that combines the stability of fiat currencies with the benefits of public blockchain networks. As digital currencies gain popularity, the payments industry will see crypto platforms becoming increasingly integrated into legacy payment platforms. This is particularly true as household brands like Visa or Mastercard begin to legitimise
cryptocurrencies as viable tenders.
“Another trend will be the emergence of B2B BNPL. As seen in the B2C BNPL model, instalment-based payments within the B2B space will provide a resolution to a lack of funds from both the buyer and the seller. B2B BNPL will allow merchants to purchase goods and services effectively on margin, while still providing the seller with full payments. This is because the BNPL provider assumes responsibility over the customer’s default risk.
“B2B BNPL will make significant progress in 2022 by giving both buyers and sellers an advantage. Businesses purchasing using BNPL can use their available funds to buy goods or services that are needed to grow their business and increase revenue.”
This article is part of our 2021 December series, View from the Top, to see others like it and our special edition from December 2020, please click here.