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At the end of 2020, the global fintech sector was worth an impressive $110.57 billion. Analysts predicted that this would grow at a compound annual growth rate of around 20.3% between then and 2030, reaching $698.48 billion by the end of the decade. As a sector, fintech comprises applications, computer programs, and other forms of digital technology that are used to facilitate or support financial services. This includes online banking apps, digital payment apps, and companies working with digital currencies. The sector is constantly growing and evolving as new technologies come along to disrupt the status quo. For example, crypto and blockchain have significantly altered the industry, as have other technologies like AI, big data, and biometrics. But what are the key trends for 2022? Four months into the year, we can now look ahead to see which technologies will be dominating the sector now and well into 2023.
Increased mobile payments
At least two billion people worldwide use mobile payments regularly, a number that is increasing steadily in areas such as the entertainment industry. Millions more start using mobile-based payments every year – the sector is growing fast in Southeast Asia and South America, for instance, which are two incredibly populous regions. This growth has been fueled by increased accessibility to affordable smartphones, free WiFI, low-cost internet connections, and a tech-savvy population. Now, many are looking at mobile payments as a better way to pay than physical cards or cash. For example, payments via QR code, sending payments app-to-app, or using payment links are just some ways today’s population is settling their bills.
However, this development is not without its issues. For example, the rise in mobile payments has led to concerns about money laundering and how to prevent it. When payments were predominantly face-to-face and required a pin or signature, it was easier to determine if a transaction was authentic. But via mobile, it can be more challenging as pins, signatures, or even seeing the person is no longer necessarily part of the process. For those working in financial or fintech institutions, understanding how money laundering happens and how to prevent it is essential, which is where resources like SEON’s tips for AML in banking come in, alongside formal training. Staying on top of the risks of money laundering is essential because failing to control money laundering can lead to significant compliance fines, which can also damage your company’s reputation.
Digital wallets
Also known as an electronic wallet or eWallet, a digital wallet is an app you have on your mobile, tablet, or computer. It allows you to store all your payment information and passwords in one place, linking all your accounts. Beforehand, you need to input all your card and account information, including name, card number, expiry, and security code. Then, you simply use the digital wallet to make the purchase and select which payment method you prefer. This means that when it comes to making payments, you do not need your card to hand. This information is stored securely where only you can access it. Common authentication includes a fingerprint or a PIN, particularly with mobile devices. At the end of 2020, there were at least 2.8 billion mobile wallets in use, with a prediction this will surpass 4.8 billion by the end of 2025.
This demonstrates that digital wallets are here to stay and are an essential bit of fintech you need to get to grips with in 2022 and beyond. Currently, PayPal is the number one digital wallet, followed by Amazon pay and VisaCheckout.
Central bank digital currencies
A central bank digital currency is a digital coin that is pegged to a fiat currency and issued by a national bank. Several countries around the world have already taken the plunge and are offering digital currencies, while others are in progress. They have been developed because while some people are still skeptical of cryptocurrency, they recognize the value of digital currency as people increasingly prefer to transact digitally, using eWallets and online accounts. Another bonus of using digital currencies is saving governments a fortune in printing and issuing physical money. For example, a $5 note costs 10.8 cents to create, rising to 14 cents for a $100 bill. When you consider over 50 billion notes in circulation in the US, you begin to see how the cost mounts up. Countries with already launched CBDCs include The Bahamas, several Caribbean countries, and Nigeria, with the UK, US, China, and many others currently exploring the possibility.
Buy-now-pay-later
Buy-now-pay-later (BNPL) is a type of short-term financing where customers can purchase items and pay the bulk of the cost at a later date or pay the cost in smaller increments. Typically, they make a small up-front payment and then pay off chunks periodically over a set time. These can also be called ‘point of sale installment loans’, but BNPL rolls off the tongue a little easier. This type of payment has increased in popularity significantly over the last few years, driven by a number of savvy fintech startups. One of the biggest BNPL companies in Europe is Klarna. Launched in 2005, the company has gone on to amass a value of more than $45.6 billion, handling millions of transactions in the region and beyond.
While it initially served the EU market, Klarna now offers services in the US and has even created its own credit card. This is just one of the many operators in the sector who are reaping the benefits of the popularity of BNPL. This is a growing sector with lots of potential, and it remains highly regulated, mainly due to fears of consumers getting themselves into significant debt. Concerns have also been raised over instances where BNPL companies have been used in incidents of identity theft and fraud, necessitating more stringent controls.
Of course, we never really know what new technology is around the corner. It could be we are in for a surprise and the rest of 2022, could be dominated by something we had, previously, not thought possible. Stay tuned.