Fintech Trends 2022: Banking, Crypto, and Accounting Transformed
The fintech boom shows no sign of slowing. In 2021, EMEA investment in fintech companies hit nearly $77 billion, almost half of which ($37.3 billion) was spent in the UK, proving the nation’s reputation as a financial hub has not been dented by its exit from the EU. By 2030, fintech is expected to contribute $16.8 billion to the UK’s GVA, 70% of which will come from job creation.
Clearly, the fintech industry is thriving, but what’s next for the sector and the people who use its services? We took a look at the three top fintech trends of 2022 to see where the sector’s impact is being felt the most and the opportunities it has opened up for financial innovators, investors, and professionals.
Fintech trend one: challenger banks punch above their weight
While the Covid-19 pandemic increased demand for online banking services, the trend towards digitisation was already advancing apace: UK use of online banking increased by 36% between 2011 and 2021 — taking overall adoption to 86% of UK adults.
The recent uptick in internet banking, however, has further accelerated the need for traditional banks to extend their services to websites and apps, as well as leading to an entirely new type of company that allows users to open a current account and access various financial products with no need for a physical branch: challenger banks.
Also known as virtual banks, challengers such as Revolut and Monzo burst onto the UK financial services scene as fintech startups; differentiating themselves with slick mobile banking apps, simple bill splitting, and fee-free international currency exchanges. This app-focused experience has particularly appealed to younger customers, with 18 to 34-year-olds making up 64% of Monzo’s clientele and 48% of Revolut’s.
By January 2022, over a quarter (27%) of adults in the UK had opened a virtual bank account, a threefold increase over 2019 (9%), showing phenomenal growth for the sector. Uptake was strongest amongst Gen-Z and millennials, both at 41%.
While the percentage share of banking assets held by virtual banking companies has not yet risen above the decimal point, their rapid growth has attracted enthusiastic global investors, who have raised their market valuations into the multi-billions. In Brazil, for instance, market capitalisation for virtual bank Nubank exceeded that of Banco Santander S.A. (the country’s largest traditional bank), while Revolut’s market cap reached a quarter of HSBC’s; an impressive feat given the David and Goliath-size difference between them.
But traditional banks are not just sitting back and allowing challenger banks to take an ever-greater slice of the financial services pie. The recent partnership between Lloyds and loyalty fintech Bink, which allows the collection and use of loyalty points directly from the Lloyds smartphone app, is just one example of traditional banking utilising fintech to provide value to customers and stand out in today’s fiercely competitive fintech market.
Virtual banks — licensed or not — hold just 0.4% of all global banking assets, demonstrating both how much room there is for the sector to grow and the colossal scale of their competitors in traditional banking. This new class of banking has far from peaked and has a mountain to climb before its stature matches long-established financial institutions. But climb it shall, thanks to growth hungry investors and tech-savvy customers who are happy to help push it upwards.
Fintech trend two: regulation will boost crypto trust
Challenger banks aren’t the only fintech startups drawing investor attention. In the first two months of 2022 alone, European cryptocurrency and blockchain technology startups secured $492 million in funding (1.5 times the entirety of 2021’s first quarter performance), while many venture capital firms — never ones to be left out of a growth opportunity — have launched specialist crypto funds.
Although cryptocurrency and blockchain startups have had no problem exciting investors, public trust and awareness must be raised significantly if crypto is to expand beyond eager early adopters. In the UK, almost three-quarters (74%) of all adults “don’t really understand cryptocurrency” and 70% of 18–24 year olds — the most crypto-aware demographic — felt the same.
Crypto startups face less of a challenge in emerging markets. In India, Mexico and Indonesia, for example, cryptocurrency’s USPs are much more valuable due to vulnerable central banks, inefficient payment services, and expensive cross border payments. On top of this, the significant number of people who do not hold a bank account and the fact that the younger, more tech-savvy population in emerging markets are more open to investing in digital assets have helped drive crypto adoption.
On the other end of the spectrum, the IMF has found interest in crypto falls in markets where there is already widespread and simple access to traditional financial services. However, incoming cryptocurrency regulations in the EU and the UK should help to legitimise digital currencies in these territories and overcome the trust barrier it currently faces.
In a regulated market, crypto and blockchain companies will be able to tap into the burgeoning political and financial support for digital currencies — currently being undermined by headline-grabbing scams — with the potential to gain strong ground among younger audiences. Globally, trust in cryptocurrencies peaks at 28% amongst Gen-Z, suggesting digital first-generations are already positively inclined towards the conveniences of crypto.
Fintech trend three: a fulfilling future for finance professionals
Fintech innovation has also fundamentally transformed the overlapping fields of accountancy, bookkeeping, and spend management. Data clouds and machine learning now allow for unfathomable quantities of data to be processed in seconds, without human error and all the risks that come with it.
As a result of its value for companies of all sizes, from sole traders to SMEs to multinational corporations, the accountancy software market is vast, valued at $12.1 billion and expected to grow to $19.6 billion by 2026. In the UK, the gradual rollout of Making Tax Digital — which is introducing mandatory digital accounting records — is both a reaction and incentivisation to adopt cloud-based technology, simplifying and standardising processes for both businesses and HMRC.
Major players in enterprise software include Sage (the second largest technology company in the UK) and New Zealand-based Xero but there is still plenty of space in the market for fintech startups to rise and thrive.
Reading-based fintech startup Clarity integrates with Sage and Xero to provide accountants, bookkeepers, and advisers with tools to measure their clients’ current and potential standing, as well as structured, actionable financial advice. On the expenses side, spend management software and French fintech unicorn Spendesk utilises an ‘e-wallet’ system that allows companies to load money, distribute company credit cards, set limits, and track spending.
While graphs pointing upwards are exciting, the most significant impact fintech has had on financial professionals is cultural and will be felt for years to come. By automating time consuming processes such as data entry and audits, finance workers have shifted towards more qualitative roles; providing consultation and strategy for company growth rather than simply doing the books. It will be fascinating to see what new roles and responsibilities will emerge from this newly empowered generation of finance professionals.
Across banking, crypto, and professional services, the fintech trends of 2022 show multiple areas of fast development, sparking enthusiasm among customers, innovators, and investors. Financial technology’s ground is fertile for established companies to grow and for market entrants to bloom into fresh new trailblazers.