Future Forecast: What’s next for fintech?

Analysts earmarked 2021 as the year of transition for payments. Companies across various sectors sought stability and growth in a post-lockdown world, as they overcame the challenges they faced with the speed of digital transformation catalyzed by COVID-19 the previous year.

The payment sector was not immune to challenges either. Although fintech is one of the largest funded categories of technology globally, receiving $98 billion in investment in the first half of 2021 alone, and representing 18% of all capital invested in 2021, exponential growth and demand from consumers and retailers alike caused many hurdles.

From the growth of newer payment methods, such as Buy Now Pay Later (BNPL), leading to increased crackdown from regulators worldwide, to mass skill shortages within the fintech sector as it seeks to meet both existing demand and continued innovation, it begs the question of what might come in 2022.

If 2021 was the year of transition and stabilization, could 2022 be the year of acceleration? Here are five predictions for the year ahead.

1.The rise of tokenization

Data security will continue to be a struggle for the payments and fintech industries. As a result, we’ll see the further rise of tokenization and tokens to replace sensitive data with a non-sensitive digital equivalent to keep consumer data secure.

Companies like Visa, Mastercard and Amex will continue to utilize tokenization as a means to protect credit card information. There are also rumors of interchange rate savings for banks, but there could be savings for those who start to use Visa and Mastercards network tokenization products.

However, it won’t be a one size fits all proposition. Payment orchestration platforms (POPs) that allow for tokenization and are PCI compliant will be crucial. Retailers and merchants will use these platforms to circumvent having to tokenize through just one payment service provider. Instead, they will opt for payment orchestration platforms that allow them to tokenize in many different places and provide a better user experience.

2. Open Banking will accelerate in 2022

Interchange rates will increase in 2022. As a result, merchants will face higher costs to accept credit card payments. We’re already seeing interchange rates affect the fintech and payments industry with news of fee increases being scrutinized by the UK government’s Treasury Select Committee which found “no evidence to justify the rises.”

Before, with Open Banking, there was a problem with the user experience, but now the technology and companies offering it have caught up. Payment orchestration platforms have also made it easy to implement and provide open banking options at checkout, so merchants have a strong reason to offer it as a payment option.

To that end, Open Banking will continue to be a hot topic in the year ahead. And, for merchants, it will be more lucrative with no chargebacks while allowing customers to pay directly from a bank account. Open Banking will serve a whole population of underserved customers who may not have access to a credit card. And when combined with payment orchestration, it will provide a better retail checkout experience.

3. Cloud-native solutions will help retailers stay competitive

Digitalization or moving to the Cloud has accelerated during COVID-19, driven not only by the considerable growth in online shopping but also by the ability of in-house teams to run infrastructure when working from home.

This shift toward cloud-hosted solutions and headless commerce will continue its momentum. When coupled with the massive skills gap developing due to the lack of cloud engineers, you see the increasing need for no-code solutions that are cloud-native.

2022 will be the year of headless commerce backed by no/low code backends that will allow today’s retailers to scale and innovate at the speed they need to in order to remain competitive.

4. Alternative payment methods will gain prominence in 2022

Mastercard research showed 93% of consumers internationally are considering using at least one emerging payment method, such as cryptocurrency, biometrics, or QR code in the next year, leading to merchants taking increased consideration of the payment methods being offered at the checkout. 2022 will be the year bank-to-bank payments, wallets and other payment types rise to prominence. Credit cards’ share of checkout will continue to decline at an accelerating pace driven by increases in interchange rates, as well as consumer preference with millennial and Gen Z consumers. 

5. Payments are getting more complicated – it’s time retailers take note

A big trend in 2022 will be around embedded banking or embedded finance. For example, being able to embed credit card applications and creating checking accounts within other third-party apps.

Consumers, however, are expecting more, and the landscape is becoming increasingly complex. It used to be the case that merchants could offer just one or two payment methods at checkout, such as credit card payments. With the rise of automated clearing house (ACH) payments, wallets, Buy Now Pay Later, and more, customers are demanding alternative ways to pay and greater flexibility.

Retailers will need to shift in 2022 and offer various payment options and experiences at checkout. As a solution, I expect we’ll see payment orchestration take center stage with retailers adopting payment orchestration platforms that are no-to-low low code to add new payment methods quickly. Alternatively, merchants will be able to utilize the ability to offer greater payment options at checkout as a marketing tool while also increasing customer loyalty by delivering customers the payment options they desire.

6. Buy Now Pay Later isn’t going anywhere but differentiation will be key

Buy Now Pay Later will continue to be an ongoing topic in 2022. However, I anticipate seeing more consolidation in the space and BNPL companies moving towards their next trick.

Companies that started as a BNPL company will look to expand and differentiate themselves, possibly becoming a banking platform or a marketing platform. To further differentiate, we’ll see BNPL providers also come in with new and different models.

For retailers, that means observing these companies carefully, as tribalism is a trend amongst consumers, with many only using one BNPL provider. Retailers will need to utilize payment orchestration and platforms to not lock themselves into working with one provider but instead utilize one platform to gain access to a variety of payment options regardless of the provider.

If the past two years have taught us anything, it’s to expect the unexpected and to adapt quickly. But one thing is for certain, and that’s innovation. We can look forward to the expansion of infrastructural changes, such as Open Banking, and the benefits that will bring to the sector, as well as new and exciting opportunities in payments for merchants and consumers.