The new wave of FinTech solutions driven by the COVID shutdown had boosted all digital finance models. In 2022, the FinTech movement is expected to be even more advanced and widespread, as banking firms evolve and mature to fit the next phase of growth — FinTech 3.0.
So what are the key trends that will continue to dominate in the FinTech 2.0 movement in 2022? To answer this question, we talked to banking and financial software developers working for Emerline, a software development company with rich expertise in the banking & finance industry.
Trend #1:Embedded Finance (EF)
What is embedded finance? It’s when financial solutions are applied to non-financial activities and services. The broad concept of EF is now well understood by most market participants. Financial services are gaining momentum in all areas of customer’s life and are increasingly distributed by non-financial companies like Amazon, Apple, and Google.
The brightest example of EF is represented by payments embedded in ride-sharing and other non-financial activities. So why are ride-sharing companies like Uber, e-commerce companies like Shopify, and other types of world market players incorporate payments into their service offerings? Here are two major reasons for that:
- It allows them to offer customers a seamless UX/UX that greatly improves customer satisfaction and increases loyalty.
- It gives them an opportunity to earn a profit.
While embedding of financial services into non-financial services may have started in payments, it is rapidly happening in lending, insurance, and other major areas of finance.
Trend #2: Social Finance and Multiplayer Finance Models
Historically, most financial services have been offered to customers as a single, standalone transaction. For example, you make a payment, get a loan, make an investment. It is, so to say, a pure transaction, which has no interactive element or emotional aspect. But a major change is now taking place, and it is called Social Finance.
Modern Fintech companies and non-financial service providers are appealing to people’s emotions and tapping into their feelings while they make financial decisions. By evoking people’s emotions about money and finance, companies can more easily acquire and retain customers, as well as drive them to more transactions.
The magic of Social Finance happens when firms combine the interactive or social elements with the transactional elements, in this way creating a powerful effect that drives more transactions and improves customer retention.
The best examples of that are fintech companies like eToro, which is bringing together communities of people who interact with each other and use the combined power of their knowledge, experience, and judgment to make trading decisions. It’s known as Social Trading — an area where people openly discuss trading strategies, share their stories about their wins and losses, all of which evokes emotion and drives activity on the platform. It also creates brand loyalty.
Other examples of Social Finance include firms like Early Bird, which is an app that lets families and friends gift investments to their children.
Trend #3:Cyber Security and Risk Threats
2020 highlighted the critical importance of cybersecurity, identity management, and privacy — all issues associated with the COVID shutdown and the rapid growth of digital threats. And these areas continued to be hot in 2021 and will be among the major Fintech 2.0 issues to address in 2022.
An important aspect to mention here is that modern-day fintech companies face much higher risks and costs to ensure cybersecurity and identity management, and the combined cost of these issues can break their banks.
This issue came into sharp focus during the COVID pandemic when the lifestyle of people changed so dramatically that it had led to the explosion of cybersecurity and identity failures.
Some firms responded with the most conservative approach, by denying a payment transaction in case of the slightest risk. But when the transaction is defined as ‘False Positive’, for a company this means a lost sale or greater friction in transactions that harm the customer experience. So there is a challenge to tackle such cybersecurity problems with advanced fintech solutions, and in 2022, the sharp focus of Emerline and its Research and Development team that deals with innovations will be on addressing this very issue.