Six major trends for 2022 in the European financial sector
Some end of the year, Sunday thoughts… purely my story, of course…
2022 promises to be an exciting and deeply unpredictable year for the European financial sector. SEPA must urgently turn ambition into more results next year, while the meteoric rise of crypto and Buy Now Pay Later (PNPL) will continue to cause headaches for lawmakers and regulators. On top of that, new European whistleblower regulations are coming into effect and could be a pandora’s box for European fintech. I fear there could be a tidal wave of fraud stories similar to the Wirecard scandal of 2020 in 2022, although this is the absolute worst-case scenario.
The last 24 months have proven that it is foolish to make predictions, but it is always important to anticipate the trends that we expect, want or fear to materialize over the next 12 months. Based on my 20+ years of experience in the fintech and payments industry, here are the top six I’ll be following in 2022.
1. SEPA is finally delivering results
I am extremely excited about the long-term prospects of SEPA and its various new payment schemes and flows. 2022 promises to be a crucial year in its development, and will tell us a lot about its long-term prospects.
SEPA is a solid foundation for a European payment strategy, which aims to unite the payment systems, cultures and regulations of an extremely complex and diverse continent. Bringing it all together for faster and more secure payments across Europe is no easy task, but it will ultimately deliver a better user experience as well as many unique business opportunities.
SEPA is a very ambitious project, but they still have to turn this ambition into results.
Currently, there is not enough commercial impact on most promising initiatives such as SEPA instant transfers or mobile SEPA. In 2022, SEPA should see a big shift in market adoption, and for key stakeholders to drive customers to adopt SEPA services. Otherwise, it could slowly fade by 2023.
2. The year of fintech whistleblowers
Make no mistake, the EU Whistleblower Directive deadline represents a judgment day for the financial services industry. There is little time to prepare for an almighty compliance challenge and an existential threat to companies that have sailed too close to the wind for years. Starting in December, employees, customers and suppliers will be emboldened and legally protected to speak up. Any activity hinting at money laundering, fraud and non-compliance will be reported at a record pace. This is particularly relevant for young fintechs across Europe with high risk appetites, whose entire business model revolves around prioritizing market share over regulatory compliance.
The directive is comparable to the GDPR in terms of the threat it poses to businesses and the benefits it brings to citizens, but it has received only a fraction of the attention and commercial preparations of the GDPR. One area to watch will be the intersection of traditional financial companies and cowboy fintech companies. Faced with increased risk and hefty fines, major retail banks are sure to review less desirable companies and FS partners in their portfolio, especially when it comes to agency banking.
3. Card payments are fading
In 2022, (direct) card payments will continue to lose relevance. Given how much can be done on a smartphone, carrying around little bits of plastic that do pretty much the same thing is starting to seem anachronistic. Just as smartphones put an end to cameras, dictaphones and landline phones, the end of card payments is in sight.
Open banking has facilitated direct account-to-account transactions without ever entering card details, while people are also starting to get used to other form factors beyond mobile, such as voice payments and QR. A card is only a proxy for an underlying account. This is not the valuable asset. The payment information that exists on cards today doesn’t need to be there alone, and that’s only been the case because plastic is fantastic…to keep the status quo going and make more money . Does anyone remember “metal cards”?
It’s not just consumers who will use online maps less and less. Retailers and payment companies are in exactly the same situation. New payment systems don’t require the old card system rails, and businesses that operate outside of the plastic jail will have greater opportunities over the next decade. It’s a major source of frustration that the rules of the card system are so opaque. It is extremely difficult for payment companies to stay compliant if they focus on cards, as it is increasingly difficult to bring new market opportunities into line with card scheme rules. Visa and Mastercard have accumulated too much power over all these many years.
I also see the cards slowly declining because they are still incredibly open to fraud. This has always been their biggest pain point over the past 50 years, but until now payment companies and retailers have had no realistic alternatives. Now, other forms of payment can add much more robust customer authentication controls because they were designed and considered for this century.
4. Integrated finance attempts to simplify
I believe the finance industry has struggled to get to grips with the concept of integrated finance since it was first coined. It’s not about complexity or turnkey vendors piling on as many financial solutions as possible. From 2022, I expect this to be rectified and integrated finance to be more aligned with simplicity.
Integrated finance must be 100% customer-centric. It’s a cliché to say it now, but Uber is still the ultimate user experience. People pay without ever touching their wallet, phone, or entering payment details (besides that one-time signup, of course). Other industries have struggled to recreate this customer journey due to strict customer authentication rules, but Uber has shown everyone how to do it right. Payments can be seamless and functional, and it’s not about integrations, widgets and building blocks. True integrated finance means never seeing behind the curtain.
Companies that offer integrated financial services and provide this experience will be the top performing organizations not just in 2022, but for the entire decade to come.
5. Regulators tackle BNPL dangers
Buy Now Pay Later is an incredibly dangerous payment trend. It is an uncontrolled madness that creates very unhealthy customer behavior and puts people in financial distress. I think that’s irresponsible when it comes to the financial education of teenagers and young adults, who are increasingly being told that they can buy things they can’t really afford. I expect to see these products continue to grow massively in the first half of 2022, but I wouldn’t be surprised to see them disarmed in the second half – the same way payday loan companies like Wonga have been doing l subject to scrutiny after the initial success.
The simple fact is that we cannot treat credit as a payment service. BNPL marks are lending products and should be regulated as lending products. I accept that merchants give credit to their customers based on hard facts, but not the payment products that do, regardless of who the customer is and what they are buying.
6. Cryptocurrencies, NFT, CBDC, DeFi will all grow
Crypto will be fundamental to create value dynamics within certain ecosystems such as games, the metaverse, social communities or markets. Looking back 15 years, we had Linden-Dollars in Second Life or “gold” in countless MMOPRGs. Today, closed-loop mono-ecosystem currency can be replaced by DeFi and interoperable/exchangeable tokens that carry value and represent a customer’s activity, success, and engagement within certain ecosystems. Crypto arrives as a placeholder for loyalty points, with greater value due to its interconnectedness and ability to be used in different ecosystems. A complementary currency that people can earn, take with them, and use in many (and growing) online ecosystems.
NFT in gaming will be one to watch in 2022. There are huge business opportunities for real money and video games, as well as a crossover form created by the use of NFTs. Game-to-win models will be a hot topic for regulators, innovators, consumer protection groups, and lawyers.
2022 will see a substantial increase in government-backed initiatives in the DeFI, CBDC, DL-Tech space. We are starting to see the introduction of government issued cryptocurrency (CBDC) including the digital EURO or India’s announcement to issue the only locally authorized cryptocurrency similar to e -Yuan.
There is no doubt that 2022 will have its surprises. Not all of the predictions I made will come to fruition as I wrote above, but I expect the fintech industry to change and progress drastically over the next 12 months.