Six major trends for the European financial sector 2022
End of the year, thoughts of Sunday … purely my story, of course …
2022 promises to be an exciting and deeply unpredictable year for the European financial sector. SEPA urgently needs to turn ambition into more results next year, while the meteoric rise in crypto and Buy Now Pay Later (PNPL) will continue to cause headaches for lawmakers and regulators. On top of that, new EU whistleblower regulations are coming into force that could become a Pandora’s Box for European fintech. I fear there may be a tidal wave of fraud stories similar to the Wirecard 2020 scandal in 2022, albeit a worst-case scenario.
The past 24 months have proven the folly of making predictions, but it’s still important to look ahead to any trends we expect, want or fear may materialize over the next 12 months. Based on my 20+ years of experience in the financial technology / payments industry, here are the top six that I will be following in 2022.
1. SEPA is finally delivering results
I am extremely excited about the long term outlook for SEPA and its various new payment schemes and flows. 2022 promises to be a pivotal year in its development, and will tell us a lot about its long-term prospects.
SEPA is a solid basis for a European payments 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 small feat, but it will ultimately provide a better user experience as well as many unique business opportunities.
SEPA is a very ambitious project, but they have yet to translate this ambition into results.
At present, there is not enough commercial impact on most promising initiatives like SEPA Instant Credit Transfers or SEPA Mobile. In 2022, SEPA is expected to experience a big shift in market adoption and key stakeholders are expected to push customers to adopt SEPA services. Otherwise, it could slowly fade away by 2023.
2. The year of the fintech alert
Make no mistake, the deadline for the European Whistleblower Directive is a stocktaking day for the financial services industry. There is hardly any time to prepare for an almighty compliance challenge and existential threat to businesses that have been sailing too close to the wind for years. Starting in December, employees, customers and suppliers will be emboldened and protected by law to speak out. Any activity hinting at money laundering, fraud and non-compliance will be reported at an all-time high. This is particularly relevant for young fintechs across Europe with a great appetite for risk, whose entire business model revolves around prioritizing market share over regulatory compliance.
The directive is comparable to 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 of GDPR and business preparations. One area to watch will be where traditional financial firms intersect with cowboy tech firms. Faced with increased risk and heavy fines, big retail banks are sure to review the less tasty companies and FS partners in their portfolio, especially when it comes to branch banking.
3. Card payments are fading
In 2022, (direct) card payments will continue to lose their relevance. Considering all that can be done on a smartphone, carrying little bits of plastic that do pretty much the same thing is starting to seem anachronistic. Just as smartphones have sounded the death knell for cameras, dictation devices and landlines, the end of card payments is looming.
Open banking has made it easier to do 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. It is not the valuable asset. The payment information that exists on cards today doesn’t have to be on its own, and it only has been because plastic is fantastic… to keep the status quo going and make more money. Anyone remember the “metal cards”?
It is not just consumers who will use online cards 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 plastic prisons will have greater opportunities over the next decade. It is a major source of frustration that the rules of the card system are so opaque. It is extremely difficult for payment companies to stay in compliance if their focus is on cards, as it is increasingly difficult to align new market opportunities with the rules of card schemes. 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 weak 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, as they were designed and envisioned for this century.
4. Integrated finance tries to simplify
I think the financial industry has struggled to grasp the concept of integrated finance since it was invented. It’s not about complexity or turnkey vendors piling up 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 cliché to say now, but Uber remains the ultimate user experience. People pay without ever touching their wallet, phone, or entering payment information (other than that one-time registration, 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 transparent and functional, and the important thing isn’t integrations, widgets, and building blocks. True integrated finance means never seeing behind the curtain.
The companies that provide integrated finance and offer this experience will be the top performing organizations not just in 2022, but for the decade to come.
5. Regulators Tackle Dangers of BNPL
Buy Now Paying later is an incredibly dangerous payment trend. It is an uncontrolled madness that creates very unhealthy customer behavior and leads people into financial distress. I think it’s irresponsible when it comes to financial education for teens and young adults, who are being told more and more that they can buy things that they can’t really afford. I expect these products to continue to grow massively in the first half of 2022, but I wouldn’t be surprised to see them decommissioned in the second half, in the same way that payday loan companies like Wonga have done. ‘under scrutiny after initial success.
The simple fact is, we can’t treat credit like a payment service. BNPL brands are loan products and should be regulated as loan products. I accept merchants who give credit to their customers on the basis of hard facts, but not payment products, regardless of the customer and what they buy.
6. Cryptocurrencies, NFTs, CBDCs, and DeFi will all grow
Crypto will be fundamental to create a dynamic of value 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 have value and represent a customer’s activity, success and engagement within certain ecosystems. Crypto is becoming a placeholder for loyalty points, with greater value due to its interconnection and ability to be used in different ecosystems. Complementary currency that people can earn, take with them, and use in many (and a growing number) of online ecosystems.
NFT in games will be one to watch in 2022. There are huge business opportunities for real money games and video games, as well as a cross form created by the use of NFTs. Game models for winning will be an important topic for regulators, innovators, consumer 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 the announcement by India to issue the only locally allowed cryptocurrency, similar to th -Yuan.
There is no doubt that 2022 will have its surprises. Not all of the predictions I made will come true as I wrote above, but I expect the fintech industry to change and advance dramatically over the next 12 months.